<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CRUEL WORLD, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE* 7361 77-0430867
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
</TABLE>
3500 W. BAYSHORE ROAD
PALO ALTO, CALIFORNIA 94303
(650) 847-3500
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
--------------------------
JEFFREY HYMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CRUEL WORLD, INC.
3500 W. BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 847-3500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY D. SAPER, ESQ. PETER LEPARULO, ESQ.
KURT J. BERNEY, ESQ. REBECCA BOWMAN, ESQ.
Wilson Sonsini Goodrich & Rosati Orrick, Herrington & Sutcliffe LLP
Professional Corporation 777 South Figueroa, Suite 3200
650 Page Mill Road Los Angeles, CA 90017
Palo Alto, CA 94304 (213) 629-2020
(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 to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, $0.001 par value per share.................... $57,500,000 $15,180
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* CAREER CENTRAL CORPORATION IS CURRENTLY A CALIFORNIA CORPORATION. PRIOR TO THE
COMPLETION OF THE OFFERING, CAREER CENTRAL CORPORATION WILL BE MERGED WITH AND
INTO ITS WHOLLY OWNED DELAWARE SUBSIDIARY, CRUEL WORLD, INC.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 10, 2000
PROSPECTUS
- ----------------------------------------------------------------------
[LOGO OF CRUEL WORLD, INC.]
Shares
Common Stock
- --------------------------------------------------------------------------------
This is an initial public offering of shares of common stock of Cruel
World, Inc. We are offering shares in this offering. No public market
currently exists for our common stock. We anticipate that the initial public
offering price will be between $ and $ per share.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "CRLW."
- --------------------------------------------------------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- -----------
<S> <C> <C>
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds to us $ $
</TABLE>
The underwriters have an option to purchase up to additional
shares of common stock from us at the initial public offering price, less
underwriting discounts and commissions, to cover any over-allotments of shares
at any time until 30 days after the date of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
THOMAS WEISEL PARTNERS LLC
CIBC WORLD MARKETS
PAINEWEBBER INCORPORATED
The date of this prospectus is , 2000
<PAGE>
[INSIDE FRONT COVER ARTWORK]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 8
Special Note 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
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Business.............................. 31
Management............................ 42
Related Party Transactions............ 53
Principal Stockholders................ 56
Description of Capital Stock.......... 59
Shares Eligible for Future Sale....... 62
Underwriting.......................... 64
Legal Matters......................... 67
Experts............................... 67
Where You Can Find More Information... 67
Index to Financial Statements......... F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information 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. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of the common stock.
3
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR FINANCIAL STATEMENTS AND ACCOMPANYING NOTES APPEARING ELSEWHERE
IN THIS PROSPECTUS. IN THIS PROSPECTUS, UNLESS THE CONTEXT INDICATES OTHERWISE,
"CRUEL WORLD," "WE," "US" AND "OUR" REFER TO CRUEL WORLD, INC. AND ITS
PREDECESSOR CAREER CENTRAL CORPORATION.
OUR COMPANY
We are a leading Internet-based recruiting service that uses database and
email marketing techniques to rapidly and cost-effectively match our clients'
career opportunities with qualified and interested candidates from our large
membership of professionals. Our proprietary JobCast-Registered Trademark-
technology matches candidates with each career opportunity and contacts a
targeted group of potentially interested members using permission-based email.
Within five business days, we begin delivering to our clients a pre-specified
number of candidate resumes, providing a compelling recruiting solution compared
to Internet job boards and traditional executive search firms. Our service is
free for our members and is also designed to protect the confidentiality of our
members and clients. As of March 31, 2000, we had over 200,000 registered member
profiles, organized into seven vertical categories in which members share common
characteristics, such as a particular degree or industry expertise. We have
conducted search transactions for approximately 1,000 clients, including Charles
Schwab & Co., Chemdex, eBay and Gateway.
Our solution provides numerous benefits to our members:
- The ease and convenience of our service, which is specifically designed
for passive job seekers. Most of our members are passive job seekers,
which we define as individuals who are employed, open to exploring
alternative career opportunities, but not actively seeking a new job;
- Highly targeted career opportunities that match members' qualifications
and indicated areas of interest. Relevant opportunities are delivered via
email and allow our members to minimize the time spent sifting through
inappropriate and unwanted job listings; and
- Confidentiality features that provide potential employers with a member's
resume only after the member responds affirmatively to the career
opportunity presented in an email message.
Clients using our service receive an efficient recruiting solution,
including the following benefits:
- Access to our large and desirable database of member profiles, comprised
mainly of passive job seekers. Our typical member is a mid-level
professional with over seven years of work experience and an annual income
of over $70,000. In addition, over 50% of our profiled members hold
graduate degrees;
- Qualified and interested candidates with minimal client effort;
- An outsourced recruiting solution that saves internal client resources
from handling the screening and initial selection process;
- A highly cost-effective recruiting solution; and
- Confidentiality features designed to ensure that our clients' career
opportunities are only viewed by a select number of pre-qualified members.
Our objective is to strengthen our position as a leading Internet-based
recruiting service. To achieve this objective, we will continue to acquire and
retain members for our database of professionals and attract new clients. By
establishing a long term, trusted relationship with our members we will
4
<PAGE>
continue to monetize their profiles over the span of their mid-career years by
selling highly targeted search transactions to our clients. The key elements of
our strategy include:
- Utilizing strategic alliances with leading universities, print
publications, applicant tracking systems and the Cruel World Affiliate
Program;
- Increasing awareness of our brand through traditional and Internet media
channels;
- Introducing additional vertical employment categories;
- Continuing to enhance the efficiency and functionality of our proprietary
JobCast technology;
- Introducing additional career-related products and services; and
- Expanding internationally through internal growth, strategic alliances,
investments or licensing arrangements.
CORPORATE INFORMATION
We were incorporated in California on May 23, 1996 as Career Central
Corporation. In April 2000, we intend to merge with and into our wholly owned
subsidiary Cruel World, Inc., a Delaware corporation. Our principal executive
offices are located at 3500 W. Bayshore Road, Palo Alto, CA 94303. Our telephone
number at that location is (650) 847-3500. Our Web site address is
WWW.CRUELWORLD.COM. Information contained on our Web site does not constitute
part of this prospectus.
Our trademarks and service marks include Cruel World, Career Central and
JobCast. This prospectus also includes tradenames, trademarks and service marks
of other companies and organizations.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................ shares
Common stock to be outstanding after the
offering................................ shares
Use of proceeds........................... We intend to use the net proceeds of this offering for
general corporate purposes, including sales and
marketing efforts, developing our infrastructure,
products and services and hiring additional personnel.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.... CRLW
</TABLE>
The number of shares of our common stock to be outstanding immediately after
the offering is based on the number of shares outstanding at December 31, 1999
and excludes:
- 2,092,120 shares of common stock issuable on exercise of options
outstanding as of March 31, 2000 with a weighted average exercise price of
$1.19 per share;
- Warrants to purchase 871,860 shares of common stock at a weighted average
exercise price of $8.65;
- 1,047,205 shares of common stock available for future grant under our
stock option plans as of March 31, 2000;
- 100,000 shares of common stock available for future grant under our 2000
director option plan; and
- 300,000 shares of common stock available for future issuance under our
2000 employee stock purchase plan.
Unless otherwise indicated, the information in this prospectus assumes:
- the conversion of all outstanding shares of preferred stock into common
stock upon the closing of this offering;
- our reincorporation into Delaware in April 2000, including the two-for-one
stock split of all series of our preferred stock;
- the filing of our amended and restated certificate of incorporation;
- the effectiveness of our 2000 stock plan, 2000 director option plan and
2000 employee stock purchase plan; and
- no exercise of the underwriters' over-allotment option.
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
You should read the following summary financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the accompanying financial statements and related notes which
are included in this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
-------- ---------- --------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................... $ 454 $ 2,053 $ 4,446
Gross profit.............................................. 179 1,152 3,287
Loss from operations...................................... (2,097) (6,931) (10,688)
Net loss.................................................. (2,090) (6,762) (10,366)
Net loss per common share:
Basic and diluted....................................... $ (6.75) $ (6.56) $ (6.90)
======== ========== ====================
Weighted average shares outstanding..................... 309,682 1,031,302 1,502,104
======== ========== ====================
Unaudited pro forma net loss per common share:
Basic and diluted....................................... $ (1.17)
====================
Weighted average shares outstanding..................... 8,870,680
====================
</TABLE>
The unaudited pro forma net loss information gives effect to the conversion
into common stock of all series of preferred stock outstanding as of
December 31, 1999.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------
ACTUAL AS ADJUSTED
-------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $16,903
Working capital............................................. 15,132
Total assets................................................ 18,857
Long term liabilities....................................... 186
Stockholders' equity........................................ 15,945
</TABLE>
The as adjusted information gives effect to:
- the automatic conversion of all outstanding series of preferred stock into
common stock upon completion of this offering; and
- the receipt of the estimated net proceeds of $ million from the sale
of shares of common stock in this offering at an assumed public
offering price of $ per share after deducting underwriting discounts and
commissions and offering expenses. See "Use of Proceeds" and
"Capitalization."
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER CAREFULLY THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND RELATED
NOTES, BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. IF ANY OF THE
FOLLOWING RISKS OR UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION AND OPERATING RESULTS WOULD LIKELY SUFFER. IN THAT EVENT, THE MARKET
PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF THE
MONEY YOU PAID TO BUY OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE AN INVESTMENT IN
OUR COMPANY.
We have a limited operating history for you to evaluate when considering an
investment in our company. Accordingly, our prospects must be considered in
light of the uncertainties encountered by companies in the early stages of
development in new and rapidly evolving markets, specifically the Internet-based
recruitment market. We believe our success depends on our ability to:
- increase and retain our base of members who will respond to our emails and
consider employment with our clients;
- keep our database of member profiles current;
- attract and retain clients who depend on our Internet-based recruiting
services in place of, or in addition to, other traditional and
Internet-based recruiting methods; and
- increase the proportion of successful search transactions.
If we fail to manage these challenges successfully, our business may not
grow, which would harm our operating results.
WE HAVE A HISTORY OF LOSSES, WE EXPECT OUR LOSSES TO CONTINUE AND WE MAY NOT
ATTAIN PROFITABILITY, ALL OF WHICH MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR
STOCK.
We have incurred substantial net losses in each fiscal period since we began
operations. For the years ended December 31, 1998 and 1999, our net loss was
$6.8 million and $10.4 million, respectively. Our accumulated deficit as of
December 31, 1999 was $19.9 million. We cannot be certain when we will become
profitable, if at all. We expect our losses to increase significantly in the
foreseeable future because we anticipate incurring significant expenses in
connection with building awareness of our brand, attracting new members and
clients and improving our products and services. Even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis. We have generated relatively small amounts of revenue until recent
fiscal quarters, while increasing operating expenditures in all areas,
particularly in sales and marketing. If operating expenses exceed our
expectations, we may not be able to generate sufficient revenue to achieve or
sustain profitability, and our financial condition will be harmed. In this case,
the value of your investment could be reduced.
OUR BUSINESS WILL BE HARMED IF WE DO NOT SUCCESSFULLY EXECUTE OUR REBRANDING
STRATEGY.
We believe that building brand awareness is crucial to achieving widespread
acceptance of our business. In March 2000, we changed our name from Career
Central Corporation to Cruel World, Inc. We have also changed our Web site
address from www.careercentral.com to www.cruelworld.com. Brand recognition is a
key differentiating factor among providers of Internet-based recruiting
services, and we expect that it could become even more important as competition
in the Internet-based recruitment market increases. Our recent name change and
rebranding efforts entail significant risks. If we fail to successfully promote
our new brand, Web site address and corporate image, or incur significant
expenses in promoting our new brand and image and we fail to generate a
corresponding
8
<PAGE>
increase in revenue as a result of our rebranding efforts, our results of
operations and the value of your investment are likely to be adversely affected.
To date, a significant portion of our expenses have been marketing related.
These expenses have been largely devoted to building brand recognition and
generating new members and clients. If we fail to successfully build brand
recognition and generate new members and clients, our business, results of
operations and financial condition are likely to be harmed.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND THESE
FLUCTUATIONS MAY CAUSE VOLATILITY OR A DECLINE IN THE PRICE OF OUR COMMON STOCK.
As a result of our limited operating history and the rapidly evolving nature
of the Internet-based recruitment market in which we compete, our operating
results are likely to fluctuate from period to period. These fluctuations may be
caused by a number of factors, many of which are beyond our control. Our revenue
is difficult to predict and our results of operations may fluctuate for several
reasons, including:
- our Internet-based recruiting model is at an early stage of development
making it difficult to predict client demand for our services;
- the number of search transactions performed in any given period;
- our operating results will be affected by the amount of commissions and
fees paid for new members and sales referred from our strategic alliances
and affiliates;
- fluctuations in marketing expenses relating to our efforts to build brand
awareness;
- fluctuations in cost of revenue associated with additional effort we might
apply to ensure client satisfaction with our service and collection of the
related client revenue;
- the timing and amount of our deferred stock-based compensation charges;
- seasonal fluctuations in revenue due to historically lower company
recruitment efforts during vacation and holiday seasons;
- economic factors, such as the effect of a recession on the unemployment
rate and reductions or postponements of corporate recruiting efforts;
- new or different pricing models for our services may not be widely
accepted by our clients; and
- our ability to attract and retain key personnel.
Our expense levels are based, in part, on our expectations of our future
revenue. As a result, any shortfall in our revenue in relation to our
expectations could cause significant changes in our results of operations from
period-to-period and could result in increased and continued quarterly losses.
If our revenue or results of operations fall below the expectations of investors
or public market analysts, the price of our common stock could decrease
substantially.
IF WE CANNOT INCREASE THE SIZE OF OUR MEMBERSHIP PROFILE DATABASE, RETAIN OUR
CURRENT MEMBERS AND KEEP OUR MEMBER PROFILE DATABASE CURRENT WE MAY NOT BE ABLE
TO GROW OUR BUSINESS.
Our Internet-based recruiting model requires us to continually add new
member profiles, retain our existing members and keep our member profiles
current. In addition, our Internet-based recruiting model focuses on passive job
seekers. Passive job seekers will likely only participate in a small number of
recruitment services, if any, and they are likely to only participate in
recruitment services that require minimal time and effort. We believe that our
success in attracting new member profiles depends on offering services to our
members that require less time and effort than those offered by our competitors.
9
<PAGE>
In addition to attracting new members, we must focus on membership retention
and on keeping our member profiles current. We remove member profiles from our
database when members email us a request to be removed. A member profile can
become stale, for example, when members change jobs or email addresses. If a
member profile does not contain a member's correct email address, we must
contact that member by telephone or mail in order to notify the individual of an
employment opportunity. If the number of new member profiles do not sufficiently
offset the number of lost members or if our member profiles are not current we
may not be able to grow our business and our results of operations and financial
condition will be harmed.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN CLIENTS AND OUR FAILURE
TO DO SO IS LIKELY TO CAUSE OUR REVENUE TO FLATTEN OR DECLINE.
Our Internet-based recruiting model depends on our ability to match
qualified and interested members with the career opportunities of our clients.
We believe that a primary reason our services are valuable to members and
clients is that we have been able to establish a portfolio of clients offering
job opportunities that are appealing to our members. If we are unable to
continue to attract qualified members or if many of our members request to be
removed from our database or if our database is not current, our services will
be less appealing to our clients. Similarly, if we are unable to attract
additional clients, our members might find our services less valuable and we may
be unable to retain existing members or to attract new members. If we fail to
maintain our member and client relationships or to continue to increase our base
of clients and members, our business would be harmed.
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE WITH OTHER TRADITIONAL AND
INTERNET-BASED RECRUITING COMPANIES.
The market for employee recruitment is intensely competitive and highly
fragmented. We presently face competition from multiple fee-based and free
services for a share of employers' total recruitment budgets. Our competitors
include:
- traditional executive search firms;
- non-profit job placement organizations;
- print classified advertising media such as newspapers, magazines and other
trade publications;
- Internet portals and other Web sites; and
- Internet job boards and resume databases, including Monster.com and
HotJobs.com.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater brand recognition and larger customer bases than we do. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships to expand their offerings and to offer more
comprehensive recruitment services. Barriers to entry into our market are very
low. There are many Internet recruiting Web sites and we expect the number of
such sites to increase in the future. New technologies are likely to increase
the competitive pressures that we face, and the development of competing
technologies by market participants or the emergence of new industry standards
may adversely affect our competitive position. If we are not able to compete
effectively with current or future competitors, our business, results of
operations and financial condition will be harmed.
OUR MANAGEMENT TEAM WAS RECENTLY FORMED, AND OUR SUCCESS DEPENDS UPON THEIR
ABILITY TO WORK EFFECTIVELY TOGETHER AND OUR ABILITY TO RETAIN THEM.
Because our senior management currently consists of individuals who have
worked together for a short period of time, our management may require time to
solidify and ultimately may be unable to
10
<PAGE>
work together effectively. In addition, we are substantially dependent on the
continued services of our senior management, including Jeffrey Hyman, our
president and chief executive officer, as well as other key personnel. We do not
maintain any "key person" life insurance policies. If our management team fails
to work together effectively, or if we lose the services of any members of
senior management or key personnel, our business could be harmed.
WE MAY NOT BE ABLE TO HIRE AND RETAIN HIGHLY SKILLED EMPLOYEES, WHICH COULD
AFFECT OUR ABILITY TO COMPETE EFFECTIVELY.
We must attract, hire, train and retain highly skilled personnel.
Competition for highly skilled employees is intense, particularly in the
Internet industry and many other Internet companies have substantially greater
resources to attract and retain personnel. We may be unable to retain our
skilled employees or attract, assimilate and retain other skilled employees in
the future. Specifically, we rely on our research associates and sales personnel
to execute search transactions and perform client maintenance roles. If we fail
to attract, hire or retain highly skilled employees our business, results of
operations and financial condition could be harmed.
OUR BUSINESS MODEL IS UNPROVEN AND MAY NOT BE WIDELY ACCEPTED.
Our core business is to deliver qualified and interested candidates to
clients rapidly and cost-effectively and to provide our members with job
opportunities that meet their predefined requirements. We deliver these services
through a combination of our proprietary JobCast technology, which automates the
search transaction process, and the assistance of research associates who manage
the process on behalf of our clients. Our business model depends in part on
recurring revenue from our clients. An alternate business model employed by some
of our competitors is to offer an Internet job board or resume database allowing
job seekers to browse through job opportunities at any time. We believe that it
is too early to determine whether our business model will be widely accepted.
Accordingly, our revenue model and profit potential are unproven. We cannot
assure you that employers and job seekers will not use competitive services to
the exclusion of ours. If they do, our operating results will suffer. In
addition, our business model is based in part on intense competition for
talented candidates. Changes in the labor market and changes in general economic
conditions, including a recession, could adversely affect your investment.
IF WE CANNOT REPLICATE OUR BUSINESS MODEL IN ADDITIONAL VERTICAL EMPLOYMENT
CATEGORIES, OUR ABILITY TO GROW OUR BUSINESS MAY BE LIMITED.
Our growth strategy depends in part upon replicating our business model in
new vertical employment categories. At the time of our inception in May 1996, we
focused solely on Internet-based recruiting for graduate business school alumni
and students. In April 1998, we expanded our vertical employment categories to
include Software Developers; in September 1998, Marketing; in July 1999, Sales;
in August 1999, Database Developers and Java Developers; and in November 1999,
Finance. We cannot be sure that our recently introduced services will be as
successful or more successful than our initial services. Further, we cannot be
sure that our strategy to expand into additional vertical employment categories
will be successful. For instance, we plan to create vertical employment
categories based on job functions, industries, advanced degrees and other
affinity groups. These groups may be less receptive or not receptive to our
Internet-based recruiting model. If members and clients in these future vertical
employment categories are not receptive to our Internet-based recruiting model,
our results of operations may be harmed.
11
<PAGE>
IF WE CANNOT MAINTAIN AND INCREASE THE NUMBER OF STRATEGIC ALLIANCES WE MAY BE
UNABLE TO GROW OUR BUSINESS.
We have entered into, and expect to continue to enter into, strategic
alliances with third parties to increase our membership base and client base.
These strategic alliances allow us to reach a significantly greater number of
qualified potential members and clients than we would otherwise be able to
reach. Although we seek to maintain close relationships with our strategic
alliances, some of them have similar relationships with our competitors. We
cannot assure you that our current strategic alliances will be beneficial, that
these relationships will be sustained, or that we will be able to enter into
successful new relationships in the future. Many of these agreements are
informal arrangements, and when we enter into formal strategic alliances, the
contracts are generally terminable within 30 days by either party. If we fail to
add or if we lose strategic alliances, our revenue and the results of our
operations are likely to be negatively impacted.
IF WE DO NOT SUCCESSFULLY MANAGE OUR GROWTH OUR BUSINESS WILL BE HARMED.
Our rapid growth has sometimes strained, and may in the future strain, our
financial, operational, managerial and other resources. Our plans for expansion
could further increase our growth and place additional burdens on our resources.
Our personnel, systems, procedures and controls may not be adequate to support
our growth. We need to maintain close coordination among our functional
departments and ensure that these departments interact effectively. If we are
unable to manage growth effectively, our business, results of operations and
financial condition could be harmed.
Our growth has resulted, and any future growth will result, in increased
responsibilities for management personnel, many of whom have been employed by us
for a short period of time. In addition, we may not adequately anticipate all
the demands that growth may impose on our systems, procedures and structure. Any
failure to anticipate and respond adequately to these demands or manage our
growth effectively could cause our revenue to flatten or decline and materially
harm our business.
IF WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES OR THE NEEDS OF OUR
MEMBERS AND CLIENTS OUR BUSINESS MAY SUFFER.
If we are unable to successfully respond to the Internet-based recruitment
industry's changing technological needs and requirements, our revenue and the
value of your investment could be materially adversely affected. Our success is
dependent on our ability to develop new and enhanced services and products that
will provide the best possible matching of career opportunities and qualified
candidates. We need to utilize technology to continue to increase the
productivity and efficiencies of our research associates. Our current technology
may not meet the future technical requirements of our members and clients.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTRODUCE NEW OR ENHANCED PRODUCTS AND
SERVICES AND OUR FAILURE TO DO SO COULD HAVE A MATERIAL ADVERSE IMPACT ON THE
GROWTH OF OUR REVENUE.
The growth of our business may depend, in part, on our ability to introduce
new or enhanced products and services. We expect to introduce enhanced products
and services in order to generate additional revenue, attract and retain more
members and clients to our Web site and respond to competition. Any new or
enhanced product or service we introduce that is not favorably received could
damage our reputation and the perception of our brand. Further, the failure of
any new or enhanced products and services to achieve market acceptance and
generate revenue could result in a material adverse effect on our revenue and
the value of your investment.
12
<PAGE>
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS FROM OTHERS AND OTHERS MAY
CLAIM THAT WE HAVE INFRINGED ON THEIR PROPRIETARY RIGHTS.
Our success depends in part upon the protection of our proprietary
technology and confidential information. We currently do not hold any patents,
and there can be no assurance that the steps we take to protect our intellectual
property will be adequate to prevent its unauthorized use or misappropriation.
The unauthorized use, reproduction or other misappropriation of our intellectual
property could cause harm to our business, results of operations and financial
condition. In addition, although we attempt to avoid infringing on known
proprietary rights of third parties, we are subject to the risk of claims
alleging infringement of third party proprietary rights. If we were to discover
that any element of our Internet-based recruiting model violates third party
proprietary rights, we might not be able to obtain licenses on commercially
reasonable terms to continue offering our service without substantial
reengineering and that any reengineering efforts we undertake may be
unsuccessful.
Any claim of infringement could cause us to incur substantial costs
defending against the claim, even if the claim is invalid, and could distract
our management from our business. Furthermore, a party making an infringement
claim could secure a judgment that requires us to pay substantial damages. A
judgment could also include an injunction or other court order that could
prevent us from selling our services. If any of these events occurred, our
business, results of operations and financial condition could be materially and
adversely affected.
IF WE ARE NOT SUCCESSFUL IN MANAGING OUR EXPANSION INTO INTERNATIONAL MARKETS
OUR BUSINESS COULD BE HARMED
We plan to expand our business into foreign markets. We believe
international expansion through a combination of internal growth, strategic
alliances and potential acquisitions will increase our membership, and will lead
to increased usage of our service by clients seeking to fill international
positions. International expansion will entail significant difficulties and
risks, such as competition from local recruiting services, language and cultural
differences, local tax and regulatory issues and political and economic
conditions. If revenue from international operations is not adequate to cover
our investment in those operations, or if we are unsuccessful in managing the
risks of expanding into foreign markets, the value of your investment could be
materially adversely affected.
ACQUISITIONS MAY DISRUPT AND HARM OUR BUSINESS.
We may pursue strategic acquisitions of businesses, products, services or
technology in the future. Difficulties in assimilating the acquired assets could
increase our expenses and reduce the value of your investment. This could also
disrupt our ongoing business, divert the attention of our management and
employees and increase our expenses. Though we have no present understanding or
agreement relating to any acquisition of or investment in another company, our
business strategy may include the pursuit of such acquisitions in the future. If
and when we consider possible acquisitions, we may incur expenses without
actually consummating such transactions, which could reduce our profitability
and the value of your investment.
RISKS RELATED TO THE INTERNET AND OUR TECHNOLOGY
INTERNET-BASED RECRUITING IS RAPIDLY EVOLVING AND IF WE CANNOT ADAPT OUR
BUSINESS, WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
The Internet is a relatively new medium for recruiting, and job seekers and
employers have not reached any consensus on the most successful models for
Internet recruiting. The Internet-based recruitment market is characterized by
rapidly changing technology, introductions and enhancements of competitive
services, and changing user demands. Accordingly, our future success depends on
our ability to quickly adapt to such rapid changes in technology and improve the
features, reliability and
13
<PAGE>
functionality of our service in relation to our competitors. We may fail to
adequately address these issues. If we cannot meet the needs of employers and
job seekers or adapt our services to meet their demands, we will be unable to
implement our business plan.
NEW REGULATION OF AND UNCERTAINTIES REGARDING THE APPLICATION OF EXISTING LAWS
AND REGULATIONS TO E-COMMERCE AND THE INTERNET, COULD NEGATIVELY IMPACT OUR
BUSINESS.
Legal uncertainties and new regulations could increase our costs of doing
business, prevent us from delivering our products and services over the Internet
or slow the growth of the Internet, any of which could increase our expenses or
reduce our revenue and materially adversely affect the value of your investment.
To date, governmental regulations have not materially restricted use of the
Internet in our markets. However, the legal and regulatory environment that
pertains to the Internet is uncertain and may change. In addition to new laws
and regulations being adopted, existing laws may be applied to the Internet. New
and existing laws may cover such issues as:
- user privacy;
- sales and other taxes;
- civil rights and employment claims;
- consumer protection;
- libel and defamation;
- copyright, trademark and patent infringement;
- pricing controls;
- characteristics and quality of products and services; and
- other claims based on the nature and content of Internet materials.
In addition, the tax treatment of electronic commerce is currently
unsettled. Federal legislation imposing limitations on the ability of states to
tax Internet access was enacted in 1998. The Internet Tax Freedom Act, as this
legislation is known, exempts specific transactions conducted over the Internet
from multiple or discriminatory state and local taxation through October 21,
2001. It is possible that this legislation will not be renewed when it
terminates. Any imposition of state sales and use taxes imposed on the products
and services sold over the Internet may decrease demand for products and
services that we sell over the Internet which could adversely affect our future
operating results and result in a decline in our stock price.
Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the Federal Communications Commission in the same
manner as other telecommunications services. Because the growing popularity and
use of the Internet has burdened the existing telecommunications infrastructure
in many areas, local exchange carriers have petitioned the FCC to regulate
Internet service providers in a manner similar to long distance telephone
carriers and to impose access fees on the Internet service providers. New
regulations which increase our costs of doing business, prevent us from
delivering our products and services over the Internet or slow the growth of the
Internet could increase our expenses or reduce our revenue and materially
adversely affect the value of your investment.
BREACHES OF INTERNET PRIVACY AND SECURITY COULD HARM OUR BUSINESS.
A significant barrier to confidential communications over the Internet has
been the need for security. We may incur significant costs to protect against
the threat of security breaches or to alleviate problems caused by these
breaches. If unauthorized persons penetrate our network security, they could
14
<PAGE>
misappropriate proprietary information or cause interruptions in our services.
Misappropriation of our proprietary information or interruptions of our services
could result in reduced visitor traffic. Reduced visitor traffic may result in
fewer job seekers registering as members, which, in turn, may discourage clients
from using our service.
Due in part to such privacy concerns, many Internet users have historically
been reluctant to transmit confidential information over the Internet. Any
well-publicized compromise of privacy on the Internet could deter more people
from using the Internet to conduct transactions that involve transmitting
confidential information, such as the information contained in a member profile
or a resume. For instance, some companies monitor inbound and outbound emails.
We must take steps to make members and clients feel secure using our Web site.
If prospective members are concerned that their employers might intercept an
outbound resume, if they believe that their employer might learn that they are
included in our database of member profiles, or if members or clients believe
their personal information could be misappropriated, even if such belief is
unfounded, our business, results of operations and financial condition could be
harmed.
OUR BUSINESS WILL SUFFER IF OUR COMPUTER INFRASTRUCTURE IS DISRUPTED OR FAILS.
The success of our Internet-based recruiting model is highly dependent on
the efficient and uninterrupted operation of our computer and communications
hardware systems. Fire, floods, earthquakes, power loss, telecommunications
failures and similar events could damage or cause interruptions in these systems
and prevent us from serving our members and clients. Computer viruses,
electronic break-ins, computer hackers or other similar disruptive problems
could also adversely affect our Web site. Our relationships with our members and
clients may be adversely affected if the security measures that we use to
protect their personal information are not effective, causing our revenue to
decrease and our business to suffer. We might be required to expend significant
capital and resources to protect against, or to alleviate, problems caused by
computer viruses, electronic break-ins or computer hackers. In addition to
purposeful security breaches, the inadvertent transmission of computer viruses
could expose us to litigation or to a material risk of loss. Computer viruses
may also cause our systems to incur delays or other service interruptions.
The recent growth in Internet traffic has caused episodes of diminished
performance, requiring Internet service providers and users of the Internet to
upgrade their infrastructures. Any substantial increase in demand for our
services may require us to adapt and expand our network infrastructure. Our
ability to increase the speed with which we provide services to members and
clients and to increase the scope of these services is limited by and dependent
upon the speed and reliability of the Internet. Consequently, the emergence and
growth of the market for our services is dependent on the performance of and
future improvements to the Internet.
We have not experienced any material outages to date. However, our systems
are vulnerable to damage from break-ins, unauthorized access, vandalism, fire,
floods, earthquakes, power loss, telecommunications failures and similar events.
We currently operate in one site and are exploring options for a second site to
support business continuity requirements. If our systems or Web site are
affected by any of these occurrences, our reputation, business, results of
operations and financial condition could be harmed.
WE COULD INCUR LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE
INTERNET.
We may be sued for defamation, obscenity, negligence, copyright or trademark
infringement or other legal claims relating to information that is posted or
made available on our Web site or emailed by us to our members and clients.
These types of claims have been brought, sometimes successfully, against
Internet services in the past. We also could be sued for the content that is
accessible from our Web site and through links to other Internet sites. Other
claims may be brought based on the nature,
15
<PAGE>
publication or distribution of our content or based on errors or false or
misleading information provided on our Web site or by us to members or clients.
Our insurance may not adequately protect us against claims related to
information on our Web site. In addition, we could incur significant costs in
investigating and defending such claims, even if we ultimately are not found
liable. If any of these events occur, our revenue and the value of your
investment could be materially adversely affected.
RISKS RELATING TO THIS OFFERING
OUR SHARE PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT
OR ABOVE THE INITIAL OFFERING PRICE.
There has been no public market for our common stock prior to this offering.
The initial public offering price for our common stock will be determined
through negotiations between the underwriters and us. This initial public
offering price may vary from the market price of our common stock after the
offering. If you purchase shares of common stock, you may not be able to resell
those shares at or above the initial public offering price. The market price of
our common stock may fluctuate significantly in response to factors, some of
which are beyond our control, including the following:
- actual or anticipated fluctuations in our annual and quarterly operating
results;
- changes in market valuations of other Internet companies and stock market
price and volume fluctuations generally;
- economic conditions specific to Internet commerce and recruiting services;
- changes in financial estimates by securities analysts;
- variations in our operating results which may cause us to fail to meet
analysts' or investors' expectations;
- announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, partnerships, joint ventures or
capital commitments;
- additions or departures of key personnel;
- regulatory developments;
- future sale of equity or debt securities; and
- general economic, industry and market conditions.
In addition, the trading prices of securities in newly public technology
companies, including companies such as ours offering Internet-based products and
services, have experienced extreme price and volume fluctuations. These
fluctuations have often been unrelated or disproportionate to the operating
performance of these companies. Any negative change in the public perception of
the prospects of Internet or electronic commerce companies could also depress
our stock price regardless of our business, prospects or operating results.
These market fluctuations may cause our stock price to fall regardless of our
performance. In the past, companies that have experienced volatility in the
market price of their stock have been the object of securities class action
litigation. If we were the object of securities class action litigation, it
could result in substantial costs and a diversion of management's attention and
resources.
Our stock price may also experience fluctuations due to deferred stock-based
compensation charges which we expect to amortize over the next several years.
For a more complete discussion of the deferred compensation, see "Management
Discussion and Analysis of Financial Condition and Results of Operations." In
the event our stock price decreases due to a negative perception of the deferred
stock-based compensation charge, the value of your investment would be reduced.
16
<PAGE>
You should read the "Underwriting" section for a more complete discussion of
the factors that were considered in determining the initial public offering
price of our common stock.
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, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock after this offering or the
perception that these sales could occur could cause our stock price to fall. In
addition, the sale of these shares may impair our ability to raise capital
through the sale of additional stock. In addition, we have entered into
registration rights agreements with some of our investors entitling them to have
their shares registered for sale in the public market. The exercise of these
rights could affect the market price of our common stock. You should read
"Shares Eligible for Future Sale" for a discussion of shares that may be sold in
the public market in the future.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
SHARES.
The initial public offering price is expected to be substantially higher
than the book value per share of our outstanding common stock immediately after
the offering. Accordingly, if you purchase common stock in the offering, you
will incur immediate dilution of $ in the net tangible book value per share
of our common stock from the price you pay for our common stock. To the extent
outstanding options or warrants to purchase common stock are exercised, your
investment will be further diluted. For additional information on this
calculation, see "Dilution."
PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW MAY
DISCOURAGE TAKEOVER ATTEMPTS.
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could have the effect of delaying or preventing a third party from
acquiring us, even if a change in control would be beneficial to our
stockholders. These provisions:
- provide for a board of directors whose members serve staggered three-year
terms and are removable only for cause;
- prevent stockholders from taking action by written consent;
- limit the persons who may call special meetings of stockholders;
- authorize the issuance of preferred stock in one or more series; and
- require advance notice for stockholder proposals and director nominations.
In addition, Section 203 of the Delaware General Corporation law also
imposes restrictions on mergers and other business combinations between us and
any holder of 15% or more of our common stock. See "Description of Capital
Stock" for additional information.
OUR EXECUTIVE OFFICERS, DIRECTORS AND EXISTING STOCKHOLDERS WILL HAVE
SUBSTANTIAL CONTROL OVER US AFTER THIS OFFERING AND THEIR INTERESTS MAY BE
DIFFERENT FROM AND CONFLICT WITH YOURS.
The interest of management and our existing stockholders could conflict with
the interest of our other stockholders. Upon completion of this offering, our
executive officers, directors and principal stockholders will beneficially own,
in total, % of our outstanding common stock. As a result, these stockholders
will be able to exercise significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant transactions. This could have the effect of delaying or preventing a
change in control of Cruel World, which in turn could reduce the market price of
our stock.
17
<PAGE>
OUR FAILURE TO OBTAIN ADDITIONAL FINANCING IN THE FUTURE MAY SUBSTANTIALLY HARM
OUR BUSINESS.
We currently expect that the proceeds from this offering will satisfy our
capital needs for at least the next 12 months. However, we may need to raise
additional funds in order to fund more rapid expansion, to expand our marketing
activities, to develop new or enhance existing services or products, to respond
to competitive pressures or to acquire complementary services, businesses or
technologies. Also, because we expect to generate losses for the foreseeable
future, we may also need to raise funds in the future to meet additional working
capital needs. If we raise additional funds by issuing equity or convertible
debt securities, the percentage ownership of our shareholders will be diluted.
If we raise additional funds by issuing debt securities, the terms of these
securities could restrict or prevent us from paying dividends and could limit
our flexibility in making business decisions. Any new securities could have
rights, preferences and privileges senior to those of our common stock.
Additionally, subsequent financing may not be available on terms favorable to
us, or at all. If adequate funds are not available or are not available on
acceptable terms, we may be required to lower our operating expenses by reducing
our marketing and research and development expenditures and we may not be able
to take advantage of future opportunities, grow our business or respond to
competitive pressures, which could seriously harm our business.
MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE NET PROCEEDS OF THIS
OFFERING AND MAY FAIL TO USE SUCH FUNDS EFFECTIVELY.
Our management will have broad discretion with respect to the use of the net
proceeds from this offering, and investors will be relying on the judgment of
our management regarding the application of these proceeds. Anticipated uses
include working capital for general corporate purposes, as well as expansion of
our marketing efforts. Currently, our management has not determined the amounts
of proceeds to be used for the purposes described in "Use of Proceeds."
18
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that relate to future
events or our future business or financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "intend," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined in the "Risk
Factors" section above. These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. Except required by law, we undertake no obligation to update any of
the forward-looking statements to conform such statements to actual results or
to changes in our expectations.
19
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the shares of common stock we are offering
hereby are estimated to be $ million assuming an initial public offering price
of $ per share and after deducting the underwriting discounts and
commissions and estimated offering expenses. If the underwriters' over-allotment
option is exercised in full, we estimate that our net proceeds will be $
million.
We intend to use the net proceeds of this offering for general corporate
purposes, including expenditures on:
- sales and marketing efforts;
- developing our infrastructure, products and services; and
- hiring additional personnel.
Additionally, we may use a portion of the proceeds to acquire or invest in
complementary businesses, technologies, services or products; however, we do not
have any current commitments or agreements, and we are not involved in
negotiations with respect to any such transaction. As of the date of this
prospectus, we have not allocated any specific amount of the proceeds for the
purposes listed in this paragraph.
Pending use of the net proceeds of this offering, we intend to invest the
net proceeds in interest bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business. Accordingly, we do not
anticipate paying any cash dividends in the foreseeable future.
20
<PAGE>
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table sets forth our cash and cash equivalents and total
capitalization as of December 31, 1999. This table should be read in conjunction
with the "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
the related notes appearing elsewhere in this prospectus. This information is
presented:
- on an actual basis;
- on an as adjusted basis after giving effect to the conversion of all
outstanding series of preferred stock into common stock and our receipt of
the net proceeds from the sale of shares of common stock in
this offering at an assumed initial public offering price of $ per
share, after deducting underwriting discounts, commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 16,903
========
Total long-term liabilities................................. 186
Stockholders' equity:
Convertible preferred stock, $0.001 par value, shares
authorized: 10,300,146 actual, and 5,000,000 as adjusted;
shares outstanding: 10,300,110 actual, none as adjusted... 31,742
Common stock, $0.001 par value, shares authorized:
24,000,000 actual, and 100,000,000 as adjusted; shares
outstanding 1,718,472 actual, as adjusted....... 2
Additional paid-in capital.................................. 4,839
Deferred stock-based compensation........................... (689)
Accumulated deficit......................................... (19,949)
--------
Total stockholders' equity............................ 15,945
--------
Total capitalization.................................. $ 16,131
========
</TABLE>
The common stock as shown above is based on shares outstanding as of
December 31, 1999 and excludes:
- 2,092,120 shares of common stock issuable on exercise of options
outstanding as of March 31, 2000 with a weighted average exercise price of
$1.19 per share;
- Warrants to purchase 871,860 shares of common stock at a weighted average
exercise price of $8.65;
- 1,047,205 shares of common stock available for future grant under our
stock option plans as of March 31, 2000;
- 100,000 shares of common stock available for future grant under our 2000
director option plan; and
- 300,000 shares of common stock available for future issuance under our
2000 employee stock purchase plan.
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<PAGE>
DILUTION
As of December 31, 1999, our pro forma net tangible book value was
$15.9 million or $1.33 per share, after giving effect to the conversion of
preferred stock into 10,300,110 shares of common stock. Pro forma net tangible
book value per share is determined by dividing the pro forma number of
outstanding shares of common stock into our net tangible book value, which is
the amount of our total tangible assets less the amount of our total
liabilities. After giving effect to the receipt of the estimated net proceeds
from this offering, based upon an assumed initial public offering price of $
per share and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of December 31, 1999 would have been $ million, or $ per share. This
represents an immediate increase in net tangible book value of $ per share
to existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares at the initial public offering price. The following
table illustrates 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 in pro forma net tangible book value per share
attributable to
new investors...........................................
-----
Pro forma net tangible book value per share after the
offering
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table summarizes on an adjusted basis as of December 31, 1999
the total number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by existing holders of
common stock (on a pro forma basis after giving effect to the automatic
conversion of preferred stock into 10,300,110 shares of common stock) and by new
investors purchasing shares of common stock in this offering at an assumed
initial public offering price of $ per share, before deducting the
estimated underwriting discounts and commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... % %
New investors.......................
---------- ----------- -------- -----
Total............................. % $ %
========== =========== ======== =====
</TABLE>
The foregoing discussion and table assume no exercise of the underwriters'
overallotment option and exclude the effect of:
- 2,092,120 shares of common stock issuable on exercise of options
outstanding as of March 31, 2000 with a weighted average exercise price of
$1.19 per share;
- Warrants to purchase 871,860 shares of common stock at a weighted average
exercise price of $8.65;
- 1,047,205 shares of common stock available for future grant under our
stock option plans as of March 31, 2000;
- 100,000 shares of common stock available for future grant under our 2000
director option plan; and
- 300,000 shares of common stock available for future issuance under our
2000 employee stock purchase plan.
To the extent that any of these options or warrants are exercised or shares
are issued, there will be further dilution to new public investors. See
"Capitalization," "Management--Employee Benefit Plans," "Description of Capital
Stock," and note 4 of notes to Financial Statements and Unaudited Financial
Information.
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<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected financial data should be read in conjunction with our
financial statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. The statement of operations data for each of the three years
ended December 31, 1997, 1998 and 1999 and the balance sheet data as of
December 31, 1998 and 1999 are derived from our financial statements that have
been audited by Ernst & Young LLP, independent accountants, and are included
elsewhere in this prospectus. The balance sheet at December 31, 1997 is derived
from audited financial statements which are not included in this prospectus. The
statement of operations from inception to the year ended December 31, 1996 and
the balance sheet at December 31, 1996 are derived from our unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which we consider necessary for a fair
presentation of the results of operations for this period. Historical results
are not necessarily indicative of the results to be expected in the future and
results for the interim periods are not necessarily indicative of results that
may be expected for any other interim period or for the year as a whole.
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED DECEMBER 31,
INCEPTION TO -------------------------------------------
DECEMBER 31, 1996 1997 1998 1999
------------------ -------- ---------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................................... -- $ 454 $ 2,053 $ 4,446
Cost of revenue................................. -- 275 902 1,158
-------- -------- ---------- -------------------
Gross profit.................................. -- 179 1,151 3,288
Operating expenses:
Sales and marketing........................... 85 1,204 5,577 9,991
Engineering................................... 315 658 1,198 1,413
General and administrative.................... 319 274 823 1,193
Stock-based compensation...................... 17 140 484 1,379
-------- -------- ---------- -------------------
Total operating expenses.................... 736 2,276 8,082 13,976
-------- -------- ---------- -------------------
Loss from operations............................ (736) (2,097) (6,931) (10,688)
Interest income, net............................ 5 7 169 322
-------- -------- ---------- -------------------
Net loss.................................... (731) (2,090) (6,762) (10,366)
======== ======== ========== ===================
Net loss per common share:
Basic and diluted............................. $ (29.23) $ (6.75) $ (6.56) $ (6.90)
======== ======== ========== ===================
Weighted average shares outstanding........... 25,000 309,682 1,031,302 1,502,104
======== ======== ========== ===================
Unaudited pro forma net loss per common share:
Basic and diluted............................. $ (1.17)
===================
Weighted average shares outstanding........... 8,870,680
===================
</TABLE>
The unaudited pro forma net loss information gives effect to the conversion
into common stock of all series of preferred stock outstanding as of
December 31, 1999.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996 1997 1998 1999
----------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 676 $2,242 $5,487 $16,903
Working capital......................................... (154) 2,064 4,646 15,132
Total assets............................................ 790 2,582 6,873 18,857
Long term liabilities................................... -- -- 261 186
Total stockholders' equity.............................. (39) 2,313 5,311 15,945
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES OF CRUEL WORLD APPEARING ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, AMONG OTHER THINGS, STATEMENTS
REGARDING ANTICIPATED COSTS AND EXPENSES, MIX OF REVENUE AND PLANS FOR
INTRODUCING NEW PRODUCTS AND SERVICES TO EXPAND OUR REVENUE BASE. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED BY THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING THOSE
DISCUSSED BELOW, ELSEWHERE IN THIS PROSPECTUS AND UNDER "RISK FACTORS."
OVERVIEW
We are a leading Internet-based recruiting service that uses database and
email marketing techniques to rapidly and cost-effectively match our clients'
career opportunities with qualified and interested candidates from our large
membership of professionals. From our inception in May 1996 until October 1996,
we were primarily engaged in developing our Internet-based recruiting service
and our JobCast technology. In October 1996, we introduced our first vertical
employment category, Cruel World MBAs, formerly known as MBA Central. In 1998,
we launched our second and third vertical employment categories, Cruel World
Software Developers and Cruel World Marketing. In 1999, we launched four
additional vertical employment categories: Cruel World Sales, Cruel World
Database Developers, Cruel World Java Developers and Cruel World Finance. We
intend to continue to develop additional vertical employment categories. As of
March 31, 2000, we had conducted search transactions for approximately 1,000
clients and had over 200,000 registered member profiles in our database.
We derive substantially all of our revenue from fees charged to our clients
for search transactions that result in the delivery of a pre-specified number of
candidate resumes. Clients can purchase individual search transactions or
subscription packages consisting of multiple search transactions. For individual
search transactions, we currently charge a flat fee of $3,495. Our clients can
receive discounts off the standard per search fee by purchasing a subscription
of three or more searches. These subscriptions generally expire after a six to
12 month time period. Since their introduction in late 1997, revenue from search
transactions purchased as part of a subscription has grown to comprise
approximately 40% of our revenue for the quarter ended December 31, 1999. As our
member database grows, and we add more vertical employment categories, we expect
revenue from subscriptions to continue to increase as a percentage of total
revenue.
We sell our Internet-based recruiting service through our direct sales force
and generate additional sales leads through third party sales channels, which
include strategic alliances and over 1,000 Web site affiliates. We pay our
strategic alliances a sales commission for each search transaction performed for
clients referred through that strategic alliance. This fee is recorded as a cost
of revenue. In addition, our affiliates are generally paid a small fee, which is
recorded as a marketing expense, each time a unique member is acquired through
that affiliate.
We will continue to focus on increasing the size of our client base and
membership database through various efforts, including increased marketing
expenditures and promotions. In addition, as we continue to add vertical
employment categories, we will enhance our ability to add new members to our
database.
We have incurred substantial net losses in each fiscal period since our
inception, and as of December 31, 1999 we had an accumulated deficit of
$19.9 million. Net losses totaled $0.7 million in 1996, $2.1 million in 1997,
$6.8 million in 1998, and $10.4 million in 1999. Such net losses and the
accumulated deficit resulted from our lack of substantial revenue, the
significant costs incurred in developing the Cruel World service and rapidly
expanding our membership database to obtain clients and adding additional
vertical employment categories.
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REVENUE RECOGNITION
Revenue is recognized when a search transaction is completed and we have
reasonable assurance of collection. In some cases, we may elect to apply
additional efforts to be reasonably assured of collection. For subscription
contracts, we typically collect partial payment in advance, thereby generating
immediate cash flow and creating deferred revenue that is recognized as the
search transactions are completed. At December 31, 1999, deferred revenue
amounted to $1.1 million.
COST OF REVENUE AND OPERATING EXPENSES
COST OF REVENUE. Cost of revenue primarily consists of compensation
associated with personnel who facilitate the matching process, cost of delivery
of member resumes to the client, commissions paid to strategic alliances
associated with the procurement of a client and allocated overhead.
SALES AND MARKETING EXPENSE. Sales and marketing expense consists primarily
of sales and marketing compensation including base salary and commissions,
advertising and promotion expenses associated with acquiring and retaining
members and generating new clients, telemarketing communications expenses,
travel and entertainment and allocated overhead. The timing and magnitude of
marketing initiatives have caused, and will continue to cause, fluctuations in
sales and marketing expense levels as well as fluctuations of these expenses as
a percentage of sales.
ENGINEERING EXPENSE. Engineering expense consists primarily of costs
associated with the compensation of the employees that design, develop and
maintain our proprietary JobCast technology and allocated overhead. Our product
development expenses constitute all of our research and development
expenditures. Web site development and internally developed software costs that
are subject to continual and substantial changes are expensed as incurred. Costs
to maintain and add minor feature upgrades to our internally developed software
and Web site are expensed as incurred.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administration expense
consists primarily of compensation for administrative and executive staff, fees
for professional services and general office expense and allocated overhead.
STOCK-BASED COMPENSATION EXPENSE. We recorded deferred stock-based
compensation, net of options forfeited, of $0.7 million in 1999 which
represented the difference between the exercise price of stock options granted
and the fair value for accounting purposes of the underlying common stock at the
date of the grant. This stock-based compensation expense will be amortized over
the vesting period of the options, which is typically three years. We currently
expect to amortize the following amounts of stock-based compensation as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING:
- --------------------
<S> <C>
December 31, 2000........................................... $0.5 million
December 31, 2001........................................... $0.2 million
</TABLE>
In addition, in the quarter ended March 31, 2000, we granted stock options
to acquire an aggregate of 930,180 shares of common stock at an exercise price
of $2.60. In connection with these grants, we recorded deferred stock-based
compensation of $5.5 million, which will be amortized over 36 to 44 months.
25
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RESULTS OF OPERATIONS
The following table sets forth our results of operations for the periods
expressed as a percentage of revenue.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... 100% 100% 100%
Cost of revenue............................................. 60 44 26
---- ---- ----
Gross profit.............................................. 40 56 74
Operating expenses:
Sales and marketing....................................... 265 272 225
Engineering............................................... 145 58 32
General and administrative................................ 60 40 27
Stock-based compensation.................................. 31 24 31
---- ---- ----
Total operating expenses................................ 501 394 315
---- ---- ----
Loss from operations........................................ (461) (338) (241)
Interest income, net........................................ 2 8 7
---- ---- ----
Net loss................................................ (459)% (330)% (234)%
==== ==== ====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUE. Our revenue increased 116% from $2.1 million in 1998 to
$4.4 million in 1999. The increase in total revenue was primarily due to an
increase in the number of clients using our service as we added four additional
vertical employment catagories in 1999 and approximately doubled our membership
profile database. In addition, revenue increased as a result of increased sales
force headcount, improved sales force productivity, increased sales and
marketing efforts, increased search transaction fees, a larger number of
strategic alliances and an increase in search transactions per client.
COST OF REVENUE. Cost of revenue increased 28% from $0.9 million in 1998 to
$1.2 million in 1999 reflecting a rapid increase in the number of research
associates from three at the beginning of 1998 to 11 at the end of 1998. The
higher cost in 1999 reflects the increased number of research associates during
the entire period. Our gross margin increased from 56% in 1998 to 74% in 1999
reflecting increased productivity of our research associates.
SALES AND MARKETING EXPENSE. Sales and marketing expense increased 79% from
$5.6 million in 1998 to $10.0 million in 1999. The increase in sales and
marketing expense was due primarily to an increase in sales and marketing
personnel, including the establishment of a telesales department, costs related
to the continued development of our marketing and branding campaigns, expenses
related to the launch of four vertical employment categories and expenses
related to growth in the number of strategic alliances. In addition, sales and
marketing expense is expected to increase as we launch additional vertical
employment categories, grow the size of our membership database through new
marketing campaigns and create brand awareness.
ENGINEERING EXPENSE. Engineering expense increased 18% from $1.2 million in
1998 to $1.4 million in 1999. The increase in engineering expense was due
primarily to increases in employee headcount and consulting and contractor
expenses. We expect engineering expense to increase in absolute dollars but to
decrease as a percentage of revenue as we spread our engineering costs over a
larger revenue base. The increase in engineering expense will result from
further development of the JobCast technology and expenses related to the
addition of new vertical employment categories.
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GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased 45% from $0.8 million in 1998 to $1.2 million in 1999. The increase in
general and administrative expense was due primarily to increases in
compensation expenses caused by a larger number of employees and increases in
professional fees. We expect general and administrative expense to increase as
we hire additional personnel and incur additional costs necessary to manage the
anticipated growth of our business. We anticipate general and administrative
expense to decrease as a percentage of revenue as we spread general and
administrative expense over a larger revenue base.
STOCK-BASED COMPENSATION EXPENSE. We recorded $0.5 million of stock-based
compensation expenses in 1998 and $1.4 million in 1999. This represents the
amortization of deferred stock-based compensation, net of options forfeited,
recorded in connection with stock options granted below the market value
determined for accounting purposes.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
REVENUE. Our revenue increased 352% from $0.5 million in 1997 to
$2.1 million in 1998. The increase in total revenue was primarily due to an
increase in the number of clients using our service as a result of a significant
increase in salespersons and increases in marketing expenses to generate a
larger member base and client base.
COST OF REVENUE. Cost of revenue increased 228% from $0.3 million in 1997
to $0.9 million in 1998 primarily due to an increase in research associate
staffing to service the large increase in customers and revenue. Our gross
margin increased from 40% to 56% reflecting greater productivity of the research
associates.
SALES AND MARKETING EXPENSE. Sales and marketing expense increased 363%
from $1.2 million in 1997 to $5.6 million in 1998. The increase in sales and
marketing expense was due primarily to an increase in sales and marketing
personnel to increase our market penetration and to increase the size of our
member base. Sales compensation increased more than tenfold in 1998 versus 1997
as we employed salespersons in 12 new geographic locations and increased our
sales force from one at December 31, 1997 to 20 at December 31, 1998. In 1998,
we began to create strategic alliances with numerous entities to whom we
compensate for helping us find new members. Spending in 1998 for member
marketing to each of the four vertical employment categories increased more than
four times over that spent in 1997. We also substantially increased the
marketing of our brand in 1998.
ENGINEERING EXPENSE. Engineering expense increased 82% from $0.7 million in
1997 to $1.2 million in 1998. The increase was primarily attributable to
increases in engineering employees and consultants employed to further the
development of the vertical employment categories.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased 200% from $0.3 million in 1997 to $0.8 million in 1998. The increase
was primarily caused by an increased number of employees and increases in
professional fees.
STOCK-BASED COMPENSATION EXPENSE. We recorded $0.1 million of stock-based
compensation expense in 1997 and $0.5 million in 1998.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly statement of
operations data for each of our four most recent quarters, both in dollars and
as a percentage of revenue for each quarter. In our opinion, this information
has been prepared on the same basis as the audited financial statements
contained in this prospectus and includes all adjustments, consisting only of
normal recurring adjustments, we consider necessary for fair presentation in
accordance with generally accepted accounting principles. This information
should be read in conjunction with our financial statements and
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<PAGE>
the related notes appearing at the end of this prospectus. Our quarterly
operating results have fluctuated and may continue to fluctuate significantly as
a result of a variety of factors and operating results for any quarter are not
necessarily indicative of results for any future quarter or full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 612 $ 944 $ 1,328 $ 1,562
Cost of revenue............................................. 227 253 298 380
------- ------- ------- -------
Gross profit............................................ 385 691 1,030 1,182
Operating expenses:
Sales and marketing....................................... 1,577 1,763 3,004 3,647
Engineering............................................... 299 297 328 489
General and administrative................................ 195 267 377 354
Stock-based compensation.................................. 255 362 370 392
------- ------- ------- -------
Total operating expenses................................ 2,326 2,689 4,079 4,882
------- ------- ------- -------
Loss from operations........................................ (1,941) (1,998) (3,049) (3,700)
Interest income, net........................................ 38 23 24 237
------- ------- ------- -------
Net loss.................................................. $(1,903) $(1,975) $(3,025) $(3,463)
======= ======= ======= =======
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUE:
Revenue..................................................... 100% 100% 100% 100%
Cost of revenue............................................. 37 27 22 24
---- ---- ---- ----
Gross profit............................................ 63 73 78 76
Operating expenses:
Sales and marketing....................................... 258 187 226 234
Engineering............................................... 49 31 25 31
General and administrative................................ 32 28 28 23
Stock-based compensation.................................. 42 38 28 25
---- ---- ---- ----
Total operating expenses................................ 381 284 307 313
---- ---- ---- ----
Loss from operations........................................ (318) (211) (229) (237)
Interest income, net........................................ 6 2 2 15
---- ---- ---- ----
Net loss.................................................. (312)% (209)% (227)% (222)%
==== ==== ==== ====
</TABLE>
We have experienced increasing revenue throughout this period, which has
been primarily attributable to an increase in the number of clients using our
service. This increase is a result of the addition of new vertical employment
categories, increased sales force headcount, increased sales and marketing
efforts, a larger number of strategic alliances and an increase in successful
search transactions per client as a result of our growing member base.
Cost of revenue has generally increased each quarter even though the number
of research associates remained relatively constant. These increases were caused
by larger allocations of facilities expenses and increases in commissions paid
to employees, strategic alliances and affiliates as our revenue increased
throughout this period. Gross margin has generally increased during this period
because of increased productivity of our research associates.
Total operating expenses have increased throughout these periods. The
largest component of operating expenses was attributable to sales and marketing,
reflecting an increase in the size of our sales force and increased expenditures
to add four new vertical employment categories which were
28
<PAGE>
introduced in the third and fourth quarters of 1999. Increases in the fourth
quarter of 1999 also include expenses related to developing our recently
introduced Cruel World brand.
Our results of operations in the future could fluctuate from quarter to
quarter due to a number of factors, including the number of successful searches
in the quarter and fees and commissions we pay. Our expenditures are relatively
fixed and do not vary significantly with changes in our revenue. Accordingly, if
revenues fall below our expectations, we may not be able to reduce our spending
rapidly enough.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of preferred stock. Since June 1996, we have received $34.8 million in
equity funding. As of December 31, 1999, we had $16.9 million in cash and cash
equivalents.
Net cash used in operating activities totaled $1.9 million in 1997,
$5.8 million in 1998 and $7.7 million in 1999. Cash used in operating activities
resulted from net operating losses in each of the periods, offset in part by
increases in deferred revenue, and other non-cash expenses. Other non-cash
expenses consisted of the forgiveness of notes receivable from stockholders,
stock based compensation, and depreciation.
Net cash used in investing activities totaled $0.2 million in 1997,
$0.5 million in 1998 and $0.4 million in 1999. These increases resulted from the
acquisition of capital assets, including hardware for our Web site, and computer
and office equipment to accommodate our increased number of employees.
Cash provided by financing activities totaled $3.6 million in 1997,
$9.5 million in 1998 and $19.5 million in 1999. These increases resulted
primarily from the proceeds received from the issuance of preferred stock.
In October 1998 the company converted a line of credit with Silicon Valley
Bank to a term loan of $269,000. This loan is being repaid over 36 months with
interest payable at prime rate plus two percentage points. As of December 31,
1998 and 1999 the outstanding balances of the loan were $261,000 and $186,000,
respectively.
We believe that the net proceeds of this offering, together with our
existing cash and cash equivalents, will be sufficient to meet our anticipated
cash requirements for working capital and capital expenditures for the next
12 months. Consistent with our growth, we have experienced a significant
increase in our sales and marketing expenses. We anticipate that these increases
will continue for the foreseeable future as we continue to increase the size of
our member base and our client base. In addition, we will continue to evaluate
possible investments in businesses, products and technologies, which would
increase our cash requirements.
Although we currently believe that we have sufficient capital resources to
meet out anticipated working capital and capital expenditure requirements beyond
the next 12 months, unanticipated events and opportunities may require us to
issue additional equity or debt securities or increase our credit facilities to
meet our capital requirements. If we sell additional equity or convertible debt
securities, the sale could dilute the ownership of our existing stockholders. If
we issue debt securities or establish a new credit facility, our fixed
obligations could increase and result in operating covenants that would restrict
our operations. We cannot be sure that any such financing will be available in
amounts, or on terms acceptable to us.
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<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We do not currently hold any derivative instruments and do not engage in
hedging activities. We have a small term loan with a variable interest rate. We
have not entered into any transaction denominated in a foreign currency. Thus,
our current exposure to interest rate and foreign exchange fluctuations is
minimal.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES ("FAS 133"). FAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction, and, if so, the type of hedge transaction. The effective date
is January 1, 2001 for the Company. We hold no derivative instruments and
management does not currently expect that adoption of FAS 133 will have any
impact on our financial position or results of operations.
On December 3, 1999, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS. The SAB identifies four basic criteria that must be met before
revenue can be recognized. These criteria are:
(1) persuasive evidence that an arrangement exists;
(2) delivery has occurred or services have been rendered;
(3) the seller's price to the buyer is fixed or determinable; and
(4) collectibility is reasonably assured.
We have already adopted the SAB and our revenue recognition policies are in
accordance with the provisions of the bulletin.
In March 2000, the Emerging Issues Task Force issued EITF Abstract
No. 00-2, ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS, regarding the accounting
for costs incurred to develop a Web site. The Abstract is effective for fiscal
quarters beginning after June 30, 2000. We do not expect adoption of the
Abstract to have a significant impact on our financial position or results of
operations.
YEAR 2000 DISCLOSURE
Many existing computer programs were designed and developed without
addressing the impact of the change in the century. Prior to the end of 1999, we
completed a review of the year 2000 compliance for our internally developed
proprietary software. To date, we have not experienced any year 2000-related
problems with our internally developed software or our third-party supplied
software and computer systems, and we are not aware of any failure by our
third-party suppliers to be year 2000 compliant that could impact our business
or operations. However, such problems or failures could arise or become apparent
in the future, and any such problems or failures could have negative
consequences for us. Such consequences could include difficulties in operating
our Web site effectively or conducting other fundamental parts of our business.
30
<PAGE>
BUSINESS
OVERVIEW
We are a leading Internet-based recruiting service that uses database and
email marketing techniques to rapidly and cost-effectively match our clients'
career opportunities with qualified and interested candidates from our large
membership of professionals. Our proprietary JobCast technology matches
candidates with each career opportunity and contacts a targeted group of
potentially interested members using permission-based email. Within five
business days, we begin delivering to our clients a pre-specified number of
candidate resumes, providing a compelling recruiting solution compared to
Internet job boards and traditional executive search firms. Our service is free
for our members and is also designed to protect the confidentiality of our
members and clients. As of March 31, 2000, we had over 200,000 registered member
profiles, organized into seven vertical categories in which members share common
characteristics, such as a particular degree or industry expertise. We have
conducted search transactions for approximately 1,000 clients, including Charles
Schwab & Co., Chemdex, eBay and Gateway.
INDUSTRY BACKGROUND
Today's labor market is characterized by a shortage of available talent and
frequent employee turnover. In the current business environment, there is
intense competition for skilled workers, particularly mid-level professionals.
Additionally, the advent of the Internet is increasing the pace of business and
requiring companies to expedite the hiring process. These issues have caused
many companies to increase their focus on recruiting and their level of
recruitment spending.
According to Kennedy Information LLC, a leading recruitment industry
research service, spending for global recruiting services reached $27 billion in
1999, with $5 billion spent on senior-level executive search services,
$8 billion spent on mid-level executive search services, $14 billion spent on
newspaper or print classified advertising and $280 million spent on
Internet-based recruitment. According to Forrester Research, the market for
Internet-based recruitment will reach $7.1 billion by 2005, representing 15% of
the estimated total global recruitment market at that time. In addition to these
expenditures on external recruiting services, companies incur significant costs
through the internal efforts of their human resources departments or other
employees who manage the recruitment process and experience lost productivity
due to unfilled positions.
TRADITIONAL RECRUITMENT MARKET
Historically, companies have relied on a variety of traditional recruiting
methods such as executive search firms, classified and print advertisements, job
fairs and on-campus recruiting. As an extension of a company's human resources
department, executive search firms deliver pre-screened, mid-level and
senior-level candidates, and typically charge fees equivalent to 20-35% of the
candidate's first year compensation. Newspaper classifieds allow companies to
broadcast job opportunities and gather resumes for positions at all levels from
a wide audience of subscribers. Job fairs allow companies to actively advertise
their merits and job opportunities as well as interact informally with potential
candidates. On-campus recruiting events allow companies to pre-screen and
interview candidates at universities.
Although part of a well-established industry, each of the traditional
recruiting methods suffers from specific limitations including the following:
- TRADITIONAL EXECUTIVE SEARCH FIRMS provide access to a limited applicant
pool, charge a high placement fee and have a hiring cycle of up to six
months.
- CLASSIFIED AND PRINT ADVERTISEMENTS primarily reach active job seekers
within a narrow geographic area.
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- JOB FAIRS provide employers with only a self-selected group of candidates
as well as limited time to pre-screen and evaluate candidates.
- ON-CAMPUS RECRUITING requires companies to visit multiple campuses, which
is costly and time consuming. In addition, on-campus recruiting may only
be appropriate for entry-level positions.
These limitations have led to the emergence of Internet-based recruiting
services.
INTERNET-BASED RECRUITMENT MARKET
The Internet has become a global medium allowing millions of people
worldwide to interact online and share information, communicate and conduct
business electronically. The popularity of the Internet and its efficiencies
have resulted in the proliferation of a number of new Internet-based recruiting
services, as well as a rapid increase in the number of employers utilizing these
services. Forrester Research estimates that nearly 124,000 companies in the
United States will utilize the Internet to recruit employees by 2003, up from
24,000 in 1998.
Job boards are currently the primary method of Internet-based recruiting.
Typically, companies pay a fee to post their job opportunities on a job board's
Web site in order to reach a wide audience of potentially interested candidates.
Job seekers must actively visit a job board's Web site, where they can typically
search through job opportunities based on limited criteria, such as keywords or
geographic location. Candidates who visit job boards may also have the option of
posting their resume, creating a database of resumes that a job board's clients
can search for a fee. Posting openings on job boards can be an attractive
alternative to traditional recruiting methods due to potential cost savings,
shorter time-to-hire cycles and the ability to reach a large audience.
LIMITATIONS OF INTERNET JOB BOARDS
Despite providing advantages over traditional recruitment methods, Internet
job boards have failed to fully address the evolving needs of the recruitment
market. We believe that most Internet job boards suffer from the following
limitations:
FOCUS ON ACTIVE JOB SEEKERS.
Internet job boards inherently appeal to individuals actively seeking a new
job, as candidates must proactively seek out the Web site to search for
opportunities. Since Forrester Research estimates that only 29% of online users
are active job seekers, Internet job boards are not visited by the majority of
online users. In addition, many corporate recruiters believe that passive job
seekers are the most desirable candidates. However, passive job seekers are
unlikely to regularly search through job postings on job boards.
INABILITY TO PERFORM HIGHLY TARGETED SEARCH TRANSACTIONS.
Most Internet job boards offer limited or no screening capabilities for
recruiters. These Web sites may have a large database of resumes or large
numbers of visitors each month, but they may lack the ability to precisely match
employment opportunities with qualified candidates. Of the Internet-based
services that offer some form of screening or searching, the technical burden of
the search process is left to the recruiter and search results are dependent on
each recruiter's ability to successfully navigate the job board.
FEW PERFORMANCE-BASED PRICING MODELS.
Most Internet job boards charge companies to list openings for a fixed
period of time, with no assurance that the advertised position will be
considered by qualified candidates.
UNSPECIFIED DELIVERY OBJECTIVES.
Most Internet job boards do not specify or guarantee a time frame in which
clients will receive a response to their job posting, resulting in uncertainty
as to when, if ever, the search will be completed.
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LIMITED CONFIDENTIALITY AND DISCRETION.
Internet job boards generally do not allow candidates to restrict access to
their resumes or allow companies to discreetly post job openings. Candidates who
post their resume to a job board risk being discovered by their current
employer. Job boards that give candidates the option to restrict access to their
resume often block the viewing of that resume by potential employers, minimizing
the chance of a successful placement. In addition, companies that post their job
opportunities on job boards can potentially expose sensitive business or
strategic information to their competitors and the overall market.
CRUEL WORLD SOLUTION
We deliver to our clients a pre-specified number of interested candidate
resumes based on qualifications determined by our clients. After our proprietary
JobCast technology matches members in our database with our clients' requested
qualifications, our system automatically emails a description of the job
opportunity to each pre-qualified member to assess his or her interest in the
job. Interested members email their resumes to us and we review the candidate
resumes to ensure the matches are appropriate. We then begin delivering
candidate resumes to the client via email within five business days. Our process
is cost-effective, confidential and requires minimal effort by our clients.
[DIAGRAM ILLUSTRATING MATCHING PROCESS]
MEMBER EXPERIENCE
We are dedicated to providing a recruiting service specifically designed for
professionals. Our typical member is currently employed, and is likely to have
at least a bachelors degree, significant work experience and a relatively high
income level. We appeal to passive job seekers through our profile-based
registration model that is free, convenient and offers attractive, tailored
career opportunities. Our services provide the following benefits to our
members:
EASE OF USE FOR PASSIVE JOB SEEKERS.
Through our profile-based registration process, our members are able to
specify the types of career opportunities in which they have an interest. The
one-time registration process takes approximately 20 to 30 minutes, after which
members can update their profile as desired. Members receive an email when a
career opportunity that matches the member's interests and qualifications
becomes available. Interested members indicate their interest in a specific
opportunity by emailing a current resume.
HIGHLY TARGETED CAREER OPPORTUNITIES.
We email our members highly targeted career opportunities that match their
qualifications and indicated areas of interest. This targeting allows passive
job seekers to minimize the time spent sifting through inappropriate and
unwanted job listings. Our service keeps members informed about potential career
opportunities without inundating them with irrelevant data or requiring regular
searches of Internet job boards.
MEMBER TRUST AND CONFIDENTIALITY.
To enhance the confidential nature of the employment search process, we do
not maintain an open database that can be searched by either members or clients.
Potential employers receive a member's resume only after the member responds
affirmatively to the career opportunity presented in an email message. This
level of privacy provides a substantial advantage over many Internet job boards
that post resumes and jobs online for anyone to access at any time. In addition,
we do not sell members' personal information to third parties.
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CLIENT EXPERIENCE
Our unique business model provides clients with a cost-effective and timely
recruiting solution. Our clients include Fortune 500, middle-market and emerging
growth companies and traditional executive search firms. Our services provide
the following benefits to our clients:
ACCESS TO A LARGE AND DESIRABLE MEMBERSHIP OF PASSIVE JOB SEEKERS.
We have over 200,000 registered member profiles, organized into seven
vertical employment categories, that are available to match our clients' career
opportunities. During a one-time registration process, each member provides key
information that is not typically contained in their resume, such as desired
compensation, job type, geography and industry. Our typical member is a
mid-level professional with over seven years of work experience and an annual
income of over $70,000. Over 50% of our profiled members hold graduate degrees.
Our members want to be kept aware of career opportunities but may not be
actively seeking a new job and do not have the time or inclination to
proactively search through Internet job boards or pursue other time consuming
career searches. Through our service, employers can target these mid-level
professionals, who are difficult to reach and were previously accessible only
through traditional executive search firms.
DELIVERY OF QUALIFIED AND INTERESTED CANDIDATES.
Unlike Internet job boards, we do not inundate our clients with resumes that
do not match their specified criteria. Using our proprietary JobCast technology,
our member database and the assistance of our research associates, we are able
to match qualified and interested candidates with our clients' career
opportunities. Interested members respond affirmatively to a job opportunity by
emailing us a copy of their resume. We aggregate the resumes, screen them to
ensure quality control of the matching process and deliver them via email to our
client.
RAPID DELIVERY OF CANDIDATE RESUMES.
Within five business days of receiving a career opportunity from our client,
we begin delivering resumes of candidates that match the job specifications and
who have expressed an interest in the position. Interviews can be set up
immediately thereafter. Compared to other Internet-based recruiting methods that
require clients to sort through numerous unqualified resumes, our service takes
significantly less time for the client to identify and begin processing viable
candidates. We believe this is one of the fastest recruiting methods available
from initiating a search to conducting an interview.
REQUIRES MINIMAL TIME INVOLVEMENT BY OUR CLIENTS.
We enable clients to outsource their recruitment screening and initial
selection process to us. Clients simply provide a detailed description of the
career opportunity to us, and we deliver qualified and interested candidate
resumes from whom the client can choose to interview.
HIGHLY COST-EFFECTIVE RECRUITING SOLUTION.
We believe that, on a cost-per-hire basis, our service is a highly
cost-effective recruiting solution. In addition, our service can reduce indirect
costs associated with the recruiting process by freeing up the resources of the
client's human resource department and other personnel who manage the recruiting
process.
DISCREET AND LIMITED CIRCULATION OF CAREER OPPORTUNITIES.
Our proprietary technology and closed member database ensure that clients'
career opportunities are viewed only by a limited number of pre-qualified
members and not by the population at large. Neither clients nor members have
access to search our database and we do not post job descriptions like Internet
job boards. This system reduces the likelihood of our clients' competitors
obtaining sensitive recruiting data such as types of open positions and detailed
job descriptions.
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CRUEL WORLD STRATEGY
Our objective is to strengthen our position as a leading Internet-based
recruiting service. To achieve this objective, we will continue to acquire and
retain members for our database of professionals and attract new clients. By
establishing a long term, trusted relationship with our members we will continue
to monetize their profiles over the span of their mid-career years by selling
highly targeted search transactions to our clients. The key elements of our
strategy include:
UTILIZING STRATEGIC ALLIANCES TO EXPAND OUR MEMBERSHIP AND CLIENT BASE.
In order to attract new members and clients we intend to add to our existing
strategic alliances. To date, we have developed strategic alliances with leading
universities, print publications and applicant tracking systems. We also have
over 1,000 Web sites in the Cruel World Affiliate Program. We will continue to
establish and expand strategic alliances, focusing on potential alliances that
will complement our current and future vertical employment categories and drive
high quality candidates to our Web site. We may also pursue acquisitions and
joint ventures that will drive traffic to our site or help to expand our
membership database and number of clients.
INCREASING AWARENESS OF THE CRUEL WORLD BRAND.
Given the competitive nature of the Internet-based recruitment market, we
believe that establishing the Cruel World brand is critical to our ultimate
success. We intend to continue to build brand awareness through traditional and
Internet media channels including consumer and trade print advertising, outdoor
and broadcast placements, public relations campaigns, referral programs, direct
mail, Internet banner ads and participation in strategic industry events. In
addition, we intend to reinforce our brand identity with existing members and
clients through ongoing communications. We also plan to continue to encourage
our members and clients to promote our business through viral marketing efforts.
INTRODUCING NEW VERTICAL EMPLOYMENT CATEGORIES.
We currently offer recruiting services in seven vertical employment
categories. We intend to introduce additional employment categories that we
believe will appeal to a broader audience of professionals and increase our
member database. The addition of professionals within these vertical employment
categories will help us to address a larger proportion of our clients' hiring
needs.
ENHANCING JOBCAST TECHNOLOGY.
We intend to continue to improve the efficiency and functionality of our
proprietary technology that matches our clients' career opportunities with
qualified members from our database of membership profiles. This will help
support our growth and better serve our members and clients. We also intend to
enhance the automation of our career matching technology to increase the
productivity of our research associates.
OFFERING ADDITIONAL PRODUCTS AND SERVICES.
We intend to introduce additional career related products and services for
both members and clients. For example, we plan to offer our members content and
information that will help them proactively manage their careers. We also intend
to offer our clients new and improved services designed to enhance their ability
to recruit and retain employees.
EXPANDING INTERNATIONALLY.
We intend to expand internationally to attract additional members and
clients. We may accomplish this by growing internally or by effecting strategic
alliances, investments or licensing arrangements that
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enhance our appeal to passive job seekers and potential clients in targeted
markets outside the United States.
CRUEL WORLD SERVICES
HIGHLY TARGETED CAREER EMAILS FOR MEMBERS.
We deliver highly targeted email messages that contain career opportunities
to our members. We deliver emails only to members who meet the client's search
requirements and have elected to receive opportunities from us. A typical email
received by a candidate includes the job title and description, client name and
description and geographic location.
We currently serve members in seven vertical employment categories. Each
category has its own unique registration process that is designed to collect
relevant data from the members in the particular category. In addition, we send
our members a monthly email newsletter specifically tailored to their career
interests.
The following is a description of each vertical employment category in order
of their introduction:
<TABLE>
<CAPTION>
VERTICAL EMPLOYMENT CATEGORY TARGET MEMBERSHIP
- ---------------------------- -----------------
<S> <C>
MBAs Alumni and students of graduate business school
programs
Software Developers Computer software developers and information
technology professionals
Marketing Marketing professionals including marketing
communications, advertising, brand management,
direct marketing and public relations
professionals
Sales High-technology sales and business development
professionals
Database Developers Computer software developers and information
technology professionals, specializing in
database languages
Java Developers Computer software developers and information
technology professionals, specializing in Java
Finance Finance and accounting professionals
</TABLE>
CANDIDATE MATCHING SERVICES FOR CLIENTS.
We deliver resumes from qualified and interested candidates to our clients
based on their expressed hiring needs and job criteria. The client initiates the
candidate matching process by submitting a career opportunity that outlines the
essential requirements a qualified candidate must possess such as specific skill
sets, education, work experience, geographic location or willingness to travel.
The client consults with one of our research associates, each of whom has
previous recruiting experience, to structure a job profile that will achieve
optimal results from the candidate matching service. Based on this customized
job profile, our proprietary matching technology utilizes sophisticated
algorithms to automatically filter and match the most appropriate candidates
from our database of over 200,000 member profiles. We provide our clients with
resumes of candidates that most closely match the client's job criteria and who
express interest in the position. Our matching process ensures clients will only
receive candidate resumes that meet all of their essential criteria, thus
eliminating a significant portion of the pre-interview screening process.
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Clients can purchase our services on a per-transaction basis or as part of a
multiple search subscription. For the quarter ended December 31, 1999,
approximately 40% of our revenue was generated by search transactions purchased
as part of subscriptions. Subscriptions provide a volume discount to clients for
committing to conduct a specific number of search transactions within a six to
12 month period. Increasingly, our clients are converting from purchasing search
transactions on a per-transaction basis to subscriptions. Numerous clients have
renewed their subscriptions, providing us with a recurring source of revenue. We
believe this pricing model is a valuable sales tool that helps us earn a greater
percentage of our clients' recruiting budgets.
MARKETING
Our marketing strategy is designed to promote member and client acquisition
and build awareness of our brand. We market our services to prospective members
and clients through both Internet and traditional media channels including
direct mail, print advertising, broadcast advertising, opt-in email campaigns,
industry trade shows and conferences, Internet banner ads and public relations
events. In addition, we encourage our members and clients to help us promote our
services through viral marketing efforts. We also utilize strategic alliances to
acquire new members and clients for our vertical employment categories.
STRATEGIC ALLIANCES
We have a broad array of strategic alliances which are intended to
cost-effectively drive qualified members and new clients to our Web site.
MARKETING ALLIANCES
Our marketing alliances refer members and client sales leads to us.
Typically, we pay our alliances a one time fee for referring each new member who
completes a registration profile. We also pay fees equal to a percentage of the
gross revenue generated by referred clients who conduct successful search
transactions with us. In most cases, these marketing alliances can be terminated
on 30 days notice. Our marketing alliances include:
CRUEL WORLD AFFILIATE PROGRAM.
We have alliances with over 1,000 Web sites, such as AllBusiness.com,
DevX.com, NationJob.com, Sales.com and SVB.com. These affiliates refer new
members and clients to us.
PRINT PUBLICATIONS.
We have alliances with various print publications such as RED HERRING, CFO
MAGAZINE and SQL SERVER MAGAZINE. Many of these publications send new members
and clients to us through links on co-branded Web sites or dedicated toll-free
telephone numbers. We also run special direct mail promotions targeted to the
print publications' subscribers.
ALUMNI ASSOCIATIONS AND STUDENT PLACEMENT CENTERS.
Through our alliances with over 100 educational institutions, we are able to
attract highly educated individuals as new members. We have been successful in
creating personal relationships with many top graduate schools, thereby creating
a substantial first-to-market advantage. Many of these institutions allow us to
send co-branded direct mail to their alumni and current students. Examples
include Graduate School of Business at Stanford University, Kellogg Graduate
School of Management at Northwestern University and The Wharton School at
University of Pennsylvania.
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APPLICANT TRACKING SYSTEMS.
We have several alliances with software application providers that allow
corporations to manage their internal database of resumes and track candidates
through their recruiting process. These applicant tracking systems, such as
HireSystems, Resumix and Webhire, refer new clients to us when their customers'
existing internal resume databases do not contain suitable candidates.
CONTENT ALLIANCES
Our content alliances expand the range of services we offer to our members
and clients. These services can assist in educating our members and allow us to
build our reputation as career management experts. Typically, we include links
to these services on our Web site and earn a fee for referring members and
clients to these services. Our content alliances include HomeFair.com, a
provider of salary and relocation calculators and WetFeet.com, a provider of
information about companies, industries and careers.
SALES
We sell our services through a direct sales organization dedicated to
developing and maintaining close relationships with human resource managers and
hiring managers. As of March 31, 2000, we had 24 full-time sales employees. This
group includes both telesales, based in Palo Alto, California, and field sales,
based in the eight key employment markets of Atlanta, Austin, Boston, Chicago,
Los Angeles, New York, San Francisco and Seattle. Our sales force is organized
geographically and we plan to increase the size of our sales force to further
increase coverage. Our sales force and research associates also fulfill client
support services by following-up with clients after each search transaction to
address customer satisfaction issues.
TECHNOLOGY AND INFRASTRUCTURE
To support our products and services we have developed and implemented a
number of technologies, including a proprietary Internet recruitment technology,
JobCast, and a comprehensive systems infrastructure.
PROPRIETARY JOBCAST TECHNOLOGY.
We have developed JobCast technology to automate most of the researching,
targeting, matching, candidate contact, results compilation and candidate
delivery functions performed by traditional recruiters. After capturing detailed
information from our database of registered member profiles, our JobCast
technology utilizes proprietary algorithms to search and automatically match
career opportunities to qualified member profiles. The JobCast technology then
automatically emails career opportunities to qualified members and retrieves and
processes their responses. In some cases, we may seek to contact a qualified
member by telephone or mail if we do not have their current email address.
SYSTEMS INFRASTRUCTURE.
Our systems have been designed to be scalable as our business grows and to
allow for rapid deployment of multiple vertical employment categories while
maintaining the reliability necessary for our business. Through the use of
parallel servers, our system architecture is designed to handle significant
growth without the need for substantial reconfiguration. As additional capacity
is required servers can be rapidly added to the system. Our parallel server
configuration is designed to minimize the probability of a total system outage
because the failure of a single server should not compromise the whole system.
Our technology platform uses industry standard technologies to maximize
reliability and expendability. Our systems are based on the Microsoft NT and
Microsoft SQL Server environment. For our Web site, we utilize JavaScript and
Active Server Pages.
We maintain software and data reliability through a variety of processes and
quality assurance procedures. We have adopted procedures such as daily database
backups with offsite data storage.
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CLIENTS
Our clients consist of national and regional companies in a broad range of
industries, including technology, Internet, media and communications, financial
services and consulting. Our client base has rapidly expanded during the past
year. As of March 31, 2000, we have conducted search transactions for
approximately 1,000 clients. For the 12 months ended December 31, 1999, none of
our clients accounted for more than 5% of our revenue.
The following is a representative selection of our clients:
<TABLE>
<CAPTION>
TECHNOLOGY INTERNET CONSULTING
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Agilent Technologies AltaVista Andersen Consulting
Compaq Computer Chemdex Booz Allen & Hamilton
Gateway E-Stamp Cambridge Management
Hewlett-Packard Exactis.com Consulting
Intel Excite@Home Diamond Technology Partners
Intuit Juno Online Services iXL Enterprises
PeopleSoft Netcentives Pittiglio Rabin Todd &
McGrath
Siebel Systems pcOrder.com
Sun Microsystems PlanetRx
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL SERVICES MEDIA & COMMUNICATIONS OTHER
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Charles Schwab & Co. AT&T Gap
Wells Fargo Cablevision Polaroid
Citigroup Tribune Company Royal Caribbean Cruises
First USA U S WEST Toyota Motor Sales
Visa USA Walt Disney Company
</TABLE>
Each of the clients in the table above has accounted for at least $8,000 in
revenue since January 1, 1999, and in the aggregate these clients have accounted
for over $1.2 million in revenue since January 1, 1999.
In addition, we serve traditional executive search firms seeking to minimize
the effort associated with the candidate identification phase of the search
process and broaden their access to high quality candidates.
COMPETITION
The market for Internet-based recruiting services is relatively new,
intensely competitive, highly fragmented and rapidly evolving. We compete
against Internet job boards, such as Monster.com and HotJobs.com, as well as
traditional media companies such as newspapers, magazines and trade publications
and large Internet portals that offer job boards and other recruiting services.
We also compete with traditional recruiting services for a share of employers'
total recruiting budgets, some of which are developing Internet strategies and
are attempting to migrate a portion of their business online. We expect to face
additional competition as other established and emerging companies, including
print media companies and executive search firms with established brands, enter
the Internet-based recruitment market. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships to expand their businesses or to offer more comprehensive
solutions.
To compete successfully, we must continue to attract and retain members and
clients, keep our database current and successfully conduct more candidate
search transactions. Several factors affect our ability to attract and retain
members and clients, such as the time and effort necessary to register for our
service and to update the member's profile, the belief that membership will be
beneficial, the fees charged for our search transactions, the percentage of
successful placements that result from our search transactions and the cost and
success rate of similar recruiting services through the Internet or competing
media.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There is an increasing number of laws and regulations pertaining to the
Internet, including laws or regulations relating to user privacy, liability for
information retrieved from or transmitted over the Internet, Internet content
regulation and user privacy. Moreover, the applicability to the Internet of
existing laws governing issues such as intellectual property ownership and
infringement, copyright, patent, trademark, trade secret, obscenity, libel,
employment and personal privacy is uncertain and developing.
INTERNET PRIVACY. Government agencies are considering adopting regulations
regarding the collection and use of personal identifying information obtained
from individuals accessing Web sites. While we have implemented and intend to
implement additional programs designed to enhance the protection of the privacy
of our users, our efforts may not conform with regulations adopted by these
agencies. In addition, these regulatory and enforcement efforts might adversely
affect our ability to collect demographic and personal information from users,
which could have an adverse effect on our ability to compile member profiles and
conduct our services.
DOMAIN NAMES. Domain names are the user's Internet "addresses." The current
system for registering, allocating and managing domain names has been the
subject of litigation and of proposed regulatory reform. We own the
"cruelworld.com," "careercentral.com," "jobcast.com" and "mbacentral.com" domain
names. There can be no assurance that our domain names will not lose their
value, or that we will not have to obtain entirely new domain names in addition
to or in lieu of our current domain names if reform efforts result in a
restructuring in the current system.
JURISDICTIONS. Due to the global nature of the Internet, it is possible
that, although our transmissions over the Internet originate primarily in the
San Francisco Bay area, the governments of other states and foreign countries
might attempt to regulate our business activities. In addition, because our
service is available over the Internet in multiple states, these jurisdictions
may require us to qualify to do business as a foreign corporation in each of
these states that could subject us to taxes and other regulations.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success and ability to compete depends significantly on our internally
developed proprietary technology and on our brand and marks. We do not have any
patents. We rely upon trademark and other intellectual property laws, and on
confidentiality and non-disclosure agreements with our employees and third
parties to establish and protect our proprietary rights. We pursue the
registration of our trade and service marks in the United States and
internationally. We have registered trademarks for "Cruel World,"
"MBA Central," "Career Central," "JobCast," "Career Central for MBAs," "Career
Central for Marketing" and "Career Central for Developers" in the United States
and most of which are registered in Canada. We are also pursuing similar
trademarks utilizing our Cruel World brand. We cannot assure you that any of our
trademark registrations will be approved or granted or, if granted, that they
will not be successfully challenged by others or invalidated through
administrative process or litigation. If the registration of any of our
trademarks are not approved or granted due to the prior issuance of trademarks
to third parties or for other reasons, there can be no assurance that we will be
able to enter into arrangements on commercially reasonable terms to allow us to
continue to use such trademark. Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which our
services are distributed or made available through the Internet, and policing
unauthorized use of our proprietary information is difficult.
In addition, we seek to protect our proprietary rights through the use of
confidentiality agreements with employees, consultants, advisors and others. We
cannot assure you that these agreements will provide adequate protection for our
proprietary rights if there is any unauthorized use or disclosure of
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<PAGE>
our proprietary information or if our employees, consultants, advisors or others
fail to maintain the confidentiality of our proprietary information. We also
cannot assure you that our proprietary information will not otherwise become
known, or be independently developed, by competitors.
EMPLOYEES
As of March 31, 2000, we employed 91 people, including 55 in sales and
marketing, 14 in operations, 12 in engineering and 10 in general and
administration. All of our employees are full-time. We believe that we maintain
good relations with our employees.
FACILITIES
We are currently leasing 8,544 square feet of office space in Palo Alto,
California, 66,000 square feet of office space in Sunnyvale, California, and
1,000 square feet of office space in New York, New York. Our Palo Alto lease
expires in 2003 and our Sunnyvale lease expires on April 2007. We plan to move
to the Sunnyvale, California facility in May 2000. We believe that this facility
will meet our space requirements for the near future.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this prospectus, we are not a party to any legal proceeding.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth information with respect to our executive
officers, directors and other key employees as of March 31, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------------------------------------------------------
<S> <C> <C>
Jeffrey Hyman (1).................... 32 President and Chief Executive Officer, Chairman of the
Board of Directors
Lun Yuen (1)......................... 34 Chief Technology Officer
Heather Martin Maier (1)............. 44 Chief Operating Officer
Sanford Fitch (1).................... 59 Senior Vice President of Finance and Chief Financial
Officer
Michael Foley........................ 40 Vice President of Marketing
Heidi Jackman........................ 33 Vice President of Community and Marketspace Strategy
Frank McNear......................... 53 Vice President of Operations
Thomas Ryan.......................... 43 Vice President of Engineering
Alicia Saribalis..................... 41 Vice President of Sales
Bradley Feld......................... 34 Director
Patrick Kenealy (2).................. 40 Director
Piers Marmion (2)(3)................. 41 Director
Lee Isgur (2)(3)..................... 62 Director
</TABLE>
- ------------------------
(1) Executive Officer
(2) Member of Audit Committee
(3) Member of Compensation Committee
EXECUTIVE OFFICERS
JEFFREY HYMAN co-founded the company in May 1996 and has served as our
President, Chief Executive Officer and Chairman of the Board since that time.
From July 1995 to April 1996, Mr. Hyman served as Marketing Manager for New
Products at Intuit Incorporated. From 1990 to 1994, Mr. Hyman served in a
variety of Marketing, Sales and Product Development positions with Black &
Decker Corporation. Mr. Hyman holds a Masters in Management (M.B.A.) from the
Kellogg Graduate School of Management at Northwestern University and a B.S. in
Economics from the Wharton School of Finance at the University of Pennsylvania.
LUN YUEN co-founded the company in May 1996 and has been our Chief
Technology Officer since November 1999. From November 1998 to November 1999,
Mr. Yuen served as our Senior Vice President of Engineering. From May 1996 to
November 1998, Mr. Yuen served as our Vice President of Engineering. From
May 1988 to June 1996, Mr. Yuen served in several technology and management
roles at Intuit Incorporated. Previously, Mr. Yuen served as a software engineer
at Bell Laboratories. Mr. Yuen holds an M.S. in Computer Science from Stanford
University, a B.S. in Electrical Engineering and Computer Science from the
University of California at Berkeley and a B.A. in Economics from the University
of California at Santa Cruz.
HEATHER MARTIN MAIER joined the company in July 1998 and has been our Chief
Operating Officer since October 1999. From December 1998 to September 1999,
Ms. Martin Maier served as our Senior Vice President of Marketing and Operations
and from July 1998 to December 1998, as our Senior Vice President of Marketing.
From March 1996 to June 1998, Ms. Martin Maier served as a Senior Vice President
at Wells Fargo Bank. From September 1988 to February 1996, Ms. Martin Maier
served in several positions at PC World Communications including as Senior Vice
President of Circulation and
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Research. Ms. Martin Maier holds an M.B.A. from New York University and a B.A.
from Connecticut College.
SANFORD FITCH has been our Senior Vice President of Finance and Chief
Financial Officer since March 2000. From June 1999 to October 1999, Mr. Fitch
served as Vice President, Finance and Operations and Chief Financial Officer of
MadeToOrder.com, a business to business e-commerce company focusing on
personalized products for business promotions. From December 1994 to
October 1998, Mr. Fitch served as Senior Vice President of Finance and
Operations and Chief Financial Officer of Conceptus, Inc., a medical device
company. Mr. Fitch has also served as Vice President of Finance and Chief
Financial Officer of SanDisk Corporation, a manufacturer of flash memory
devices, and Komag Inc. a manufacturer of rigid media for the disk drive
industry. Mr. Fitch holds a B.S. from Stanford University and an M.B.A. from the
Stanford University Graduate School of Business. Mr. Fitch serves on the Board
of Directors of Conceptus Inc.
MICHAEL FOLEY has been our Vice President of Marketing since joining the
company in January 2000. From September 1986 to December 1999, Mr. Foley worked
in marketing management and became Director of Marketing at the San Francisco
Newspaper Agency, the business arm of the SAN FRANCISCO CHRONICLE and SAN
FRANCISCO EXAMINER. Mr. Foley holds an M.B.A. from the Haas School of Business,
University of California at Berkeley and a B.A. from the University of
California at Berkeley.
HEIDI JACKMAN joined us in February 1998 and became our Vice President of
Community and Marketspace Strategy in September 1999. From May 1997 to
February 1998, Ms. Jackman was a marketing consultant for Internet start-up
companies. From December 1991 to May 1997, Ms. Jackman held several marketing
positions including Senior Product Manager for Quicken consumer software with
Intuit Incorporated. Ms. Jackman holds a B.A. from the University of California
at Santa Barbara.
FRANK MCNEAR has been our Vice President of Operations since joining the
company in April 2000. From June 1997 to April 2000, Mr. McNear was the Vice
President of Customer Care for ISP Channel Inc., a broadband Internet service
provider. From February 1996 to January 1997, Mr. McNear was the Vice President
of Sales for Hello Direct, a communications products catalog company. From
May 1994 to January 1996, Mr. McNear worked as a Director of UB Networks, a
division of Tandem Computers. Mr. McNear holds a B.S. from the Menlo School of
Business Administration.
THOMAS RYAN has been our Vice President of Engineering since joining the
company in January 2000. From May 1996 to January 2000, Mr. Ryan was the Senior
Vice President of Engineering and Operations at Medialinq, an electronic
document delivery service company. From October 1988 to May 1996, he was the
Director of Media Products in Apple Computer's Macintosh System Software
Division. Previously, Mr. Ryan held several product development and research
roles at Hewlett Packard Laboratories and Bell Laboratories. Mr. Ryan holds an
M.S. in Computer Science from Stevens Institute of Technology, and a B.S. in
Computer Engineering from the University of Michigan.
ALICIA SARIBALIS has been our Vice President of Sales since joining the
company in March 2000. From March 1991 to February 1997, Ms. Saribalis served in
management positions at Ziff-Davis Publishing and became Executive Director of
Key Account Sales for Ziff Davis Media Networks and an Associate Publisher of PC
WEEK. Previously, Ms. Saribalis worked for COMPUTERWORLD, BBDO Advertising and
spent five years as an executive recruiter. Ms. Saribalis holds a B.S. in
Business Administration from San Francisco State University.
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BOARD OF DIRECTORS
BRADLEY FELD has served on our Board of Directors since June 1998. Since
June 1996, Mr. Feld has served as Managing Director of Softbank Technology
Ventures. Since July 1995, Mr. Feld has been the President of Intensity
Ventures Inc., a company that helps to establish, advise and operate software
companies. From June 1994 to June 1995, Mr. Feld served as Chief Technology
Officer of AmeriData Technologies. From 1985 to 1993, Mr. Feld was the President
of Feld Technologies, a software consulting firm that he founded. Mr. Feld is a
director and co-chairman of Interliant, Inc. and MessageMedia, Inc. Mr. Feld
holds S.B. and S.M. degrees from the Massachusetts Institute of Technology.
PATRICK KENEALY has served on our Board of Directors since September 1997.
Since October 1996, Mr. Kenealy has served as Managing General Partner of IDG
Ventures, the venture capital fund of International Data Group. From
October 1990 to September 1996, Mr. Kenealy was the Chief Executive Officer of
PC World Communications and Publisher of PC WORLD. Previously, Mr. Kenealy held
several management and editorial positions with Ziff-Davis Publishing and
Cahners Publishing. Mr. Kenealy holds a B.A. from Harvard University.
PIERS MARMION has served on our Board of Directors since April 2000. As of
May 2000, Mr. Marmion will serve as Chief Executive Officer of e9c Talent
Capital, a management consulting firm based in London. From October 1994 to
April 2000, Mr. Marmion was Chief Operating Officer of Spencer Stuart Worldwide,
the world's third largest executive search firm. From 1992 to 1994, Mr. Marmion
was Managing Director of Spencer Stuart UK. From 1990 to 1992, Mr. Marmion was
Managing Director of Spencer Stuart Selector. Previously, Mr. Marmion served as
Founding Director and Deputy Managing Director for Norman Broadbent
International, a leading executive search firm. Mr. Marmion was also employed by
the Edin Group, an early-stage investment consortium, where he served in
investment analyst and operational roles. Mr. Marmion holds a B.A. in History
from Cambridge University.
LEE ISGUR has served on our Board of Directors since July 1996. Since
March 1997, Mr. Isgur has served as the founder and Managing Director of
Corporate Counselors, an advisor to companies on financial transactions. From
March 1994 to February 1997, Mr. Isgur was a Managing Director at Jefferies &
Company, a leading investment bank, where he directed the Gaming, Interactive
and Entertainment research group. Previously, Mr. Isgur served as a First Vice
President at PaineWebber for 14 years. Mr. Isgur holds an M.B.A. from the Amos
Tuck School of Business Administration at Dartmouth University and a B.A. in
Economics from Reed College.
JEFFREY HYMAN has served as Chairman of our Board of Directors since May
1996.
BOARD COMPOSITION
We currently have authorized five directors. Our certificate of
incorporation provides for a classified board of directors that consists of
three classes of directors, each serving staggered three-year terms. As a
result, a portion of the board of directors will be elected each year. To
implement the classified structure, prior to the consummation of the offering,
one of the nominees will be elected to a one-year term, two will be elected to a
two-year term and two will be elected to three-year terms. Thereafter, directors
will be elected for three-year terms. Mr. Isgur has been designated a Class I
director whose term expires at the 2001 annual meeting of stockholders.
Messrs. Feld and Kenealy have been designated Class II directors whose terms
expire at the 2002 annual meeting of stockholders. Messrs. Hyman and Marmion
have been designated Class III directors whose terms expire at the 2003 annual
meeting of stockholders. This classification of the board of the board of
directors may delay or prevent a change in control of our company or in
management. See "Description of Capital Stock--Delaware Anti-Takeover Law and
Certain Charter and Bylaw Provisions." There are no family relationships among
any of our directors, officers or key employees.
44
<PAGE>
BOARD COMMITTEES
Our board of directors has an audit committee and a compensation committee.
Our audit committee reviews, acts on and reports to our board of directors
with respect to various auditing and accounting matters, including the selection
of our independent accountants, the scope of our annual audits, fees to be paid
to the independent accountants, the performance of our independent accountants,
operating and internal controls and our accounting practices. Messrs. Isgur,
Marmion and Kenealy are the members of our audit committee.
Our compensation committee establishes salaries, incentives and other forms
of compensation for executive officers and other employees. This committee also
administers our incentive compensation and benefit plans. Messrs. Isgur and
Marmion are the members of the compensation committee.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from us for
attending board of directors or committee meetings except for reimbursement of
reasonable expenses incurred in connection with attending those meetings.
Directors who are employees of ours are eligible to participate in our 2000
stock plan and our 2000 employee stock purchase plan. Directors who are not
employees or representative of venture capital funds are eligible to participate
in our 2000 director option plan. Our 2000 director option plan generally
provides for an automatic initial grant of options to purchase 15,000 shares of
our common stock to each non-employee director on the later to occur of the
effective date of the plan or the date on which a person first becomes a
non-employee. In connection with his addition to our board in March 2000, Mr.
Marmion received a grant of options to purchase 52,650 shares of our common
stock. After the initial grant, a non-employee director will be granted a
subsequent option to purchase 5,000 shares of our common stock each year on the
date of our annual meeting of stockholders, if on that date he or she has served
as a director for at least six months. The option grants have a term of ten
years. Each initial option grant will vest as to one third of the shares
issuable under the option on each anniversary of its date of grant if the
individual is a director on such date and each subsequent option grant will vest
as to 100% of the shares issuable under the grant on the third anniversary of
its date of grant if the individual is a director on such date. The exercise
price of all options will be 100% of the fair market value per share of our
common stock on its date of grant. For an additional description of these option
plans, please refer to our discussion under "--Compensation Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee is an officer or employee
of ours. No interlocking relationship exists between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has such an interlocking relationship existed in the
past.
EMPLOYMENT-RELATED AGREEMENTS
SANFORD FITCH
In February 2000, we entered into an at-will employment agreement with Mr.
Fitch. In addition, in March 2000, we entered into a bonus agreement with Mr.
Fitch and, as described below, he issued to us a promissory note as payment in
connection with the exercise of his initial stock option. Under these
arrangements, Mr. Fitch is entitled to an annual base salary of $200,000, and
Mr. Fitch is eligible to receive an annual bonus of up to 10% of his base
salary, or $20,000, payable quarterly. This is payable based on obtaining agreed
upon management objectives. Mr. Fitch is also entitled to receive a bonus of
45
<PAGE>
$150,000 on his first anniversary of employment. Thereafter, if he is still
employed by us at the time, he will be entitled to receive a quarterly bonus of
$37,000 on the last day of each calendar quarter beginning on June 30, 2001 and
ending on December 31, 2003. These bonus amounts are payable, at our option, in
cash or forgiveness of debt owed by Mr. Fitch to us. Mr. Fitch received an
initial stock option grant of 288,000 shares of our common stock at an exercise
price of $2.60 per share. These options vest over a period of 44 months with
12/44 of the total vesting after one year and the balance vesting 1/44 of the
total each month thereafter. In March 2000, Mr. Fitch exercised these options in
full and issued to us a promissory note of $788,000 as payment in full for the
related shares.
If we experience a change of control and within six months Mr Fitch is
terminated without "cause" or he resigns from employment for "good reason," Mr.
Fitch is entitled to six months base salary, two years of acceleration on all
his unvested stock options and forgiveness of all amounts remaining outstanding
under his promissory note.
HEATHER MARTIN MAIER
In June 1998, we entered into a severance agreement with Ms. Martin Maier.
Under this agreement, if we terminate Ms. Martin Maier without "cause," she is
entitled to six months base salary and any scheduled bonuses due within the
six-month period following her receipt of notice of termination.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned for services rendered
to us in all capacities for the fiscal year ended December 31, 1999 by our Chief
Executive Officer and the three next most highly compensated executive officers
who earned more than aggregate cash compensation of $100,000 during the fiscal
year ended December 31, 1999 (collectively, our "named executive officers").
Except as provided below, annual compensation listed in the following table
excludes other compensation in the form of perquisites or other personal
benefits that constitute the lesser of $50,000 or 10% of the total annual salary
and bonus of each of the named executive officers in 1999. The options listed in
the following table were originally granted under our 1996 stock option plan.
These options have been incorporated into our new 2000 stock plan, but will
continue to be governed by their existing terms.
46
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS COMPENSATION ($)(1)
- --------------------------- ---------- --------- ------------ -------------------
<S> <C> <C> <C> <C>
Jeffrey Hyman,.............................. 66,305 68,758 140,000 17,417
Chief Executive Officer
Heather Martin Maier,....................... 180,385 102,083 140,000
Chief Operating Officer
Lun Yuen,................................... 91,339 140,000 14,667
Chief Technology Officer
Keith Taylor,(2)............................ 109,346 4,375 185,000
Chief Financial Officer
</TABLE>
- ------------------------
(1) Other compensation represents forgiveness of indebtness issued in connection
with Messrs. Hyman and Yuen's acquisition of shares of our common stock.
(2) Mr. Taylor left the company in January 2000. No individual who would
otherwise have been included in the table on the basis of salary and bonus
earned during 1999 resigned or otherwise terminated his or her employment
during 1999.
OPTION GRANTS IN FISCAL YEAR 1999
The following table provides summary information regarding stock options
granted to our named executive officers during the fiscal year ended
December 31, 1999.
Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the exercise price per
share, (b) assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rates shown in the table for the entire ten
year term of the option and (c) subtracting from that result the aggregate
option exercise price. The 5% and 10% assumed annual rates of stock price
appreciation are mandated by the rules of the Securities and Exchange Commission
and do not represent our estimate or projection of future common stock prices.
We can give no assurance that the actual stock price will appreciate over the
term of the options at the assumed 5% and 10% levels or at any other defined
level. Actual gains, if any, on stock option exercises will be dependent on the
future performance of our common stock.
47
<PAGE>
Unless the market price of the common stock appreciates over the option term, no
value will be realized from the option grants made to the named executive
officers.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
DATE OF OPTIONS DURING PRICE EXPIRATION
NAME GRANT GRANTED PERIOD ($/SHARE) DATE
- ---- ------------- ---------- ------------- --------- -------------------------------
<S> <C> <C> <C> <C> <C>
Jeffrey Hyman,....... June 4, 1999 140,000 13.6% $0.76 June 3, 2009
Heather Martin
Maier,............. July 13, 1999 140,000 13.6% $0.69 July 13, 2009
Lun Yuen,............ June 4, 1999 140,000 13.6% $0.69 June 3, 2009
Keith Taylor(1),..... June 4, 1999 185,000 17.9% $0.69 June 3, 2009
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM
-----------------------------
NAME 5% 10%
- ---- ------------- -------------
<S> <C> <C>
Jeffrey Hyman,....... $ 66,914 $ 169,574
Heather Martin
Maier,............. $ 60,751 $ 153,956
Lun Yuen,............ $ 60,751 $ 153,956
Keith Taylor(1),..... $ 80,278 $ 203,441
</TABLE>
- --------------------------
(1) Mr. Taylor left the company in January 2000. Of the 185,000 options, 46,250
were vested as a result of the successful completion of our Series E
preferred stock financing in September 1999. The balance of these options
have been forfeited and returned to our 1996 stock option plan.
In 1999, we granted options to purchase up to a total of 1,033,534 shares to
employees, directors and consultants under our 1996 Stock Option Plan at
exercise prices equal to the fair market value of our common stock, as
determined in good faith by our board of directors.
In March 2000, in connection with his appointment as Chief Financial
Officer, we granted Mr. Fitch options to purchase 288,000 shares at an exercise
price of $2.60 per share.
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of shares of common stock underlying the unexercised options held by the named
executive officers as of December 31, 1999. The table also sets forth the value
realized upon the exercise of stock options during 1999 which is calculated
based on the fair market value of our common stock on the date of exercise, as
determined by the board, less the exercise price paid for the shares. The value
of unexercised in-the-money options at December 31, 1999 is calculated on the
basis of the assumed initial public offering price of $ , less the exercise
prices of the options, multiplied by the number of shares underlying those
options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31,1999
NUMBER OF SHARES --------------------------- ---------------------------
NAME ACQUIRED ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey Hyman........... 10,000 $9,850 190,000 140,000 $ $
Heather Martin Maier.... -- -- 121,361 275,639
Lun Yuen................ -- -- 84,444 195,556
Keith Taylor (1)........ -- -- 46,250 --
</TABLE>
- ------------------------
(1) Mr. Taylor left the company in January 2000.
48
<PAGE>
COMPENSATION PLANS
1996 STOCK OPTION PLAN. Our 1996 stock option plan provides for the
granting to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code and for the granting to employees,
directors and consultants of nonstatutory stock options. As of March 31, 2000,
3,343,000 shares were authorized under the plan, 2,092,120 shares were subject
to outstanding options and 447,205 shares remain available for future grant. No
further option grants will be made under the 1996 stock option plan after the
completion of this offering but its provisions will continue to govern
outstanding options. In the event of our reorganization with or into another
corporation in which our stockholders own less than 50% of our voting securities
or a sale of all or substantially all of our assets, the successor corporation
will assume or substitute for the options. If such assumption or substitution
does not occur, then options will terminate upon such event.
2000 STOCK PLAN. Our 2000 stock plan provides for the grant of incentive
stock options to employees and for the grant of nonstatutory stock options and
stock purchase rights to employees, directors and consultants. The 2000 stock
plan was originally adopted by our board of directors in April 2000 and is
subject to stockholder approval. Unless terminated sooner, the 2000 stock plan
will terminate automatically ten years from the date of obtaining stockholder
approval.
A total of 600,000 shares of our common stock has been reserved for issuance
under this plan plus any shares of common stock that were reserved but unissued
under our 1996 stock option plan and any shares that are subsequently returned
to the 1996 stock option plan as a result of termination of options or our
repurchase of shares previously issued under that plan. In addition, annual
increases will be added on the first day of our fiscal year beginning in 2001,
equal to the lesser of 1,000,000 shares, 5% of the outstanding shares or an
amount determined by our board of directors. There have been no options granted
under the 2000 stock plan prior to the completion of this offering.
The administrator of our 2000 stock plan has the power to determine, among
other things:
- the terms of the options or stock purchase rights, including the exercise
price of such options or stock purchase rights;
- the number of shares issuable under each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
In addition, the administrator has the authority to amend, suspend or
terminate the 2000 stock plan, so long as no such action affects any shares of
common stock previously issued and sold or any option or stock purchase right
previously granted under the 2000 stock plan. During any fiscal year, each
optionee may be granted options to purchase a maximum of 1,000,000 shares. In
addition, in connection with an optionee's initial employment with us, such
optionee may be granted an option covering up to an additional 1,000,000 shares.
Options and stock purchase rights granted under our 2000 stock plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by such optionee.
Options granted under the 2000 stock plan must generally be exercised within
three months after the end of optionee's status as our employee, director or
consultant, or within twelve months after such optionee's termination by death
or disability, but in no event later than the expiration of the option's term.
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreement grants us a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment or consulting relationship with us for any reason, including death or
disability. The purchase price for shares repurchased under the restricted stock
purchase
49
<PAGE>
agreement must be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to us. The repurchase option
lapses at a rate determined by the administrator.
The exercise price of all incentive stock options granted under the 2000
stock plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of nonstatutory stock options and stock
purchase rights granted under the 2000 stock plan is determined by the
administrator, but for nonstatutory stock options intended to qualify as
"performance-based compensation" under Section 162(m) of the Internal Revenue
Code, the exercise price must be at least equal to the fair market value of our
common stock on the date of grant. The terms of all incentive stock options
generally may not exceed ten years and the administrator determines the term of
all other options.
The 2000 stock plan provides that if we merge with or into another
corporation, or sell substantially all of our assets, each option and stock
purchase right shall be assumed or an equivalent option substituted for by the
successor corporation. If the outstanding and stock purchase rights are not
assumed or substituted for by the successor corporation, the optionees will
fully vest in and have the right to exercise such options or stock purchase
rights as to all of the shares subject to the option or stock purchase right. If
an option or stock purchase right becomes fully vested and exercisable upon a
merger or sale of assets, the administrator will notify the optionee that the
option or stock purchase right is fully exercisable for a period of 15 days from
the date of the notice, and the option or stock purchase right will terminate
upon the expiration of the 15 day period.
2000 EMPLOYEE STOCK PURCHASE PLAN. Our 2000 employee stock purchase plan
was adopted by our board of directors in April 2000 and is subject to approval
by our stockholders. A total of 300,000 shares of our common stock has been
reserved for issuance under the 2000 employee stock purchase plan, plus annual
increases equal to the lesser of 500,000 shares, 1.0% of the outstanding shares
on such date or an amount determined by our board of directors. As of the date
of this prospectus, no shares have been issued under the 2000 employee stock
purchase plan.
The 2000 employee stock purchase plan, contains consecutive, overlapping,
12 month offering periods. Each offering period includes two six-month purchase
periods. The offering periods generally start on the first trading day on or
after February 15 and August 15 of each year, except for the first such offering
period which commences on the first trading day on or after the effective date
of this offering and ends on the last trading day on or before August 15, 2001.
Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, employees may not be granted an
option to purchase stock if they either:
- immediately after grant, own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
- hold rights to purchase stock under our employee stock purchase plans
which accrue at a rate which exceed $25,000 worth of stock for each
calendar year.
The 2000 employee stock purchase plan permits participants to purchase our
common stock through payroll deductions of up to 15% of the participant's
compensation. Compensation is defined as the participant's base straight time
gross earnings and commissions but exclusive of payments for overtime, profit
sharing payments, shift premium payments, incentive compensation, incentive
payments, bonuses and other compensation. The maximum number of shares a
participant may purchase during a single purchase period is 5,000 shares.
50
<PAGE>
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 2000 employee stock purchase plan is generally 85% of the
lower of the fair market value of our common stock either:
- at the beginning of the offering period, or
- at the end of the purchase period.
If the fair market value at the end of a purchase period is less than the
fair market value at the beginning of the offering period, the participants will
be withdrawn from the current offering period following exercise and
automatically re-enrolled in a new offering period. The new offering period will
use the lower fair market value as of the first date of the new offering period
to determine the purchase price for future purchase periods. Participants may
end their participation at any time during an offering period, and they will be
paid their payroll deductions to date. Participation ends automatically upon
termination of employment with us.
Rights granted under the 2000 employee stock purchase plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the 2000 employee stock purchase
plan. The 2000 employee stock purchase plan provides that, if we merge with or
into another corporation or there is a sale of substantially all of our assets,
each outstanding option may be assumed or substituted for by the successor
corporation. If the successor corporation refuses to assume or substitute for
the outstanding options, the offering period then in progress will be shortened
and a new exercise date will be set.
The 2000 employee stock purchase plan will terminate in 2010. Our board of
directors has the authority to amend or terminate the 2000 employee stock
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 2000 employee stock purchase plan.
2000 DIRECTOR OPTION PLAN. Non-employee directors are entitled to
participate in our 2000 director option plan. The 2000 director option plan was
adopted by our board of directors in April 2000 and is subject to approval by
our stockholders. The 2000 director option plan has a term of ten years, unless
terminated sooner by our board of directors. A total of 100,000 shares of our
common stock have been reserved for issuance under the 2000 director option plan
plus annual increases will be added to this plan on the first day of our fiscal
year beginning in 2001 equal to the lesser of the number of shares issued under
the 2000 director option plan in our previous fiscal year or an amount
determined by the board.
The 2000 director option plan generally provides for an automatic initial
grant of an option to purchase 15,000 shares of our common stock to each
non-employee director on the date which the later of the following events occur.
- the effective date of the 2000 director option plan, or
- the date when a person first becomes a non-employee director.
After the initial grant, a non-employee director will be granted a
subsequent option to purchase 5,000 shares of our common stock each year on the
date of our annual meeting of stockholders, if on such date he or she has served
on our board of directors for at least six months. Each initial option grant and
each subsequent option grant shall have a term of 10 years. Each initial option
grant will vest as to one third of the shares issuable under the option on each
anniversary of its date of grant if the individual is a director on such date
and each subsequent option grant will vest as to 100% of the shares issuable
under the option on the third anniversary of its date of grant if the individual
is a director on such date. The exercise prices of all options will be 100% of
the fair market value per share of our common stock on the date of grant.
51
<PAGE>
The 2000 director option plan provides that if we merge with or into another
corporation, or sell substantially all of our assets, the successor corporation
shall assume each option or substitute an equivalent option. If following such
assumption or substitution, the optionee's status as a director is terminated
other than upon voluntary resignation, each option will fully vest and become
exercisable and generally will remain exercisable for a period of three months
from the date of termination. If outstanding options are not assumed or
substituted for by the successor corporation, each option will fully vest and
become exercisable for a period of thirty days from the date our board of
directors notifies the optionee of the option's full exercisability, after which
such period the option shall terminate. Options granted under the 2000 director
option plan must be exercised within three months of the end of the optionee's
tenure as our director, or within twelve months after such director's
termination by death or disability, but in no event later than the expiration of
the option's ten year term. No option granted under the 2000 director option
plan is transferable by the optionee other than by will or the laws of descent
and distribution, and each option is exercisable, during the lifetime of the
optionee, only by the optionee.
401(k) PLAN
Our 401(k) plan covers its full-time employees located in the United States.
The 401(k) plan is intended to qualify under Section 401(k) of the Code.
Consequently, contributions to the 401(k) plan by employees or by us, and the
investment earnings thereon, are not taxable to employees until withdrawn from
the 401(k) plan. Further, contributions by us, if any, will be deductible by us
when made. Employees may elect to contribute up to 15% of their current
compensation to the 401(k) plan up to the statutorily prescribed annual limit.
The 401(k) plan does not currently permit, but may in the future be amended to
permit, additional matching contributions to the 401(k) plan by us on behalf of
all participants in the 401(k) plan.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders,
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- unlawful payments of dividends or unlawful stock repurchases or
redemption, or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify other officers and
employees and our 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. We intend to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for certain expenses including attorneys' fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding,
52
<PAGE>
including any action by or in the right of ours, arising out of such person's
services as a director or executive officer of ours, any subsidiary of ours or
any other company or enterprise to which the person provides services at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.
At present, there is no pending litigation or proceedings involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
RELATED PARTY TRANSACTIONS
STOCK FINANCINGS
The share numbers and per share prices below are adjusted to reflect the
two-for-one common stock split which occurred on October 8, 1999. The total
number of preferred stock outstanding was not altered at the time of the common
stock split. In connection with our reincorporation in Delaware in April 2000,
we effected a two-for-one split of our preferred stock. The number of shares of
preferred stock set forth below reflect the split and the per share prices have
been adjusted accordingly.
SERIES A PREFERRED STOCK FINANCING
In July 1996, we sold 1,345,000 shares of Series A preferred stock for $0.50
per share. Of the 1,345,000 shares of Series A preferred stock, 550,000 were
sold to the following executive officers, directors and greater than 5%
stockholders of ours and persons associated with them, for a total purchase
price of $275,000:
<TABLE>
<CAPTION>
NUMBER OF TOTAL PURCHASE
PURCHASER SHARES PRICE
- --------- --------- --------------
<S> <C> <C>
Softbank Holdings, Inc............................... 400,000 $200,000
Jeffrey Hyman........................................ 80,000 40,000
Lee Isgur............................................ 70,000 35,000
</TABLE>
Softbank Holdings, Inc. subsequently transferred all of its shares to
Softbank Ventures, Inc, an affiliated entity. Bradley Feld, one of our
directors, is a managing director of Softbank Technology Ventures, an affiliate
of Softbank Ventures, Inc.
SERIES B PREFERRED STOCK FINANCING
In March 1997, we sold 865,422 shares of Series B preferred stock for $1.50
per share. Of the 865,422 shares of Series B preferred stock sold by us, 393,998
shares were sold to the following executive officers, directors and greater than
5% stockholders of ours and persons associated with them for a total purchase
price of $590,997:
<TABLE>
<CAPTION>
NUMBER OF TOTAL PURCHASE
PURCHASER SHARES PRICE
- --------- --------- --------------
<S> <C> <C>
Softbank Ventures, Inc............................... 266,666 $399,999
Libbie Tannen Trust of May 20, 1950.................. 71,332 106,998
Lun Yuen............................................. 56,000 84,000
</TABLE>
Lee Isgur, one of our directors is a trustee and beneficiary of the Libbie
Tannen Trust of May 20, 1950.
SERIES C PREFERRED STOCK FINANCING
In September and October 1997, we sold 1,428,570 shares of Series C
preferred stock for $2.10 per share. Of the 1,428,570 shares of Series C
preferred stock sold by us, 1,190,476 shares were sold to the
53
<PAGE>
following executive officers, directors and greater than 5% stockholders of ours
and persons associated with them for a total purchase price of $2.5 million:
<TABLE>
<CAPTION>
NUMBER OF TOTAL PURCHASE
PURCHASER SHARES PRICE
- --------- --------- --------------
<S> <C> <C>
Pacific Technology Ventures U.S.A., L.P.............. 719,046 $1,509,997
Allen & Company Incorporated......................... 471,430 990,003
</TABLE>
Pacific Technologies Ventures U.S.A., L.P. is affiliated with
IDG Publishing and IDG Ventures L.L.C.
SERIES D PREFERRED STOCK FINANCING
In July 1998, we sold 2,698,118 shares of Series D preferred stock for $3.44
per share. Of the 2,698,118 shares of Series D preferred stock sold by us,
2,610,844 shares were sold to the following executive officers, directors and
greater than 5% stockholders of ours and persons associated with them for a
total purchase price of $8,981,303:
<TABLE>
<CAPTION>
NUMBER OF TOTAL PURCHASE
PURCHASER SHARES PRICE
- --------- --------- --------------
<S> <C> <C>
Softbank Technology Ventures, IV L.P................. 940,824 $3,236,435
Softbank Technology Advisors Fund L.P................ 19,200 66,048
Technology Crossover Ventures II, L.P................ 626,234 2,154,245
TCV II(Q), L.P....................................... 481,458 1,656,216
Technology Crossover Ventures II, C.V................ 95,614 328,912
TCV II Strategic Partners, L.P....................... 85,442 293,920
TCV II, V.O.F........................................ 20,344 69,983
Pacific Technology Ventures U.S.A., L.P.............. 204,998 705,193
Allen & Company Incorporated......................... 136,730 470,351
</TABLE>
Bradley Feld, one of our directors, is a managing director of Softbank
Technology Ventures, an affiliate of Softbank Technology Ventures, IV L.P. and
Softbank Technology Advisors Fund L.P. Michael Linnert, a former director of
ours, is a partner at Technology Crossover Ventures, an affiliate of Technology
Crossover Ventures II, L.P., TCV II(Q), L.P., Technology Crossover Ventures II,
C.V., TCV II Strategic Partners, L.P. and TCV II, V.O.F.
Pursuant to an agreement between us and our existing Series D preferred
stockholders, we will offer to the Series D preferred stockholders up to
$2,000,000 worth of common stock at the initial public offering price.
SERIES E PREFERRED STOCK FINANCING
In September 1999, we sold 3,963,000 shares of Series E Preferred Stock for
$5.19 per share. Of the 3,963,000 shares of Series E preferred stock sold by us,
2,673,000 shares were sold to the following
54
<PAGE>
executive officers, directors and greater than 5% stockholders of ours and
persons associated with them for a total purchase price of $13,872,870.
<TABLE>
<CAPTION>
NUMBER OF TOTAL PURCHASE
PURCHASER SHARES PRICE
- --------- ---------- --------------
<S> <C> <C>
QuestMark Partners, L.P............................ 1,474,160 $7,650,890
QuestMark Partners Side Fund, L.P.................. 260,840 1,353,760
Softbank Technology Ventures, IV L.P............... 321,834 1,670,318
Softbank Technology Advisors Fund L.P.............. 6,166 32,002
Technology Crossover Ventures II, L.P.............. 120,072 623,174
TCV II(Q), L.P..................................... 92,312 479,099
Technology Crossover Ventures II, C.V.............. 18,332 95,143
TCV II Strategic Partners, L.P..................... 16,384 85,033
TCV II, V.O.F...................................... 3,900 20,241
Pacific Technology Ventures U.S.A., L.P............ 251,000 1,302,690
Allen & Company Incorporated....................... 39,000 202,410
Libbie Tannen Trust of May 20, 1950................ 34,700 180,093
Lee Isgur.......................................... 19,300 100,167
Jeffrey Hyman...................................... 10,000 51,900
Heather Martin Maier............................... 5,000 25,950
</TABLE>
Each purchaser of our Series E preferred stock received a warrant to
purchase one-fifth of a share of our common stock for each share of Series E
preferred stock purchased at an exercise price of $9.00. These warrants expire
in September 2004. The placement agents for the Series E preferred stock
financing also received warrants to purchase 79,260 shares of common stock at
$5.19 per share that expire in November 2002. As of March 31, 2000, there were
warrants to purchase 871,860 shares of common stock with a weighted average
exercise price of $8.65.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 31, 2000, giving effect to the
appointment of new directors, assuming conversion of all outstanding shares of
preferred stock into common stock and as adjusted to reflect the sale of shares
of common stock by us in this offering, as to:
- each person or group of affiliated persons, known by us to be the
beneficial owner of more than 5% of our outstanding common stock,
- each of our executive officers and directors, and
- all of our executive officers and directors as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o Cruel World, Inc. 3500 W. Bayshore Road, Palo Alto, CA 94303.
The table includes all shares of common stock issuable within 60 days of
March 31, 2000 upon the exercise of options, warrants and other rights
beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect to the
shares. The numbers shown in the table below assume no exercise by the
underwriters of their over-allotment option.
To our knowledge, except under applicable community property laws or as
otherwise indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned.
The applicable percentage of ownership for each stockholder as of March 31,
2000 is based on 12,503,785 shares of common stock outstanding, assuming
conversion of all outstanding shares of preferred stock into common stock,
together with applicable options or warrants for that stockholder. Shares of
common stock issuable upon exercise of options, warrants and other rights
beneficially owned are deemed outstanding for the purpose of computing the
percentage ownership of the person holding those options, warrants and other
rights, but are not deemed outstanding for computing the percentage ownership of
any other person.
56
<PAGE>
The number of shares of common stock outstanding after this offering
includes the shares of common stock being offered but does not include the
shares that are subject to the underwriters' over-allotment option.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY OWNED
-------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------ ------------------ -------- --------
<S> <C> <C> <C>
QuestMark Partners(1)...................................... 2,082,000 16.2%
Bradley Feld(2)............................................ 2,026,290 16.1%
Softbank Technology Ventures
Technology Crossover Ventures(3)........................... 1,610,292 12.8%
Jeffrey Hyman(4)........................................... 1,277,000 10.0%
Patrick Kenealy(5).........................................
Pacific Technology Ventures U.S.A. L.P. 1,225,244 9.8%
Allen & Company(6)......................................... 654,960 5.2%
Lun Yuen(7)................................................ 589,333 4.7%
Lee Isgur(8)............................................... 218,132 1.7%
Heather Martin Maier(9).................................... 198,056 1.6%
Sanford Fitch(10).......................................... 288,000 2.3%
Piers Maimion.............................................. -- --
All 9 directors and executive officers as a group(11)...... 5,822,055 44.4%
</TABLE>
- ------------------------
(1) Includes 1,474,160 shares held by QuestMark Partners, L.P. and 260,840
shares held by QuestMark Partners Side Fund, L.P. Also includes a warrant in
the amount of 294,832 shares held by QuestMark Partners, L.P. and a warrant
in the amount of 52,168 shares held by QuestMark Partners Side Fund, L.P.
The address of QuestMark Partners is One South Street, Suite 800, Baltimore,
Maryland 21202.
(2) Includes 1,262,658 shares held by Softbank Technology Ventures, IV L.P.,
666,666 shares held by Softbank Ventures, Inc. and 25,366 shares held by
Softbank Technology Advisors Fund L.P. Also includes a warrant in the amount
of 64,366 shares held by Softbank Technology Ventures, IV L.P. and a warrant
in the amount of 1,234 shares held by Softbank Technology Advisors Fund L.P.
Bradley Feld is a managing director of the general partner of these funds.
Mr. Feld disclaims beneficial ownership of shares held by these entities
except to the extent of his pecuniary interest in these entities. Also
includes 2,000 shares held by Mr. Feld and 4,000 shares subject to options
that are held by Mr. Feld that are vested and exercisable. The address of
Softbank Technology Ventures is 200 W. Evelyn, Suite 200, Mountain View, CA
94043.
(3) Includes 746,306 shares held by Technology Crossover Ventures II, L.P.,
573,770 shares held by TCV II(Q), L.P., 113,946 shares held by Technology
Crossover Ventures II, C.V., 101,826 shares held by TCV II Strategic
Partners, L.P. and 24,244 shares held by TCV II, V.O.F. Also includes a
warrant in the amount of 24,014 shares held by Technology Crossover Ventures
II, L.P., a warrant in the amount of 18,462 shares held by TCV II(Q), L.P.,
a warrant in the amount of 3,666 shares held by Technology Crossover
Ventures II, C.V., a warrant in the amount of 3,278 shares held by TCV II
Strategic Partners, L.P. and a warrant in the amount of 780 shares held by
TCV II, V.O.F. The address of Technology Crossover Ventures is 575 High
Street, Suite 400, Palo Alto, California 94301.
(4) Includes a warrant in the amount of 2,000 shares. Also includes 225,000
shares subject to options that are vested and exercisable as of May 30,
2000.
57
<PAGE>
(5) Includes a warrant in the amount of 50,200 shares. Patrick Kenealy is the
Managing Director of IDG Ventures LLC. IDG Ventures LLC is the general
partner of Pacific Technology Ventures U.S.A. L.P. Mr. Kenealy disclaims
beneficial ownership of shares held by these entities except to the extent
of his pecuniary interest in these entities. The address of Pacific
Technology Ventures U.S.A. L.P. is 655 Montgomery Street, #1900, San
Francisco, California 94111.
(6) Includes a warrant in the amount of 7,800 shares. The address of Allen &
Company is 711 Fifth Avenue, 9(th) Floor, New York, New York 10022.
(7) Includes 40,555 shares subject to options that are exercisable as of
May 30, 2000.
(8) Includes 106,032 shares held by the Libbie Tannen Trust of May 20, 1950.
Also includes a warrant in the amount of 6,940 shares held by the Libbie
Tannen Trust of May 20, 1950. Mr. Isgur is the Trustee of the Libbie Tannen
Trust of May 20, 1950. Also includes 89,300 shares, a warrant in the amount
of 3,860, and 12,000 shares subject to options that are vested and
exercisable.
(9) Includes a warrant in the amount of 1,000 shares.
(10) All shares are subject to our repurchase right.
(11) Includes the shares beneficially owned by the persons and entities
described in footnotes (2), (4), (5) and (7)-(10).
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 100,000,000 shares of common stock, $0.001 par value per
share, and 5,000,000 shares of undesignated preferred stock, $0.001 par value
per share. As of March 31, 2000, assuming conversion of all outstanding shares
of preferred stock into common stock, there were outstanding 12,503,785 shares
of common stock, warrants to purchase 871,860 shares of common stock and options
to purchase 2,101,453 shares of common stock. The following description of our
capital stock does not purport to be complete and is subject to and qualified in
its entirety by Delaware law and our certificate of incorporation and bylaws,
which are included as exhibits to the registration statement of which this
prospectus forms a part.
COMMON STOCK
As of March 31, 2000, there were 12,503,785 shares of common stock
outstanding assuming the conversion of all outstanding shares of preferred stock
into common stock. 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 such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available for that purpose. See "Dividend Policy." 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, if any, then outstanding. The
holders of common stock have no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon the
closing of this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. Any series of
preferred stock may possess voting, dividend, liquidation and redemption rights
superior to those of our 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 such preferred stock. However, the effects might
include, among other things, restricting dividends on the common stock, diluting
the voting power of the common stock, impairing the liquidation rights of the
common stock, entrenching our board of directors and delaying or preventing a
change in control without further action by the stockholders. Immediately prior
to the closing no shares of preferred stock will be outstanding, and we have no
present plans to issue any shares of preferred stock.
WARRANTS
At March 31, 2000, there were warrants outstanding to purchase a total of
871,860 shares of our common stock. The warrants contain anti-dilutive
provisions providing for adjustments of the exercise price and the number of
shares of common stock underlying the warrants upon the occurrence of any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. The shares of common stock issuable upon
exercise of the warrants carry registration rights, as discussed below.
59
<PAGE>
REGISTRATION RIGHTS
Upon completion of the offering, the holders of 10,300,110 shares of our
outstanding common stock, assuming the conversion of all outstanding shares of
preferred stock into common stock and the exercise of warrants to acquire
792,600 shares of our common stock, or their transferees, are entitled to rights
with respect to the registration of these shares under the Securities Act. These
rights are provided under the terms of an agreement between us and the holders
of these securities. Subject to limitations in the agreement, if we register any
of our common stock either for our own account or for the account of other
security holders, these holders are entitled to include their shares of common
stock in that registration, subject to the ability of the underwriters to limit
the number of shares included in the offering. In addition, subject to
limitations contained in the agreement, at anytime after six months after this
offering, holders of at least 25% of the shares with registration rights can
also request that we file a registration statement so that they can publicly
sell their shares. We are required to file up to two demand registration
statements on Form S-1. However, if we are eligible to file a registration
statement on Form S-3, there is no limit to the number of registration
statements we could be asked to file so long as the aggregate amount of
securities to be sold in each registration exceeds $1.0 million.
The registration rights described above will expire three years after this
offering, or earlier with respect to a particular stockholder if that holder can
resell all of its securities in a three month period under Rule 144 of the
Securities Act or another exemption from the registration requirements of the
Securities Act. Subject to the limitations contained in the agreement, we will
be responsible for paying all registration expenses. In any event, the holders
selling their shares will be responsible for paying all selling expenses.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our certificate of incorporation and
bylaws summarized below could make more difficult our acquisition by means of a
tender offer, a proxy contest or otherwise and the removal of incumbent officers
and directors. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control to first negotiate with us. We believe that
the benefits of increased protection of our potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to acquire or restructure
us outweighs the disadvantages of discouraging such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms.
STOCKHOLDER MEETINGS
Under our restated certificate of incorporation and restated bylaws, the
Board of Directors, the Chairman of the Board and the President may call special
meetings of stockholders but the stockholders may not call a special meeting. In
addition, our restated certificate of incorporation and restated bylaws do not
provide for the right of stockholders to act by written consent without a
meeting or for cumulative voting in the election of directors.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND PROPOSALS
Our restated bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the Board of
Directors or a committee thereof.
60
<PAGE>
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless, with some exceptions, the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, 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 voting stock. The existence of this provision would
be expected to have an anti-takeover effect with respect to transactions not
approved in advance by the Board of Directors, including discouraging attempts
that might result in a premium over the market price for the shares of common
stock held by stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is . Its
telephone number is .
NASDAQ NATIONAL MARKET LISTING
We have applied to list our common stock on The Nasdaq National Market under
the trading symbol "CRLW."
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock, including shares issued
upon exercise of outstanding options, in the public market could adversely
affect prevailing market prices. Sales of substantial amounts of our common
stock in the public market after contractual restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Upon completion of this offering, we will have outstanding
shares of common stock, and if the underwriters exercise their
overallotment option in full, which excludes:
- 2,092,120 shares that could be issued upon the exercise of options
outstanding as of March 31, 2000 at a weighted average exercise price of
$1.19 per share;
- 1,047,205 shares reserved for issuance under our stock option plans at
March 31, 2000;
- warrants to purchase 871,860 shares at a weighted average exercise price
of $8.65;
- 100,000 shares reserved for issuance under our 2000 director option plan;
and
- 300,000 shares that could be issued to employees who elect to buy stock in
the future under our 2000 employee stock purchase plan.
Of the outstanding shares, all of the shares of common stock sold in this
offering will be freely tradable without restriction under the Securities Act,
except that shares purchased by our affiliates, as that term is defined in
Rule 144 promulgated under the Securities Act, may be sold only in compliance
with the limitations described below. The remaining 12,503,785 shares of common
stock will be deemed "restricted securities" as defined under Rule 144.
Restricted shares may be sold in the public market only if they are registered
under the Securities Act or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Subject to the lock-up agreements described below and the
provisions of Rules 144, 144(k) and 701, shares will be available in the public
market as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES DATE
- --------------------- ----
<C> <S>
After the date of this prospectus, freely tradable shares
sold in this offering and shares eligible for resale under
Rule 144(k) that are not subject to the 180-day lock-up.
11,572,110 After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under
Rule 144 (subject, in some cases, to volume limitations)
or Rule 144(k).
603,675 After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under
Rule 701 (subject to repurchase by the company).
328,000 After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are
not yet saleable under Rule 144.
</TABLE>
LOCK-UP AGREEMENTS WITH THE UNDERWRITERS
Each of our directors and officers and substantially all of our
securityholders have signed lock-up agreements with the underwriters under which
they agreed not to sell, transfer or dispose of, directly or indirectly, any
shares of common stock or any securities convertible into or exercisable or
exchangeable for shares of common stock without the prior consent of Thomas
Weisel Partners for a period of 180 days after the date of this prospectus,
subject to certain exceptions.
Thomas Weisel Partners may, in its sole discretion and at any time without
notice, release some or all of these securities from these restrictions prior to
the expiration of this 180-day period, although we are not aware of any current
intention to request them to do so.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the
62
<PAGE>
greater of: 1% of the number of shares of our common stock then outstanding,
which will equal approximately shares immediately after this offering; or
the average weekly trading volume of the common stock on the Nasdaq National
Market during the four calendar weeks preceding the filing with the Securities
and Exchange Commission of a notice on Form 144 with respect to the sale. Sales
under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, 144(k) shares may be sold immediately upon the completion of this
offering.
RULE 701
Any employee, officer or director of, or consultant to, us who purchased his
shares under a written compensatory plan or contract may be entitled to sell
their shares in reliance on Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
Under this rule, all holders of Rule 701 shares are required to wait until
90 days after the date of this prospectus before selling those shares. However,
because substantially all shares that we have issued under Rule 701 are subject
to lock-up agreements, they will only become eligible for sale when the 180-day
lock-up agreements expire. As a result, they may only be sold 90 days after the
offering if the holder obtains the prior written consent of us.
STOCK OPTIONS
Immediately after this offering, we intend to file a registration statement
under the Securities Act to register for resale all shares of common stock
reserved for issuance under our 2000 employee stock option plan and 2000
employee stock purchase plan. As of March 31, 2000, options to purchase
2,092,120 shares of our common stock were issued and outstanding.
Upon the expiration of the lock-up agreements described above, at least
980,506 shares of common stock will be subject to vested options, based on
options outstanding as of March 31, 2000. This registration statement is
expected to be filed and become effective as soon as practicable after the
effective date of this offering. Accordingly, shares of common stock underlying
these options will, subject to vesting provisions and Rule 144 volume
limitations applicable to our affiliates, be available for sale in the open
market immediately after the 180-day lock-up agreements expire.
REGISTRATION RIGHTS
Following this offering, under specified circumstances and subject to
customary conditions, holders of approximately 10,300,110 shares of our
outstanding common stock, including 792,600 shares that may be acquired upon the
exercise of warrants to purchase our common stock, will have registration rights
with respect to their shares of common stock, subject to the 180-day lock-up
arrangement described above, to require us to register their shares of common
stock under the Securities Act, and rights to participate in any future
registrations of securities. If the holders of these registrable securities
request that we register their shares, and if the registration is effected,
these shares will become freely tradable without restriction under the
Securities Act. Any sales of securities by these stockholders could have a
material adverse effect on the trading price of our common stock. See
"Description of Securities--Registration Rights."
63
<PAGE>
UNDERWRITING
GENERAL
Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives, Thomas Weisel Partners LLC, CIBC World Markets Corp. and
PaineWebber Incorporated, has severally agreed to purchase from us the aggregate
number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Thomas Weisel Partners LLC..................................
CIBC World Markets Corp.....................................
PaineWebber Incorporated....................................
------
Total.....................................................
======
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to various conditions. The nature of the underwriters'
obligations commits them to purchase and pay for all of the shares of common
stock listed above if any are purchased.
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act or will contribute to payments that the underwriters may be required to make
relating to these liabilities.
OVER-ALLOTMENT OPTION
We have granted a 30-day over-allotment option to the underwriters to
purchase up to a total of shares of our common stock from us at the
initial public offering price, less the underwriting discounts and commissions,
as set forth on the cover page of this prospectus. If the underwriters exercise
this option in whole or in part, then each of the underwriters will be severally
committed, subject to conditions described in the underwriting agreement, to
purchase the additional shares of our common stock in proportion to their
respective commitments set forth in the table above.
COMMISSIONS AND DISCOUNTS
The underwriters propose to offer the shares of common stock directly to the
public at the public offering price set forth on the cover page of this
prospectus, and at this price less a concession not in excess of $ per share
of common stock to other dealers specified in a master agreement among
underwriters who are members of the National Association of Securities
Dealers, Inc. The underwriters may allow, and the other dealers specified may
re-allow, concessions, not in excess of $ per share of common stock to these
other dealers. After this offering, the offering price, concessions and other
selling terms may be changed by the underwriters. Our common stock is offered
subject to receipt and acceptance by the underwriters and to other conditions,
including the right to reject orders in whole or in part.
The following table summarizes the compensation to be paid to the
underwriters by us and the expenses payable to us:
<TABLE>
<CAPTION>
TOTAL
-------------------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us....... $ $ $
Expenses payable by us..................................
</TABLE>
64
<PAGE>
RESERVED SHARES
The underwriters, at our request, have reserved for sale at the initial
public offering price up to shares of common stock to be sold in this
offering for sale to our employees and other persons designated by us. The
number of shares available for sale to the general public will be reduced to the
extent that any reserved shares are purchased. Any reserved shares not purchased
in this manner will be offered by the underwriters on the same basis as the
other shares offered in this offering. Pursuant to an agreement between us and
our existing Series D preferred stockholders, we will offer to the Series D
preferred stockholders up to $2,000,000 worth of these reserved shares at the
initial public offering price.
NO SALES OF SIMILAR SECURITIES
Our directors, officers and securityholders holding a total of
shares of common stock have agreed or have a contractual obligation to agree,
subject to specified exceptions not to offer, sell, agree to sell, directly or
indirectly, or otherwise dispose of any shares of common stock or any securities
convertible into or exchangeable for shares of common stock without the prior
written consent of Thomas Weisel Partners LLC for a period of 180 days after the
date of this prospectus.
We have agreed that for a period of 180 days after the date of this
prospectus we will not, without the prior written consent of Thomas Weisel
Partners LLC, offer, sell, or otherwise dispose of any shares of common stock,
except for the shares of common stock offered in the offering and the shares of
common stock issuable upon exercise of outstanding options and warrants on the
date of this prospectus.
INFORMATION REGARDING THOMAS WEISEL PARTNERS LLC
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 LLC 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 LLC does not have any
material relationship with us or any of our officers, directors or controlling
persons, except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.
NASDAQ NATIONAL MARKET LISTING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock was
determined through negotiations between us and representatives of the
underwriters. Some of the factors considered in these negotiations included our
results of operations in recent periods, estimates of our prospects and the
industry in which we compete, an assessment of our management, the general state
of the securities markets at the time of this offering and the prices of similar
securities of generally comparable companies. We have applied to have common
stock quoted on the Nasdaq National Market under the symbol "CRLW." We cannot
assure you that an active or orderly trading market will develop for our common
stock or that our common stock will trade in the public markets subsequent to
this offering at or above the initial offering price.
The underwriters do not expect sales of shares of common stock offered by
this prospectus to any accounts over which they exercise discretionary authority
to exceed five percent of the shares offered.
65
<PAGE>
MARKET STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
In order to facilitate this offering, persons participating in this offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of our common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in our common
stock for their own account by selling more shares of common stock than we have
sold to them. The underwriters may elect to cover any short position by
purchasing shares of common stock in the open market or by exercising the
over-allotment option granted to the underwriters. In addition, the underwriters
may stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids. Under these penalty bids, selling concessions that are allowed to
syndicate members or other brokers-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased, usually in order to stabilize the market. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. No representation is made
as to the magnitude or effect of any stabilization or other transaction. These
transactions may be effected on the Nasdaq National Market or otherwise and may
be discontinued at any time after they are commenced.
66
<PAGE>
LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, will pass upon the validity of the issuance of the shares of common
stock offered by this prospectus. Orrick, Herrington & Sutcliffe LLP is acting
as counsel for the underwriters in connection with selected legal matters
relating to the shares of common stock offered by this prospectus.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We have included
the financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to us and the common stock, we refer you to the registration
statement and the exhibits and schedules filed as a part of the registration
statement. Statements contained in this prospectus concerning the contents of
any contract or any other document are not necessarily complete. If a contract
or document has been filed as an exhibit to the registration statement, we refer
you to the copy of the contract or document that has been filed. Each statement
in this prospectus relating to a contract or document filed as an exhibit is
qualified in all respects by the filed exhibit. The registration statement,
including exhibits and schedules, may be inspected without charge at the SEC's
public reference room at 450 Fifth Street, N.W., Washington D.C. 20549, and
copies of all or any part of it may be obtained from that office after payment
of fees prescribed by the SEC. You may obtain information on the operation of
the public reference room by calling the SEC at 1-800-SEC-0330. The SEC
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC at
http://www.sec.gov.
We intend to provide our stockholders with annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports containing unaudited consolidated financial data for
the first three quarters of each year.
67
<PAGE>
CRUEL WORLD, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Financial Statements:
Balance Sheets at December 31, 1998 and 1999.............. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999..................................... F-4
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999........................ F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999..................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Cruel World, Inc.
We have audited the accompanying balance sheets of Cruel World, Inc. as of
December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cruel World, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
San Francisco, California
March 17, 2000,
except for paragraph 4 of Note 1,
as to which the date is
April , 2000
The foregoing report is in the form that will be signed upon completion of the
reincorporation described in paragraph 4 of Note 1 to the financial statements.
San Francisco, California
April 7, 2000
F-2
<PAGE>
CRUEL WORLD, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- DECEMBER 31,
1998 1999 1999
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 5,487,383 $ 16,902,616
Accounts receivable................................ 513,660 998,053
Prepaid expenses and other current assets.......... 22,367 47,806
----------- ------------
Total current assets................................. 6,023,410 17,948,475
Property and equipment, net.......................... 523,778 704,945
Other assets......................................... 326,115 203,200
----------- ------------
$ 6,873,303 $ 18,856,620
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................. $ 215,825 $ 432,953
Accrued expenses................................... 463,667 612,844
Accrued payroll and other related expenses......... 189,110 589,183
Deferred revenue................................... 432,917 1,091,574
Current portion of long-term debt.................. 75,472 89,626
----------- ------------
Total current liabilities............................ 1,376,991 2,816,180
Long-term debt, net of current portion............... 185,545 95,919
Stockholders' equity:
Convertible preferred stock, $0.001 par value:
Authorized shares: 10,300,146
Issued and outstanding shares: 6,337,110 at
December 31, 1998 and 10,300,110 at
December 31, 1999 (aggregate liquidation
preference of $34,813,381 at December 31,
1999).......................................... 14,233,530 31,742,218
Common stock, $0.001 par value:
Authorized shares: 24,000,000
Issued and outstanding shares: 1,561,400 at
December 31, 1998, 1,718,472 at
December 31, 1999 and 12,018,582 pro forma..... 1,561 1,718 12,019
Additional paid-in capital......................... 782,055 4,838,761 36,570,678
Deferred stock-based compensation.................. (93,693) (689,030) (689,030)
Notes receivable from stockholders................. (29,958) -- --
Accumulated deficit................................ (9,582,728) (19,949,146) (19,949,146)
----------- ------------ ------------
Total stockholders' equity........................... 5,310,767 15,944,521 $ 15,944,521
----------- ------------ ============
$ 6,873,303 $ 18,856,620
=========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
CRUEL WORLD, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenue............................................... $ 454,279 $ 2,053,440 $ 4,445,624
Cost of revenue....................................... 274,786 901,795 1,158,228
----------- ----------- ------------
Gross profit.......................................... 179,493 1,151,645 3,287,396
Operating expenses:
Sales and marketing................................. 1,204,118 5,577,562 9,990,602
Engineering......................................... 657,997 1,198,391 1,413,000
General and administrative.......................... 274,336 822,580 1,193,292
Stock-based compensation............................ 140,278 484,212 1,378,662
----------- ----------- ------------
Total operating expenses........................ 2,276,729 8,082,745 13,975,556
----------- ----------- ------------
Loss from operations.................................. (2,097,236) (6,931,100) (10,688,160)
Other income (expense)
Interest income..................................... 10,309 182,730 344,628
Interest expense.................................... (2,941) (13,746) (22,886)
----------- ----------- ------------
Net loss.............................................. $(2,089,868) $(6,762,116) $(10,366,418)
=========== =========== ============
Basic and diluted net loss per common share........... $ (6.75) $ (6.56) $ (6.90)
=========== =========== ============
Shares used to compute basic and diluted net loss per
common share........................................ 309,682 1,031,302 1,502,104
=========== =========== ============
Pro forma basic and diluted net loss per common share
(unaudited)......................................... $ (1.17)
============
Shares used to compute pro forma basic and diluted net
loss per common share (unaudited)................... 8,870,680
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
CRUEL WORLD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE
------------------------ --------------------- PAID-IN STOCK-BASED FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS
---------- ----------- ---------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996....... 1,345,000 $ 672,500 1,400,000 $1,400 $ 107,732 $ -- $(90,077)
Exercise of stock options.......... -- -- 160,000 160 15,840 -- --
Forgiveness of notes receivable
from stockholders................ -- -- -- -- 111,117 -- 37,063
Interest accrued on notes
receivable from stockholders..... -- -- -- -- -- -- (7,902)
Issuance of Series B preferred
stock for cash................... 865,422 1,298,044 -- -- -- -- --
Issuance of Series C preferred
stock for cash................... 1,428,570 2,988,205 -- -- -- -- --
Net loss........................... -- -- -- -- -- -- --
---------- ----------- ---------- ------ ---------- ----------- --------
BALANCE AT DECEMBER 31, 1997....... 3,638,992 $ 4,958,749 1,560,000 $1,560 $ 234,689 $ -- $(60,916)
Exercise of stock options.......... -- -- 1,400 1 419 -- --
Forgiveness of notes receivable
from stockholders................ -- -- -- -- 361,848 -- 35,944
Interest accrued on notes
receivable from stockholders..... -- -- -- -- -- -- (4,986)
Issuance of Series D preferred
stock for cash................... 2,698,118 9,274,781 -- -- -- -- --
Deferred compensation related to
grants of stock options.......... -- -- -- -- 185,099 (185,099) --
Amortization of deferred
stock-based compensation......... -- -- -- -- -- 91,406 --
Net loss........................... -- -- -- -- -- -- --
---------- ----------- ---------- ------ ---------- ----------- --------
BALANCE AT DECEMBER 31, 1998....... 6,337,110 $14,233,530 1,561,400 $1,561 $ 782,055 $ (93,693) $(29,958)
Exercise of stock options.......... -- -- 157,072 157 28,127 -- --
Forgiveness of notes receivable
from stockholders................ -- -- -- -- 692,362 -- 32,084
Interest accrued on notes
receivable from stockholders..... -- -- -- -- -- -- (2,126)
Issuance of Series E preferred
stock for cash, net of issuance
costs of $1,268,006.............. 3,963,000 17,508,688 -- -- -- -- --
Issuance of warrants in connection
with Series E convertible
preferred stock.................. -- -- -- -- 1,791,276 -- --
Issuance of warrants to financial
advisors......................... -- -- -- -- 293,262 -- --
Deferred compensation related to
grants of stock options.......... -- -- -- -- 1,251,679 (1,251,679) --
Amortization of deferred
stock-based compensation......... -- -- -- -- -- 656,342 --
Net loss........................... -- -- -- -- -- -- --
---------- ----------- ---------- ------ ---------- ----------- --------
BALANCE AT DECEMBER 31, 1999....... 10,300,110 $31,742,218 1,718,472 $1,718 $4,838,761 $ (689,030) $ --
========== =========== ========== ====== ========== =========== ========
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1996....... $ (730,744) $ (39,189)
Exercise of stock options.......... -- 16,000
Forgiveness of notes receivable
from stockholders................ -- 148,180
Interest accrued on notes
receivable from stockholders..... -- (7,902)
Issuance of Series B preferred
stock for cash................... -- 1,298,044
Issuance of Series C preferred
stock for cash................... -- 2,988,205
Net loss........................... (2,089,868) (2,089,868)
------------ ------------
BALANCE AT DECEMBER 31, 1997....... $ (2,820,612) $ 2,313,470
Exercise of stock options.......... -- 420
Forgiveness of notes receivable
from stockholders................ -- 397,792
Interest accrued on notes
receivable from stockholders..... -- (4,986)
Issuance of Series D preferred
stock for cash................... -- 9,274,781
Deferred compensation related to
grants of stock options.......... -- --
Amortization of deferred
stock-based compensation......... -- 91,406
Net loss........................... (6,762,116) (6,762,116)
------------ ------------
BALANCE AT DECEMBER 31, 1998....... $ (9,582,728) $ 5,310,767
Exercise of stock options.......... -- 28,284
Forgiveness of notes receivable
from stockholders................ -- 724,446
Interest accrued on notes
receivable from stockholders..... -- (2,126)
Issuance of Series E preferred
stock for cash, net of issuance
costs of $1,268,006.............. -- 17,508,688
Issuance of warrants in connection
with Series E convertible
preferred stock.................. -- 1,791,276
Issuance of warrants to financial
advisors......................... -- 293,262
Deferred compensation related to
grants of stock options.......... -- --
Amortization of deferred
stock-based compensation......... -- 656,342
Net loss........................... (10,366,418) (10,366,418)
------------ ------------
BALANCE AT DECEMBER 31, 1999....... $(19,949,146) $ 15,944,521
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
CRUEL WORLD, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................................. $(2,089,868) $(6,762,116) $(10,366,418)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................ 40,680 150,868 258,608
Stock-based compensation............................ -- 91,406 656,342
Forgiveness of notes receivable from stockholders... 140,278 392,806 722,320
Loss on sale of property and equipment.............. -- 6,920 --
Changes in assets and liabilities:
Accounts receivable............................... (91,060) (422,600) (484,393)
Prepaid expenses and other current assets......... -- (22,367) (25,439)
Other assets...................................... (24,474) (266,181) 122,915
Trade accounts payable............................ -- 215,825 217,128
Accrued expenses.................................. 68,356 278,345 149,177
Accrued payroll and other related expenses........ 32,813 146,027 400,073
Deferred revenue.................................. 40,494 392,423 658,657
----------- ----------- ------------
Net cash used in operating activities................. (1,882,781) (5,798,644) (7,691,030)
INVESTING ACTIVITIES
Acquisition of property and equipment................. (151,275) (498,580) (439,775)
Proceeds from sale of property and equipment.......... -- 6,703 --
----------- ----------- ------------
Net cash used in investing activities................. (151,275) (491,877) (439,775)
FINANCING ACTIVITIES
Net proceeds from issuance of Series B convertible
preferred stock..................................... 595,999 -- --
Net proceeds from issuance of Series C convertible
preferred stock..................................... 2,988,205 -- --
Net proceeds from issuance of Series D convertible
preferred stock..................................... -- 9,274,781 --
Net proceeds from issuance of Series E convertible
preferred stock..................................... -- -- 17,801,950
Proceeds from issuance of common stock warrants....... -- -- 1,791,276
Borrowings under long-term debt....................... -- 268,878 --
Repayments under long-term debt....................... -- (7,861) (75,472)
Proceeds from exercise of stock options............... 16,000 420 28,284
----------- ----------- ------------
Net cash provided by financing activities............. 3,600,204 9,536,218 19,546,038
----------- ----------- ------------
Net increase in cash and cash equivalents............. 1,566,148 3,245,697 11,415,233
Cash and cash equivalents at beginning of year........ 675,538 2,241,686 5,487,383
----------- ----------- ------------
Cash and cash equivalents at end of year.............. $ 2,241,686 $ 5,487,383 $ 16,902,616
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid......................................... $ 2,942 $ 11,847 $ 15,674
=========== =========== ============
Income taxes paid..................................... $ 800 $ 1,935 $ 795
=========== =========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1.--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Cruel World Inc., formerly Career Central Corporation, was formed in 1996.
The Company is a leading Internet-based recruiting service that uses database
and email marketing techniques to match its clients' career opportunities with
qualified and interested candidates from its membership of professionals. The
Company generates revenue from services performed in the United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
BASIS OF PRESENTATION
On October 8, 1999, the Company effected a two-for-one stock split of issued
and outstanding common stock. The accompanying financial statements prior to
that date have been retroactively restated to give effect to the stock split.
On April , 2000, the Company reincorporated in Delaware by merging with
its wholly-owned Delaware subsidiary established to effect the reincorporation.
Concurrent with the reincorporation, all series of preferred stock were split
two-for-one. The financial statements have been retroactively restated prior to
that date to give effect to the stock split.
REVENUE RECOGNITION
Revenue is recognized when a search transaction is completed and the Company
has a reasonable assurance of collection. Deferred revenue represents cash and
contractual receivables recorded in advance of providing services.
COST OF REVENUE
Cost of revenue represents direct costs to perform search transactions
against the member database and deliver the resulting qualified resumes to
customers, including payroll and related benefits, client referral fees, and
other direct costs, as well as allocated indirect costs.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and all accrued
expenses approximates fair value due to their short term nature.
Financial instruments which potentially subject the Company to concentration
of credit risk include cash and cash equivalents and accounts receivable. The
Company maintains its cash in a domestic financial institution with a high
credit standing and performs periodic evaluations of the relative credit
standings of this institution. The Company conducts business with companies in
various industries throughout the United States and performs ongoing credit
evaluations of its customers and generally does not require collateral.
F-7
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1.--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of money market funds, certificates of
deposit and short-term, highly liquid investments with insignificant
interest-rate risk. Such investments are stated at cost, which approximates fair
value, and have original maturity dates of three months or less.
PROPERTY AND EQUIPMENT, NET
Property and equipment are recorded at cost, net of accumulated
depreciation. Depreciation is computed using the straight line method over the
estimated useful life of the assets, generally three to five years.
The Company capitalizes certain internal use software costs in accordance
with Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. Capitalized internal use software costs
with an expected useful life in excess of one year are amortized on a
straight-line basis over their estimated useful lives. Internal use software
costs, which are subject to continual and substantial change, including Web site
engineering and development costs, are expensed as incurred. Costs to maintain
and add minor feature upgrades to the company's internally developed software
and Web site are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
ADVERTISING COSTS
All advertising costs are expensed as incurred. Advertising costs, which are
included in sales and marketing, were approximately $429,000, $1,468,000 and
$2,400,000 for the years ended December 31, 1997, 1998, and 1999, respectively.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES
("FAS 109"). Under FAS 109, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
F-8
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1.--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and has adopted the disclosure-only
option of Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("FAS 123").
COMPUTATION OF NET LOSS PER COMMON SHARE
The Company computes net loss per share based on Statement of Financial
Accounting Standards Statement No. 128, EARNINGS PER SHARE ("FAS 128"). In
accordance with FAS 128, basic net loss per share is calculated as net loss
divided by the weighted-average number of common shares outstanding. Diluted net
loss per share is computed using the weighted-average number of common shares
outstanding and dilutive common stock equivalents outstanding during the period.
Common equivalent shares from stock options and warrants (using the treasury
stock method) and convertible preferred stock have been excluded from the
calculation of net loss per share as their effect is antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert to common shares upon completion of the Company's initial public
offering, using the if-converted method.
SEGMENT REPORTING
The Company operates in one reportable segment under Statement of Financial
Accounting Standards No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION. The Company conducts business in one operating segment. The
Company's management has determined the operating segment based upon how the
business is managed and operated.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES ("FAS 133"). FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction, and, if so, the type of hedge transaction. The effective date
is January 1, 2001 for the Company. Management does not currently expect that
adoption of FAS 133 will have any impact on the Company's financial position or
results of operations.
On December 3, 1999, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS. The SAB identifies four basic criteria that must be met before
revenue can be recognized. These criteria are (a) persuasive evidence that an
arrangement exists; (b) delivery has occurred or services have been rendered;
(c) the seller's price to the buyer is fixed or determinable; and
(d) collectibility is reasonably assured. The Company has early adopted the SAB
and its revenue recognition policies are in accordance with the provisions of
the bulletin.
F-9
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1.--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In March 2000, the Emerging Issues Task Force issued EITF Abstract
No. 00-2, ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS, regarding the accounting
for costs incurred to develop a Web site. The Abstract is effective for fiscal
quarters beginning after June 30, 2000. The Company does not expect adoption of
the Abstract to have a significant impact on its financial position or results
of operations.
NOTE 2.--PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ----------
<S> <C> <C>
Office furniture, fixtures, and equipment............. $ 190,640 $ 254,192
Computer hardware and software........................ 522,956 896,533
--------- ----------
713,596 1,150,725
Less accumulated depreciation......................... (189,818) (445,780)
--------- ----------
Property and equipment, net........................... $ 523,778 $ 704,945
========= ==========
</TABLE>
NOTE 3.--LONG-TERM DEBT
In April 1998, the Company entered into a secured loan agreement with a bank
under which the bank would advance up to $150,000 for capital expenditures at
the bank's prime rate plus two percentage points. In October 1998, the total
advances of $141,490 were converted to a term loan at the same variable interest
rate. In October 1998, the agreement was amended to increase the total amount
available for advances to $275,000, and in April 1999, the total incremental
advances since October 1998 of $127,388 were also converted to a term loan at
the same variable rate. The term loans are due in 36 monthly payments of
principal and interest from the date of conversion. The total outstanding
balances under the agreement were $261,017 and $185,545 at December 31, 1998 and
1999, respectively. The variable interest rates on the term loans were 9.75% and
10.5% at December 31, 1998 and 1999, respectively.
The Company is obligated to comply with certain financial and other
covenants under the terms of the secured loan agreement with the bank.
The aggregate maturities of long-term debt at December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000........................................................ $ 89,626
2001........................................................ 81,765
2002........................................................ 14,154
--------
$185,545
========
</TABLE>
F-10
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 4.--STOCKHOLDERS' EQUITY
COMMON STOCK
The Company is authorized to issue 24,000,000 shares of common stock. At
December 31, 1998 and 1999, there were 1,561,400 and 1,718,472, respectively,
shares of common stock issued and outstanding.
NOTES RECEIVABLE FROM FOUNDERS
At the Company's inception, certain of the Company's founders were issued
1,350,000 shares of nonvested common stock in exchange for nonrecourse,
prepayable notes receivable totaling $87,500. The notes bear interest at 10% and
are payable in three annual installments ending in 1999. The notes are forgiven
at the rate of 1/3 of the principal and accrued interest per year so long as the
debtors remain employees of the Company. The shares vest to the debtors over a
three year period. The Company recorded $140,278, $392,806 and $722,320 of stock
compensation expense during the years ended December 31, 1997, 1998 and 1999,
respectively, attributable to the change in the fair value of the common stock
related to the portion of the principal and accrued interest forgiven annually.
There were 768,056 and 318,056 nonvested shares subject to repurchase by the
Company at December 31, 1997 and 1998, respectively. At December 31, 1999, all
shares were vested.
PREFERRED STOCK
Under the Articles of Incorporation, the Company is authorized to issue
10,300,146 shares of convertible preferred stock. At December 31, 1999,
stockholders' equity includes the following series of preferred stock, no par
value:
<TABLE>
<CAPTION>
AGGREGATE
SHARES SHARES ISSUED LIQUIDATION
SERIES AUTHORIZED AND OUTSTANDING PURCHASE PRICE DIVIDEND RATE PREFERENCE
- ------ ---------- --------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
A........................... 1,345,000 1,345,000 $ 0.50 $0.05 $ 672,500
B........................... 865,424 865,422 1.50 0.15 1,298,133
C........................... 1,428,570 1,428,570 2.10 0.21 2,999,997
D........................... 2,698,152 2,698,118 3.44 0.34 9,274,781
E........................... 3,963,000 3,963,000 5.19 0.42 20,567,970
---------- ---------- -----------
10,300,146 10,300,110 $34,813,381
========== ========== ===========
</TABLE>
WARRANTS
In September 1999, the Company sold 3,963,000 preferred stock units, each of
which included one share of Series E preferred stock and a warrant to purchase
one-fifth of a share of the Company's common stock. Each preferred stock unit
was sold at a price of $5.19.
The warrants are immediately vested and have an exercise price of $9.00 per
share. The number of the underlying shares and exercise price of the warrants
are subject to adjustment upon certain events. The warrants are exercisable, in
whole or in part, at any time through September 2004. Using the Black-Scholes
valuation model, the Company determined that $1,791,276 of the total proceeds
received from the sale of the Series E preferred stock units were attributable
to the common stock warrants.
F-11
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 4.--STOCKHOLDERS' EQUITY (CONTINUED)
Issuance costs related to the Series E units were $1,268,006, including the
value of warrants granted to financial advisors to purchase 79,260 shares of
common stock at $5.19 per share. The value of the fully vested warrants issued
to the financial advisors was determined using the Black-Scholes valuation model
with the following assumptions: volatility of 0.80; risk-free interest rate of
6.10%; a dividend yield of 0%; and an expected life of three years. The value of
the warrants was $293,262. These warrants expire in November in 2002.
DIVIDENDS
Preferred stockholders are entitled to receive noncumulative dividends when
and as declared by the Board of Directors. Such dividends are payable prior and
in preference to any dividends for common stock. There have been no dividends
declared to date.
CONVERSION
The conversion rate is subject to certain adjustments, including the
issuance of stock dividends and other transactions. Such conversion is automatic
upon the closing of a firm commitment underwritten public offering of common
stock that reflects a sale price per share of not less than $9.09 per share and
that results in aggregate cash proceeds of not less than $15,000,000 to the
Company.
VOTING
The holders of each share of issued and outstanding convertible preferred
stock is entitled to a number of votes equal to the number of shares of common
stock into which such shares of preferred stock could be converted at the record
date for determination.
LIQUIDATION
In the event of any liquidation, dissolution, or winding up of the Company,
either voluntary or involuntary, the preferred stock holders are entitled to
receive, prior and in preference to any distribution of any assets or surplus
funds of the Company to any holders of common stock, liquidation preferences as
outlined above, plus an amount equal to all declared but unpaid dividends for
all series of preferred stock. If the assets and funds legally available for
distribution among the holders of preferred stock are insufficient to permit
payment in full to each of the preferred shareholders, then the entire assets
and funds of the Company legally available for distribution shall be distributed
ratably among the preferred stock holders in proportion to the preferential
amount that each such holder is otherwise entitled to receive.
After payment has been made to the holders of preferred stock, the holders
of common stock shall be entitled to receive $0.10 per share plus declared and
unpaid dividends. If the assets and funds legally available for distribution
among the holders of common stock are insufficient to permit payment in full of
this amount to each of the common shareholders, then the entire assets and funds
of the Company legally available for distribution shall be distributed ratably
among the holders of common stock.
After payment has been made to holders of preferred and common stock of the
full amounts to which they are entitled, then the entire remaining assets and
funds legally available for distribution of
F-12
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 4.--STOCKHOLDERS' EQUITY (CONTINUED)
the Company, if any, shall be distributed on a pro rata basis to the holders of
the outstanding preferred and common stock (with the outstanding preferred stock
sharing in such distribution on an as converted into common stock basis).
STOCK OPTION PLAN
Under the 1996 Stock Option Plan (the "Plan"), employees, outside directors,
and consultants are eligible for nonstatutory stock options and employees are
eligible for incentive stock options. The exercise price of nonstatutory stock
options shall not be less than 85% of the fair market value of the stock on the
date of grant. The exercise price of the incentive stock options shall not be
less than the fair market value of the stock at the date of grant. The term of
the options shall not exceed ten years from the date of grant. In September of
1999, the Board of Directors increased the number of shares authorized to be
issued under the plan to 3,343,000 shares. Options vest at predetermined
intervals based on the optionee's tenure with the Company, with a minimum of 20%
vesting per year.
Activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE EXERCISE
SHARES PRICE PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1996................... 578,666 $0.08
Granted.......................................... 129,300 0.34
Exercised........................................ (160,000) 0.10
--------- -----
Outstanding at December 31, 1997................... 547,966 0.14
Granted.......................................... 830,600 0.57
Exercised........................................ (1,400) 0.30
Canceled......................................... (142,344) 0.43
--------- -----
Outstanding at December 31, 1998................... 1,234,822 0.40
Granted.......................................... 1,033,534 0.71
Exercised........................................ (157,072) 0.18
Canceled......................................... (454,808) 0.63
--------- -----
Outstanding at December 31, 1999................... 1,656,476 $0.55
========= =====
</TABLE>
At December 31, 1997, options to purchase 377,842 shares of common stock
were vested and exercisable at a weighted-average exercise price of $0.08 per
share, and options to purchase 635,034 shares of common stock were available for
future grants. At December 31, 1998, options to purchase 491,346 shares of
common stock were vested and exercisable at a weighted-average exercise price of
$0.12 per share, and options to purchase 1,146,778 shares of common stock were
available for future grants. At December 31, 1999, options to purchase 650,669
shares of common stock were vested and exercisable at a weighted average
exercise price of $0.34 per share, and options to purchase 1,368,052 shares of
common stock were available for future grants.
F-13
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 4.--STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVERAGE ------------------------------
REMAINING WEIGHTED- NUMBER WEIGHTED-AVERAGE
NUMBER CONTRACTUAL AVERAGE EXERCISABLE EXERCISE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE AND VESTED PRICE
- --------------- ----------- ---------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.06-$0.30.................. 369,000 6.66 $0.11 361,990 $0.11
0.42- 0.69.................. 1,259,476 8.96 0.66 288,679 0.62
1.04 .................... 28,000 9.74 1.04 -- --
--------- -------
1,656,476 650,669
========= =======
</TABLE>
The weighted-average fair value of options granted in 1997 was $0.23, and
all 1997 option grants had exercise prices equal to the deemed fair value on the
date of grant. For the year ended December 31,1998, options granted with
exercise prices equal to the deemed fair value on the date of grant had a
weighted-average fair value of $0.29 and options granted with exercise prices
below the deemed fair value on the date of grant had a weighted-average fair
value of $0.64. During the year ended December 31, 1999, options were granted
with exercise prices below the deemed fair value and had a weighted-average fair
value of $1.80.
PRO FORMA DISCLOSURE OF THE EFFECT OF STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretation in
accounting for its employee stock options. The alternative fair value accounting
provided for under Financial Accounting Standards Board Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("FAS 123"), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, when the exercise price of the Company's employee stock
option equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income (loss) is required by FAS 123,
which also requires that the information be determined as if the Company has
accounted for its employee stock options under the fair value method of
FAS 123. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing valuation model with the following
weighted-average assumptions: volatility of 80%; risk-free interest rates of 6%
for the years ended December 31, 1997, 1998 and 1999; a dividend yield of 0%;
and a weighted average expected life of the option of 5 years.
The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do no necessarily provide a reliable single measure
of the fair value of its employee stock options.
F-14
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 4.--STOCKHOLDERS' EQUITY (CONTINUED)
Had compensation cost for the Company's stock option plan been determined
using the fair value at the grant dates using the Black-Scholes method of
FAS 123, the Company's historical net loss applicable to common stockholders and
basic and diluted net loss per share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Pro forma net loss applicable to
common stockholders................. $(2,096,540) $(6,845,841) $(10,887,206)
=========== =========== ============
Pro forma net loss per common share... $ (6.77) $ (6.64) $ (7.25)
=========== =========== ============
</TABLE>
The pro forma impact of options on the net loss for the years ended
December 31, 1997, 1998 and 1999 is not representative of the effects on net
income (loss) for future years, as future years will include the effects of
additional years of stock option grants.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1999, the Company has reserved shares of its common stock
for future issuance upon conversion of preferred stock or exercise of stock
option grants as follows:
<TABLE>
<S> <C>
Series A convertible preferred stock........................ 1,345,000
Series B convertible preferred stock........................ 865,424
Series C convertible preferred stock........................ 1,428,570
Series D convertible preferred stock........................ 2,698,152
Series E convertible preferred stock........................ 3,963,000
Warrants.................................................... 871,860
Stock options............................................... 695,434
----------
11,867,440
==========
</TABLE>
DEFERRED STOCK-BASED COMPENSATION
The Company has recorded deferred stock compensation charges of $91,406 and
$656,342 for the years ended December 31, 1998 and 1999, respectively,
representing the difference between the exercise price of the option and the
fair value of common stock as of the date of grant. These amounts are being
amortized by charges to operations, using the graded method, over the vesting
periods of the individual stock options, which range between three and four
years.
F-15
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 5.--EARNINGS PER SHARE
The calculation of historical and pro forma basic and diluted net loss per
share is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
HISTORICAL:
Net loss.............................. $(2,089,868) $(6,762,116) $(10,366,418)
=========== =========== ============
Weighted-average shares of common
stock outstanding................... 1,462,247 1,560,978 1,614,604
Less: weighted-average shares subject
to repurchase....................... (1,152,565) (529,676) (112,500)
----------- ----------- ------------
Weighted-average shares of common
stock outstanding used in computing
basic and diluted net loss per
share............................... 309,682 1,031,302 1,502,104
=========== =========== ============
Basic and diluted net loss per common
share............................... $ (6.75) $ (6.56) $ (6.90)
=========== =========== ============
PRO FORMA (UNAUDITED):
Net loss.............................. $(10,366,418)
============
Weighted-average shares of common
stock outstanding................... 1,502,104
Adjustment to reflect the effect of
the assumed conversion of preferred
stock from the date of issuance..... 7,368,576
------------
Weighted-average shares used in
computing pro forma basic and
diluted net loss per common share
(unaudited)......................... 8,870,680
============
Pro forma basic and diluted net loss
per common share (unaudited)........ $ (1.17)
============
</TABLE>
If the Company had reported net income, the calculation of historical
diluted earnings per share would have included an additional 2,613,212;
4,984,355 and 7,368,576 common equivalent shares related to the conversion of
preferred shares using the if-converted method for the years ended December 31,
1997, 1998 and 1999, respectively. Additionally, if the Company had reported net
income, the calculation of diluted earnings per share would have included an
additional 999,190; 848,097 and 1,346,213 common equivalent shares related to
the exercise of stock options and nonvested shares subject to repurchase by the
Company for the years ended December 31, 1997, 1998 and 1999, respectively.
F-16
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 6.--INCOME TAXES
There has been no provision for U.S. federal income taxes for any period as
the Company has incurred operating losses in all periods and for all
jurisdictions.
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Current
Federal................................ $ -- $ -- $ --
State.................................. -- -- --
-- -- --
Deferred
Federal................................ 604,290 1,896,700 2,893,120
State.................................. 172,270 540,810 403,440
--------- ----------- -----------
776,560 2,437,510 3,296,560
--------- ----------- -----------
776,560 2,437,510 3,296,560
Change in valuation allowance............ (776,560) (2,437,510) (3,296,560)
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1997, 1998
and 1999, respectively are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Accruals and reserves................................ $ 76,877 $ 291,592 $ 542,591
Net operating loss carryforward...................... 470,792 2,823,095 6,027,540
Fixed assets......................................... 530,921 401,413 270,931
----------- ----------- -----------
Total deferred tax assets.............................. 1,078,590 3,516,100 6,841,062
Valuation allowance.................................... (1,078,590) (3,516,100) (6,812,660)
----------- ----------- -----------
Net deferred tax assets................................ -- -- 28,402
Deferred tax liabilities:.............................. -- --
Other................................................ -- -- (28,402)
----------- ----------- -----------
Total deferred tax liabilities......................... -- -- (28,402)
----------- ----------- -----------
Net deferred tax liabilities........................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
Net deferred tax assets have been fully offset by a valuation allowance due
to a lack of operating history combined with risks and uncertainties surrounding
the Company's ability to generate future taxable income.
F-17
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 6.--INCOME TAXES (CONTINUED)
The valuation allowance increased by $776,560, $2,437,510, and $3,296,560 in
the years ended December 31, 1997, 1998, and 1999, respectively.
At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $15,908,500 which expire in the tax
years 2011 through 2019. The Company has net operating loss carryforwards for
state income tax purposes of approximately $11,550,200 which expire in tax year
2004.
Because of the "change in ownership" provisions of the Internal Revenue Code
of 1986, a portion of the Company's net operating loss carryforwards may be
subject to an annual limitation regarding their utilization against taxable
income in future periods. As a result of the annual limitation, a portion of
these carryforwards may expire before ultimately becoming available to reduce
future income tax liabilities.
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Tax at U.S. statutory rate......................... (34.0)% (34.0)% (34.0)%
State income taxes, net of federal benefit......... (5.4)% (5.4)% (2.7)%
Change in valuation allowance...................... 37.1% 36.6% 31.9%
Meals and entertainment............................ -- 0.4% 0.3%
Non-deductible stock-based compensation............ 2.3% 2.4% 4.5%
Other.............................................. -- -- --
----- ----- -----
-- -- --
===== ===== =====
</TABLE>
NOTE 7.--COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain equipment and office space under noncancelable
operating lease agreements expiring at various dates through 2003.
The office space lease provides for a minimum annual rent increase of 4% per
year beginning April 1, 1999, through the end of the lease term. Under an
addendum to the office space lease dated February 12, 1998, the lessor required
the formation of an irrevocable standby letter of credit agreement with a
California bank to provide additional security in the event that the Company
defaults under the rental agreement. Dated February 13, 1998, the standby letter
of credit is in the amount of $141,552 and expires in February 2000. Pursuant to
this arrangement, the Company deposited funds in the amount of $141,552 into
certificates of deposit with the issuing bank to secure the standby letter of
credit.
F-18
<PAGE>
CRUEL WORLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 7.--COMMITMENTS AND CONTINGENCIES (CONTINUED)
As of December 31, 1999 minimum payments under all non cancelable lease
agreements were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------
<S> <C>
2000........................................................ $ 472,000
2001........................................................ 307,000
2002........................................................ 311,000
2003........................................................ 78,000
----------
Total minimum lease payments................................ $1,168,000
==========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998, and 1999 was
approximately $74,000, $283,000, and $278,000 respectively.
NOTE 8.--EMPLOYEE BENEFIT PLAN
Effective February 1998, the Company adopted a 401(k) plan which stipulates
that all employees can elect to contribute to the plan. The Company does not
provide matching contributions.
NOTE 9.--SUBSEQUENT EVENTS (UNAUDITED)
In January 2000, the Company entered into an agreement with a leading
Internet portal under which it will incur $1.0 million in advertising expense
through December 31, 2000.
In March 2000, the Company entered into a lease agreement for a 66,000
square foot facility in Sunnyvale, California. The lease commences on May 1,
2000 and terminates on April 30, 2007. The total commitment under the lease is
approximately $13.3 million.
On January 19, 2000 and March 10, 2000, the Company granted stock options to
acquire an aggregate of 930,180 shares of common stock at an exercise price of
$2.60. The Company has recorded additional deferred stock-based compensation of
approximately $5.5 million, which will be amortized over 36 to 44 months.
F-19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale of
the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq/NMS listing fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 15,180
NASD Filing Fee............................................. 6,250
Nasdaq National Market Listing Fee.......................... 95,000
Printing Costs.............................................. 250,000
Legal Fees and Expenses..................................... 500,000
Accounting Fees and Expenses................................ 350,000
Blue Sky Fees and Expenses.................................. 25,000
Transfer Agent and Registrar Fees........................... 15,000
Miscellaneous............................................... 43,570
----------
Total....................................................... $1,300,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article VIII of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our incorporation in May 1996, we have sold and issued the following
securities, preferred stock numbers give prospective effect to the Registrant's
two-for-one stock split to be effected in connection with its reincorporation in
the State of Delaware:
1. From inception in May 1996 through April 7, 2000, the Registrant granted
options to purchase its common stock at exercise prices ranging from
$0.55 to $3.00 per share pursuant to exemptions under Section 4(2) of the
Securities Act and Rule 701 promulgated thereunder, to directors,
officers and employees of the Registrant pursuant to the Registrant's
1996 stock option plan.
2. Effective July 26, 1996, the Registrant issued and sold 1,345,000 shares
of Series A preferred stock to 22 investors in reliance on Regulation D
for an aggregate purchase price of $672,000.
II-1
<PAGE>
3. Effective March 20, 1997, the Registrant issued and sold 865,422 shares
of Series B preferred stock to 22 investors in reliance on Regulation D
for an aggregate purchase price of $1,298,133.
4. Effective October 31, 1997, the Registrant issued and sold 1,428,570
shares of Series C preferred stock to 3 investors in reliance on
Regulation D for an aggregate purchase price of $2,999,997.
5. Effective July 2, 1998, the Registrant issued and sold 2,698,118 shares
of Series D preferred stock to 10 investors in reliance on Regulation D
for an aggregate purchase price of $9,281,642.88.
6. Effective September 4, 1999, the Registrant issued and sold 3,963,000
preferred stock units to 44 investors in reliance on Regulation D for an
aggregate purchase price of $20,567,970. Each unit consisted of one share
of Series E preferred stock and a warrant to acquire one-fifth of a share
of common stock at an exercise price of $9.00 per share.
7. Effective September 1999, the Registrant issued to two financial
advisors in connection with its preferred stock unit private placement
warrants to acquire 79,260 shares of common stock in reliance on
Regulation D.
There were no underwriters involved in connection with any of the
transactions set forth above. The recipients of securities in each the above
transactions represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients either
received adequate information about us or had adequate access, through their
relationships with us.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF DOCUMENT
------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Cruel World, Inc., a
Delaware corporation, as currently in effect.
3.2* Restated Certificate of Incorporation of Registrant to be in
effect upon completion of the offering.
3.3 Bylaws of Cruel World, as currently in effect.
3.4* Bylaws of Registrant to be in effect upon completion of the
offering.
4.1* Form of specimen common stock certificate.
4.2 Third Amended and Restated Investors Rights Agreement by and
among Registrant and the Purchasers of Registrant's
Class A, B, C, D and E Preferred Stock, dated September 27,
1999.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement to be entered into between
Registrant and each of its directors and officers.
10.2 1996 Stock Option Plan of Registrant
10.3 2000 Stock Plan of Registrant and form of agreements
thereunder.
10.4 2000 Employee Stock Purchase Plan of Registrant and form of
agreements thereunder.
10.5 2000 Director Option Plan of Registrant and form of
agreements thereunder.
10.6 Lease between Palo Alto Property and the Registrant, dated
February 1998.
10.7 Net Lease Agreement between Oakmead Investments and the
Registrant, dated March 2000.
10.8 Office Service Agreement between Virtual Officing Solutions
Worldwide and the Registrant, dated December 22, 1999.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF DOCUMENT
------- ------------------------------------------------------------
<C> <S>
10.9 Severance Agreement between the Registrant and Heather
Martin Maier dated June 29, 1998.
10.10 Employment Agreement between the Registrant and Sanford
Fitch, dated February 29, 2000.
10.11* Letter from the Registrant to Sanford Fitch, dated
March , 2000.
10.12* Restricted Stock Purchase Agreement between the Registrant
and Sanford Fitch, dated March , 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consents of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
24.1 Powers of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
None
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto,
State of California on April 10, 2000.
<TABLE>
<S> <C> <C>
By: /s/ JEFFREY HYMAN
-----------------------------------------
Jeffrey Hyman
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Jeffrey Hyman and
Sanford Fitch, and each of them, as his attorney-in-fact, 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), and any
and all registration statements filed pursuant to Rule 462 under the Securities
Act of 1933, as amended, in connection with or related to the offering
contemplated by this registration statement and its amendments, if any, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney to any and
all amendments to said registration statement.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 10, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JEFFREY HYMAN President, Chief Executive Officer and
------------------------------------------- Chairman of the Board (Principal Executive
Jeffrey Hyman Officer)
/s/ SANFORD FITCH Chief Financial Officer (Principal Financial
------------------------------------------- and Accounting Officer)
Sanford Fitch
/s/ BRADLEY FELD Director
-------------------------------------------
Bradley Feld
/s/ LEE ISGUR Director
-------------------------------------------
Lee Isgur
/s/ PATRICK KENEALY Director
-------------------------------------------
Patrick Kenealy
/s/ PIERS MARMION Director
-------------------------------------------
Piers Marmion
</TABLE>
II-4
<PAGE>
_______________ SHARES
CRUEL WORLD, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED _________, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................................2
(a) Effective Registration Statement...............................................................2
(b) Contents of Registration Statement.............................................................2
(c) Distribution of Offering Material By the Company...............................................2
(d) Due Incorporation..............................................................................2
(e) No Subsidiaries................................................................................3
(f) Underwriting Agreement.........................................................................3
(g) Description of Capital Stock and Other Capital Stock Matters...................................3
(h) Authorized Stock...............................................................................3
(i) Validly Issued Shares..........................................................................3
(j) No Default.....................................................................................3
(k) No Conflict....................................................................................4
(l) No Material Adverse Change.....................................................................4
(m) Independent Accountants........................................................................4
(n) Preparation of the Financial Statements........................................................4
(o) Legal Proceedings; Exhibits....................................................................4
(p) Compliance with Securities Act.................................................................4
(q) Not an Investment Company......................................................................5
(r) Compliance with Laws...........................................................................5
(s) No Environmental Costs.........................................................................5
(t) No Registration Rights.........................................................................5
(u) Cuban Business Statute.........................................................................5
(v) Absence of Material Charges....................................................................5
(w) Good Title to Properties.......................................................................6
(x) Intellectual Property Rights...................................................................6
(y) No Labor Disputes..............................................................................6
(z) Insurance......................................................................................6
(aa) Governmental Permits...........................................................................6
(bb) Accounting Controls............................................................................6
(cc) Stock Exchange Listing.........................................................................7
(dd) Year 2000 Compliance...........................................................................7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
(ee) [Directed Share Program........................................................................7
(ff) Tax Law Compliance.............................................................................7
(gg) Related Party Transactions.....................................................................7
2. PURCHASE AND SALE AGREEMENTS................................................................8
(a) Firm Shares.....................................................................................8
(b) Additional Shares...............................................................................8
(c) Market Standoff Provision.......................................................................8
(d) Terms of Public Offering........................................................................9
3. PAYMENT AND DELIVERY........................................................................9
(a) Firm Shares.....................................................................................9
(b) Additional Shares...............................................................................9
(c) Delivery of Certificates........................................................................9
4. COVENANTS OF THE COMPANY....................................................................9
(a) Furnish Copies of Registration Statement and Prospectus.........................................9
(b) Notification of Amendments or Supplements.......................................................9
(c) Filings of Amendments or Supplements...........................................................10
(d) Blue Sky Laws..................................................................................10
(e) Earnings Statement.............................................................................10
(f) Use of Proceeds................................................................................10
(g) Transfer Agent.................................................................................10
(h) Periodic Reporting Obligations.................................................................10
(i) [Directed Share Program........................................................................10
(j) Exchange Act Compliance........................................................................11
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS................................................11
(a) Effective Registration Statement...............................................................11
(b) Rule 462 Registration Statement................................................................11
(c) Prospectus Filed with Commission...............................................................11
(d) No Stop Order..................................................................................11
(e) No NASD Objection..............................................................................11
(f) No Debt Downgrading............................................................................11
(g) No Material Adverse Change.....................................................................12
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
(h) Officer's Certificate..........................................................................12
(i) Opinion of Company Counsel.....................................................................12
(j) Opinion of Underwriters Counsel................................................................12
(k) Accountant's Comfort Letter....................................................................12
(l) Lock-Up Agreements.............................................................................13
(m) Additional Documents...........................................................................13
6. EXPENSES...................................................................................13
7. INDEMNITY AND CONTRIBUTION.................................................................14
(a) Indemnification of the Underwriters............................................................14
(b) Indemnification by the Underwriters............................................................14
(c) Indemnification Procedures.....................................................................15
(d) [Indemnification for Directed Share Program....................................................16
(e) Contribution Agreement.........................................................................16
(f) Contribution Amounts...........................................................................17
(g) Survival of Provisions.........................................................................17
8. EFFECTIVENESS..............................................................................17
9. TERMINATION................................................................................17
10. DEFAULTING UNDERWRITERS....................................................................18
11. COUNTERPARTS...............................................................................19
12. HEADINGS; TABLE OF CONTENTS................................................................19
13. NOTICES....................................................................................19
14. SUCCESSORS.................................................................................19
15. PARTIAL UNENFORCEABILITY...................................................................19
16. GOVERNING LAW..............................................................................19
17. ENTIRE AGREEMENT...........................................................................20
18. AMENDMENTS.................................................................................20
19. SOPHISTICATED PARTIES......................................................................20
</TABLE>
SCHEDULE A
List of Underwriters
iii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
EXHIBITS
Exhibit A - Form of Legal Opinion of Company Counsel
Exhibit B - Form of Lockup Agreement
iv
<PAGE>
___________, 2000
Thomas Weisel Partners LLC
[Underwriter]
[Underwriter]
As representatives for the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Ladies and Gentlemen:
INTRODUCTION. Cruel World, Inc., a Delaware corporation (the
"COMPANY"), proposes to issue and sell to the several underwriters named in
SCHEDULE A hereto (the "UNDERWRITERS") an aggregate of ____________ shares of
the common stock, par value $0.001 per share, of the Company (the "FIRM
SHARES").
The Company also proposes to issue and sell to the several
Underwriters not more than an additional ____________ shares of its common
stock, $0.001 par value per share (the "ADDITIONAL SHARES"), if and to the
extent that you shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "SHARES". The shares of common
stock, $0.001 par value per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"COMMON STOCK". Thomas Weisel Partners LLC has agreed to act as representatives
of the several Underwriters (in such capacity, the "REPRESENTATIVES") in
connection with the offering and sale of the Shares.
The Company has filed with the Securities and Exchange
Commission (the "COMMISSION") a registration statement on Form S-1 (file no.
333-_____), including a prospectus, relating to the Shares. The registration
statement as amended at the time it becomes effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), is hereinafter referred to as the "REGISTRATION
STATEMENT"; the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "PROSPECTUS". If the Company has filed a
registration statement to register additional shares of Common Stock pursuant to
Rule 462(b) under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"),
then any reference herein to the term "REGISTRATION STATEMENT" shall be deemed
to include such Rule 462 Registration Statement. All references in this
Agreement to the Registration Statement, the Rule 462 Registration Statement, a
preliminary prospectus, the Prospectus, or any amendments
<PAGE>
or supplements to any of the foregoing, shall include any copy thereof filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR").
[As part of the offering contemplated by this Agreement,
Thomas Weisel Partners has agreed to reserve out of the Shares set forth
opposite its name on SCHEDULE A to this Agreement, up to ______________ shares,
for sale to the Company's employees, officers, and directors and other parties
associated with the Company (collectively, "PARTICIPANTS"), as set forth in the
Prospectus under the heading "Underwriting" (the "DIRECTED SHARE PROGRAM"). The
Shares to be sold by Thomas Weisel Partners pursuant to the Directed Share
Program (the "DIRECTED SHARES") will be sold by Thomas Weisel Partners pursuant
to this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the first business day
after the date on which this Agreement is executed will be offered to the public
by Thomas Weisel Partners as set forth in the Prospectus.]
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) EFFECTIVE REGISTRATION STATEMENT. The Registration Statement
has become effective; no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for such purpose are
pending before or threatened by the Commission.
(b) CONTENTS OF REGISTRATION STATEMENT. (i) The Registration
Statement, when it became effective, did not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable rules
and regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company
has not distributed and will not distribute, prior to the later of the Option
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) DUE INCORPORATION. The Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
2
<PAGE>
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company.
(e) NO SUBSIDIARIES. The Company has no subsidiaries.
(f) UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
rights to indemnification hereunder may be limited by applicable law and except
as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(g) DESCRIPTION OF CAPITAL STOCK AND OTHER CAPITAL STOCK MATTERS.
The authorized capital stock of the Company conforms as to legal matters to the
description thereof contained in the Prospectus. There are no outstanding
subscriptions, rights, warrants, options, calls, convertible securities,
commitments of sale or liens granted or issued by the Company relating to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of the Company, except as otherwise disclosed in the Registration
Statement.
(h) AUTHORIZED STOCK. All of the outstanding shares of capital
stock of the Company prior to the issuance of the Shares to be sold by the
Company have been duly authorized and are validly issued, fully paid,
non-assessable and not subject to any preemptive or similar rights.
(i) VALIDLY ISSUED SHARES. The Shares to be sold by the Company
have been duly authorized and, when issued and delivered in accordance with the
terms of this Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares will not be subject to any preemptive or similar
rights.
(j) NO DEFAULT. The Company is not in violation of its charter or
by-laws or in default in the performance of any obligation, agreement, covenant
or condition contained in any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to the Company, to which the
Company is a party or by which the Company or its property is bound.
(k) NO CONFLICT. The execution and delivery by the Company of, and
the performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or any agreement or other instrument binding upon the
Company that is material to the Company, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the Shares.
(l) NO MATERIAL ADVERSE CHANGE. There has not occurred any
material adverse change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the earnings,
business, operations or prospects of the
3
<PAGE>
Company from that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(m) INDEPENDENT ACCOUNTANTS. [________________], who have
expressed their opinion with respect to the consolidated financial statements
(which term as used in this Agreement includes the related notes thereto) [and
supporting schedules] filed with the Commission as a part of the Registration
Statement and included in the Prospectus, are independent public or certified
public accountants as required by the Securities Act.
(n) PREPARATION OF THE FINANCIAL STATEMENTS. The consolidated
financial statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the financial position
of the Company as of and at the dates indicated and the results of its
operations and cash flows for the periods specified. [The supporting schedules
included in the Registration Statement present fairly the information required
to be stated therein.] Such consolidated financial statements [and supporting
schedules] have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved, except
as may be expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus under the
captions "Prospectus Summary-Summary Financial Information," "Selected Financial
Data" and "Capitalization" fairly present the information set forth therein on a
basis consistent with that of the audited financial statements contained in the
Registration Statement.
(o) LEGAL PROCEEDINGS; EXHIBITS. There are no legal or
governmental proceedings pending or threatened to which the Company is a party
or to which any of the properties of the Company is subject that are required to
be described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not described or
filed as required.
(p) COMPLIANCE WITH SECURITIES ACT. Each preliminary prospectus
filed as part of the Registration Statement as originally filed or as part of
any amendment thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(q) NOT AN INVESTMENT COMPANY. The Company is not and, after
giving effect to the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(r) COMPLIANCE WITH LAWS. The Company (i) is in compliance with
any and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), (ii) has received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) is in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive
4
<PAGE>
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
individually or in the aggregate, have a material adverse effect on the
Company.
(s) NO ENVIRONMENTAL COSTS. There are no costs or liabilities
associated with Environmental Laws (including, without limitation, any capital
or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties) which would, individually or in the aggregate, have a material
adverse effect on the Company.
(t) NO REGISTRATION RIGHTS. There are no contracts, agreements or
understandings between the Company and any person granting such person the right
to require the Company to file a registration statement under the Securities Act
with respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the Registration
Statement other than as described in the Registration Statement and as have been
waived in writing in connection with the offering contemplated hereby.
(u) CUBAN BUSINESS STATUTE. The Company has complied with all
provisions of Section 517.075, Florida Statutes relating to doing business with
the Government of Cuba or with any person or affiliate located in Cuba.
(v) ABSENCE OF MATERIAL CHARGES. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, (i) the Company has not incurred any material liability or
obligation, direct or contingent, nor entered into any material transaction not
in the ordinary course of business; (ii) the Company has not purchased any of
its outstanding capital stock, nor declared, paid or otherwise made any dividend
or distribution of any kind on its capital stock other than ordinary and
customary dividends; and (iii) there has not been any material change in the
capital stock, short-term debt or long-term debt of the Company, except in each
case as described in the Prospectus.
(w) GOOD TITLE TO PROPERTIES. The Company has good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by it which is material to the business of the Company,
in each case free and clear of all liens, encumbrances and defects except such
as are described in the Prospectus or such as do not materially affect the value
of such property and do not interfere with the use made and proposed to be made
of such property by the Company; and any real property and buildings held under
lease by the Company are held under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company.
(x) INTELLECTUAL PROPERTY RIGHTS. The Company owns or possesses,
or can acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names currently employed by
it in connection with the business now operated by it, and the Company
5
<PAGE>
has not received any notice of infringement of or conflict with asserted rights
of others with respect to any of the foregoing which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a material adverse effect on the Company.
(y) NO LABOR DISPUTES. No material labor dispute with the
employees of the Company exists, or, to the knowledge of the Company, is
imminent; and the Company is not aware of any existing, threatened or imminent
labor disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could have a material adverse effect on the
Company.
(z) INSURANCE. The Company is insured by the insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which it is engaged;
and the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on the Company.
(aa) GOVERNMENTAL PERMITS. The Company possesses all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct its business, and the Company has
not received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
individually or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the Company.
(bb) ACCOUNTING CONTROLS. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(cc) STOCK EXCHANGE LISTING. The Common Stock has been approved for
listing on the Nasdaq National Market System, subject only to official notice of
issuance.
(dd) YEAR 2000 COMPLIANCE. The Company has reviewed its operations
and that of any third parties with which the Company has a material relationship
to evaluate the extent to which the business or operations of the Company will
be affected by the Year 2000 Problem. As a result of such review, the Company
has no reason to believe, and does not believe, that the Year 2000 Problem will
have a material adverse effect on the Company or result in any material loss or
interference with the Company's business or operations. 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 at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
6
<PAGE>
(ee) [DIRECTED SHARE PROGRAM. The Company represents and warrants
to Thomas Weisel Partners that (i) the Registration Statement, the Prospectus
and any preliminary prospectus comply, and any further amendments or supplements
thereto will comply, with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus or any preliminary prospectus, as amended
or supplemented, if applicable, are distributed in connection with the Directed
Share Program, and that (ii) no authorization, approval, consent, license,
order, registration or qualification of or with any government, governmental
instrumentality or court, other than such as have been obtained, is necessary
under the securities laws and regulations of foreign jurisdictions in which the
Directed Shares are offered outside the United States.]
(ff) TAX LAW COMPLIANCE. The Company has filed all necessary
federal, state and foreign income and franchise tax returns or has properly
requested extensions thereof and has paid all taxes required to be paid by it
and, if due and payable, any related or similar assessment, fine or penalty
levied against it. The Company has made adequate charges, accruals and reserves
in the applicable financial statements referred to in Section 1(n) above in
respect of all federal, state and foreign income and franchise taxes for all
periods as to which the tax liability of the Company has not been finally
determined.
(gg) RELATED PARTY TRANSACTIONS. There are no business
relationships or related-party transactions involving the Company or any other
person required to be described in the Prospectus which have not been described
as required.
2. PURCHASE AND SALE AGREEMENTS.
(a) FIRM SHARES. The Company hereby agrees to sell to the several
Underwriters, and each Underwriter, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
agrees, severally and not jointly, to purchase from the Company at $______ a
share (the "PURCHASE PRICE") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) set forth
opposite the name of such Underwriter in SCHEDULE A hereto.
(b) ADDITIONAL SHARES. On the basis of the representations and
warranties contained in this Agreement, and subject to its terms and conditions,
the Company agrees to sell to the Underwriters the Additional Shares, and the
Underwriters shall have a one-time right to purchase, severally and not jointly,
up to _______________ Additional Shares at the Purchase Price. If you, on behalf
of the Underwriters, elect to exercise such option, you shall so notify the
Company in writing not later than thirty (30) days after the date of this
Agreement, which notice shall specify the number of Additional Shares to be
purchased by the Underwriters and the date on which such shares are to be
purchased. Such date may be the same as the Closing Date (as defined below) but
not earlier than the Closing Date nor later than ten (10) business days after
the date of such notice. Additional Shares may be purchased as provided in
Section 3 hereof solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. If any Additional Shares are to
be purchased, each Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the number of Firm Shares
set forth in
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SCHEDULE A hereto opposite the name of such Underwriter bears to the total
number of Firm Shares.
(c) MARKET STANDOFF PROVISION. The Company hereby agrees that,
without the prior written consent of Thomas Weisel Partners, it will not, during
the period ending 180 days after the date of the Prospectus, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase,
lend, or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Shares to be sold hereunder or (B) the issuance by the Company of shares of
Common Stock upon the exercise of options or warrants or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing and which is described in the Prospectus.
(d) TERMS OF PUBLIC OFFERING. The Company is advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable.
3. PAYMENT AND DELIVERY.
(a) FIRM SHARES. Payment for the Firm Shares to be sold by the
Company shall be made to the Company in immediately available funds against
delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ____________, 1999, or at
such other time on the same or such other date, not later than _________, 1999,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "CLOSING DATE".
(b) ADDITIONAL SHARES. Payment for any Additional Shares shall be
made to the Company in immediately available funds in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2(b) or at such other time on the same or on such
other date, in any event not later than ____________, 1999, as shall be
designated in writing by you. The time and date of such payment are hereinafter
referred to as the "OPTION CLOSING DATE".
(c) DELIVERY OF CERTIFICATES. Certificates for the Firm Shares and
Additional Shares shall be in definitive form and registered in such names and
in such denominations as you shall request in writing not later than one (1)
full business day prior to the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and Additional Shares
shall be delivered to you on the Closing Date or the Option Closing Date, as the
case may be, for the respective accounts of the several Underwriters, with any
transfer taxes payable in connection with the transfer of the Shares to the
Underwriters duly paid, against payment of the Purchase Price therefor.
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4. COVENANTS OF THE COMPANY. In further consideration of the agreements of
the Underwriters herein contained, the Company covenants with each Underwriter
as follows:
(a) FURNISH COPIES OF REGISTRATION STATEMENT AND PROSPECTUS. To
furnish to you, without charge, four (4) signed copies of the Registration
Statement (including exhibits thereto) and for delivery to each other
Underwriter a conformed copy of the Registration Statement (without exhibits
thereto) and to furnish to you in New York City, without charge, prior to 10:00
a.m. New York City time on the business day next succeeding the date of this
Agreement and during the period mentioned in Section 4(c) below, as many copies
of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) NOTIFICATION OF AMENDMENTS OR SUPPLEMENTS. Before amending or
supplementing the Registration Statement or the Prospectus, to furnish to you a
copy of each such proposed amendment or supplement and not to file any such
proposed amendment or supplement to which you reasonably object, and to file
with the Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to such rule.
(c) FILINGS OF AMENDMENTS OR SUPPLEMENTS. If, during such period
after the first date of the public offering of the Shares as in the opinion of
counsel for the Underwriters the Prospectus is required by law to be delivered
in connection with sales by an Underwriter or dealer (the "PROSPECTUS DELIVERY
PERIOD"), any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to comply
with applicable law, forthwith to prepare, file with the Commission and furnish,
at its own expense, to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which Shares may have been sold by
you on behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) BLUE SKY LAWS. To endeavor to qualify the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) EARNINGS STATEMENT. To make generally available to its
securityholders as soon as practicable, but in any event not later than eighteen
(18) months after the effective date of the Registration Statement (as defined
in Rule 158(c) under the Securities Act), an earnings statement of the Company
(which need not be audited) complying with Section 11(a) of the Securities Act
and the rules and regulations thereunder (including, at the option of the
Company, Rule 158).
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(f) USE OF PROCEEDS. The Company shall apply the net proceeds from
the sale of the Shares sold by it in the manner described under the caption "Use
of Proceeds" in the Prospectus.
(g) TRANSFER AGENT. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) PERIODIC REPORTING OBLIGATIONS. During the Prospectus Delivery
Period, the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act. Additionally, the Company shall file with the Commission such
information on Form 10-Q or Form 10-K as may be required by Rule 463 under the
Securities Act.
(i) [DIRECTED SHARE PROGRAM. That in connection with the Directed
Share Program, the Company will ensure that the Directed Shares will be
restricted to the extent required by the National Association of Securities
Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three (3) months following the date of
the effectiveness of the Registration Statement. Thomas Weisel Partners will
notify the Company as to which Participants will need to be so restricted. The
Company will direct the transfer agent to place stop transfer restrictions upon
such securities for such period of time. Furthermore, the Company covenants with
Thomas Weisel Partners that the Company will comply with all applicable
securities and other applicable laws, rules and regulations in each foreign
jurisdiction in which the Directed Shares are offered in connection with the
Directed Share Program.]
(j) EXCHANGE ACT COMPLIANCE. During the Prospectus Delivery
Period, the Company will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Age in the manner
and within the time periods required by the Exchange Act.
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Company to sell the Shares to the several Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the
Closing Date are subject to the following conditions:
(a) EFFECTIVE REGISTRATION STATEMENT. The Registration Statement
shall have become effective not later than [__________] (New York City time) on
the date hereof.
(b) RULE 462 REGISTRATION STATEMENT. If the Company elects to rely
upon Rule 462(b), the Company shall file a Rule 462 Registration Statement with
the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C.
time, on the date of this Agreement, and the Company shall at the time of filing
either pay to the Commission the filing fee for the Rule 462 Registration
Statement or give irrevocable instructions for the payment of such fee pursuant
to Rule 111(b) under the Securities Act.
(c) PROSPECTUS FILED WITH COMMISSION. The Company shall have filed
the Prospectus with the Commission (including the information required by Rule
430A under the Securities Act) in the manner and within the time period required
by Rule 424(b) under the Securities Act; or the Company shall have filed a
post-effective amendment to the Registration
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Statement containing the information required by such Rule 430A, and such
post-effective amendment shall have become effective; or, if the Company elected
to rely upon Rule 434 under the Securities Act and obtained the Representative's
consent thereto, the Company shall have filed a Term Sheet with the Commission
in the manner and within the time period required by such Rule 424(b).
(d) NO STOP ORDER. No stop order suspending the effectiveness of
the Registration Statement, any Rule 462 Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect and
no proceedings for such purpose shall have been instituted or threatened by the
Commission.
(e) NO NASD OBJECTION. The NASD shall have raised no objection to
the fairness and reasonableness of the underwriting terms and arrangements.
(f) NO DEBT DOWNGRADING. There shall not have occurred any
downgrading, nor shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the Securities Act.
(g) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
change, or any development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business, operations or prospects of
the Company from that set forth in the Prospectus (exclusive of any amendments
or supplements thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
(h) OFFICER'S CERTIFICATE. The Underwriters shall have received on
the Closing Date a certificate, dated the Closing Date and signed by the Chief
Executive Officer and President of the Company, to the effect set forth in
Sections 5(d) and 5(g) above and to the effect that the representations and
warranties of the Company contained in this Agreement are true and correct as of
the Closing Date and that the Company has complied with all of the agreements
and satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
(i) OPINION OF COMPANY COUNSEL. The Underwriters shall have
received on the Closing Date an opinion of Wilson, Sonsini, Goodrich & Rosati,
counsel for the Company, dated the Closing Date, the form of which is attached
hereto as EXHIBIT A. The opinion shall be rendered to the Underwriters at the
request of the Company and shall so state therein. The opinion shall state that
Underwriters Counsel is entitled to rely thereon. Such opinion shall not state
that it is to be governed or qualified by, or that it is otherwise subject to,
any treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991) or any comparable state bar accord.
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(j) OPINION OF UNDERWRITERS COUNSEL. The Underwriters shall have
received on the Closing Date an opinion of Orrick, Herrington & Sutcliffe LLP,
counsel for the Underwriters, dated the Closing Date, covering the matters
referred to in EXHIBIT A, paragraphs (vi), (vii), (ix) (but only as to the
statements in the Prospectus under "Description of Capital Stock" and
"Underwriters") and (xv). With respect to paragraph (xv) of EXHIBIT A, such
counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification, except as
specified.
(k) ACCOUNTANT'S COMFORT LETTER. The Underwriters shall have
received, on each of the date hereof and the Closing Date, a letter dated the
date hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Underwriters, from ___________________, independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
consolidated financial statements and certain financial information contained in
the Registration Statement and the Prospectus; PROVIDED that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than the
date hereof.
(l) LOCK-UP AGREEMENTS. The "lock up" agreements, each
substantially in the form of EXHIBIT B hereto, between you and certain
stockholders, officers and directors of the Company, delivered to you on or
before the date hereof, shall be in full force and effect on the Closing Date.
(m) ADDITIONAL DOCUMENTS. On the Closing Date, the Representatives
and counsel for the Underwriters shall have received such information, documents
and opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction of each of the above conditions
on or prior to the Option Closing Date and to the delivery to you on the Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the Additional
Shares.
6. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
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costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or legal investment memorandum in
connection with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as contemplated by Section 4(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection with such qualification and in connection with
the Blue Sky or legal investment memorandum, (iv) all filing fees and the
reasonable fees and disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the offering of the Shares by
the NASD, (v) all fees and expenses in connection with the preparation and
filing of the registration statement on Form 8-A relating to the Common Stock
and all costs and expenses incident to listing the Shares on the Nasdaq National
Market, (vi) the cost of printing certificates representing the Shares, (vii)
the costs and charges of any transfer agent, registrar or depositary, (viii) the
costs and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the offering of the
Shares, including, without limitation, expenses associated with the production
of road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, (ix) all expenses in connection with any offer
and sale of the Shares outside of the United States, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection with offers and sales outside of the United States, [(x) all
reasonable fees and disbursements of counsel incurred by the Underwriters in
connection with the Directed Share Program and stamp duties, similar taxes or
duties or other taxes, if any, incurred by the Underwriters in connection with
the Directed Share Program] and (xi) all other costs and expenses incident to
the performance of the obligations of the Company hereunder for which provision
is not otherwise made in this Section. It is understood, however, that except as
provided in this Section, Section 7 entitled "Indemnity and Contribution", and
the last paragraph of Section 10 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel and any
advertising expenses connected with any offers they may make.
7. INDEMNITY AND CONTRIBUTION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except (i) insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein and (ii) that with respect to any preliminary
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prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage or
liability purchased Shares, or any person controlling such Underwriter, if
copies of the Prospectus were timely delivered to the Underwriter pursuant to
Section 4 and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense.
(b) INDEMNIFICATION BY THE UNDERWRITERS. Each Underwriter agrees,
severally and not jointly, to indemnify and hold harmless the Company, the
directors of the Company, the officers of the Company who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
from and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(c) INDEMNIFICATION PROCEDURES. In case any proceeding (including
any governmental investigation) shall be instituted involving any person in
respect of which indemnity may be sought pursuant to this Section 7, such person
(the "INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (ii) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration Statement and
each person,
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if any, who controls the Company within the meaning of either such Section, and
that all such fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firm for the Underwriters and such control persons of
any Underwriters, such firm shall be designated in writing by Thomas Weisel
Partners. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to Section 7(d) hereof in respect of such
action or proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local counsel)
for Thomas Weisel Partners for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control Thomas Weisel Partners within the meaning of either Section 15 of
the Act or Section 20 of the Exchange Act.
(d) [INDEMNIFICATION FOR DIRECTED SHARE PROGRAM. The Company
agrees to indemnify and hold harmless Thomas Weisel Partners and each person, if
any, who controls Thomas Weisel Partners within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act ("THOMAS WEISEL PARTNERS
ENTITIES"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material fact
contained in the prospectus wrapper material prepared by or with the consent of
the Company for distribution in foreign jurisdictions in connection with the
Directed Share Program attached to the Prospectus or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, when
considered in conjunction with the Prospectus or any applicable preliminary
prospectus, not misleading; (ii) caused by the failure of any Participant to pay
for and accept delivery of the shares which, immediately following the
effectiveness of the Registration Statement, were subject to a properly
confirmed agreement to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, PROVIDED that, the Company shall not
be
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responsible under this subparagraph (iii) for any losses, claim, damages or
liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of Thomas
Weisel Partners Entities.]
(e) CONTRIBUTION AGREEMENT. To the extent the indemnification
provided for in this Section 7 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party or parties on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause 7(e) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 7(e) above but also the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate price
to the public of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(f) CONTRIBUTION AMOUNTS. The Company and the Underwriters agree
that it would not be just or equitable if contribution pursuant to this Section
7 were determined by PRO RATA allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in Section 7(e).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
16
<PAGE>
The remedies provided for in this Section 7 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
(g) SURVIVAL OF PROVISIONS. The indemnity and contribution
provisions contained in this Section 7 and the representations, warranties and
other statements of the Company contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter or the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.
8. EFFECTIVENESS. This Agreement shall become effective upon the
execution and delivery hereof by the parties hereto.
9. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York, Delaware or California shall have been declared by
either federal or New York, Delaware or California state authorities or (iv)
there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse, or (v) in the judgment of the Representatives, there shall
have occurred any material adverse change, or any development that could
reasonably be expected to result in a material adverse change, in the condition,
financial or otherwise, or in the earnings, business, operations or prospects,
whether or not arising from transactions in the ordinary course of business, of
the Company and its subsidiaries, taken as a whole, and (b) in the case of any
of the events specified in clauses 9(a)(i) through 9(a)(v), such event,
individually or together with any other such event, makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
10. DEFAULTING UNDERWRITERS. If, on the Closing Date or the Option
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares that it has or they have agreed to purchase
hereunder on such date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the aggregate number of the Shares to be purchased on such
date, the other Underwriters shall be obligated severally in the proportions
that the number of Firm Shares set forth opposite their respective names in
SCHEDULE A bears to the aggregate number of Firm Shares set forth opposite the
names of all such non-defaulting Underwriters, or in such other proportions as
you may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 10 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date,
17
<PAGE>
any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and
the aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven (7) days, in
order that the required changes, if any, in the Registration Statement and in
the Prospectus or in any other documents or arrangements may be effected. If, on
the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional Shares
that such non-defaulting Underwriters would have been obligated to purchase in
the absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. COUNTERPARTS. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
12. HEADINGS; TABLE OF CONTENTS. The headings of the sections of this
Agreement and the table of contents have been inserted for convenience of
reference only and shall not be deemed a part of this Agreement.
13. NOTICES. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Fransisco, California 94104
Facsimile: (415) 364-2694
Attention:
18
<PAGE>
If to the Company:
[Company name/Address]
Facsimile: ( ) __________________
Attention:
Any party hereto may change the address for receipt of
communications by giving written notice to the others.
14. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 10 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 7, and in each case their respective
successors, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof.
18. AMENDMENTS. This Agreement may only be amended or modified in
writing, signed by all of the parties hereto, and no condition herein (express
or implied) may be waived unless waived in writing by each party whom the
condition is meant to benefit.
19. SOPHISTICATED PARTIES. Each of the parties hereto acknowledges
that it is a sophisticated business person who was adequately represented by
counsel during negotiations regarding the provisions hereof, including, without
limitation, the indemnification and contribution provisions of Section 7, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Section 7 hereto fairly allocate the risks
in light of the ability of the parties to investigate the Company, its affairs
and its business in order to assure that adequate disclosure has been made in
the Registration Statement, any preliminary prospectus and the Prospectus (and
any amendments and supplements thereto), as required by the Securities Act and
the Exchange Act.
19
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
Cruel World, Inc., a Delaware corporation
By:
---------------------------------
Accepted as of the date hereof
Thomas Weisel Partners LLC
Acting severally on behalf
of themselves and the
several Underwriters named
in SCHEDULE A hereto.
By: Thomas Weisel Partners LLC
By:
------------------------------------
Name:
Title:
20
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
- ----------- ---------------
<S> <C>
Thomas Weisel Partners LLC..............................................................
[Underwriter]
[Underwriter]...........................................................................
TOTAL........................................................................
</TABLE>
<PAGE>
EXHIBIT A
FORM OF LEGAL OPINION OF COMPANY COUNSEL
(i) The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company.
(ii) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(iii) All of the outstanding shares of capital stock of the
Company prior to the issuance of the Shares to be sold by the Company have been
duly authorized and are validly issued, fully paid, non-assessable and not
subject to any preemptive or similar rights.
(iv) The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares will not be subject to any preemptive or similar
rights.
(v) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company.
(vi) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Underwriting Agreement
will not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon the Company or any of
its subsidiaries that is material to the Company and its subsidiaries, taken as
a whole, or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company or any subsidiary, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(vii) The statements (A) in the Prospectus under the captions
"Business-Intellectual Property and Licensing Rights," "Description of Capital
Stock," "Shares Eligible for Future Sale" and "Underwriting" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar as such
statements constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the matters
referred to therein.
A-1
<PAGE>
(viii) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(ix) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
(x) The Registration Statement has been declared effective by the
Commission under the Securities Act. No stop order suspending the effectiveness
of the Registration Statement has been issued under the Securities Act and no
proceedings for such purpose have been instituted or, to the best knowledge of
such counsel, are pending or are contemplated or threatened by the Commission.
Any required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) under the Securities Act has been in the manner and within the time
period required by such Rule 424(b).
(xi) Except as disclosed in the Prospectus, there are no persons
with registration or other similar rights to have any equity or debt securities
registered for sale under the Registration Statement or included in the offering
contemplated by the Underwriting Agreement, except for such rights as have been
duly waived.
(xii) The Company is not in violation of its charter or by-laws or
any law, administrative regulation or administrative or court decree applicable
to the or is in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any indenture, loan agreement,
mortgage, lease or other agreement that is material to the Company, except in
each such case for such violations or defaults as would not, individually or in
the aggregate, result in a material adverse effect on the Company.
(xiii) Such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and schedules and
other financial and statistical data included therein as to which such counsel
need not express any opinion) comply as to form in all material respects with
the Securities Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for financial statements
and schedules and other financial and statistical data as to which such counsel
need not express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (C) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to which
such counsel need not express any belief) the Prospectus contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
A-2
<PAGE>
With respect to paragraph (xiii) of EXHIBIT A, such counsel may
state that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof, but are
without independent check or verification, except as specified.
A-3
<PAGE>
EXHIBIT B
_____________, 2000
Thomas Weisel Partners LLC
[Underwriter]
[Underwriter]
As Representatives of the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
RE: LOCK-UP AGREEMENT (THIS "AGREEMENT")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of certain shares
of Common Stock, par value $0.001 per share (the "Common Stock"), of Cruel
World, Inc., a Delaware corporation (the "Company"), or securities convertible
into or exchangeable or exercisable for Common Stock. The undersigned
understands that you, as representatives (the "Representatives"), propose to
enter into an Underwriting Agreement on behalf of the several Underwriters named
in Schedule A to such agreement (collectively, the "Underwriters"), with the
Company providing for a public offering of the Common Stock of the Company
pursuant to a Registration Statement on form S-1 to be filed with the Securities
and Exchange Commission (the "Public Offering"). The undersigned recognizes that
the Public Offering will be of benefit to the undersigned and will benefit the
Company by, among other things, raising additional capital for its operations.
The undersigned acknowledges that you and the other Underwriters are relying on
the representations and agreements of the undersigned contained in this letter
in carrying out the Public Offering and in entering into underwriting
arrangements with the Company with respect to the Public Offering.
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Thomas
Weisel Partners (which consent may be withheld in its sole discretion), it will
not, during the period commencing on the date hereof and ending 180 days after
the date of the final prospectus relating to the Public Offering (the
"Prospectus"), (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or (2) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. In addition, the undersigned agrees
that, without the prior written consent of Thomas Weisel Partners (which consent
may be withheld in its sole discretion), it will not, during the period
commencing on the date hereof and ending 180 days after the date of the
Prospectus,
B-1
<PAGE>
make any demand for or exercise any right with respect to, the registration of
any shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock. With respect to the Public Offering, the
undersigned waives any registration rights relating to registration under the
Securities Act of any Common Stock owned either of record or beneficially by the
undersigned, including any rights to receive notice of the Public Offering.
The foregoing restrictions are expressly agreed to preclude the
undersigned from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a sale or disposition of the
Common Stock even if such Common Stock would be disposed of by someone other
than the undersigned. Such prohibited hedging or other transactions would
include without limitation any short sale or any purchase, sale or grant of any
right (including without limitation any put option or put equivalent position or
call option or call equivalent position) with respect to any of the Common Stock
or with respect to any security that includes, relates to, or derives any
significant part of its value from such Common Stock.
Notwithstanding the foregoing, the undersigned may transfer shares of
Common Stock (i)) as a bona fide gift or gifts, provided that the donee or
donees thereof agree to be bound by the restrictions set forth herein, (ii) to
any trust for the direct or indirect benefit of the undersigned or the immediate
family of the undersigned, provided that the trustee of the trust agrees to be
bound by the restrictions set forth herein, and provided further that any such
transfer shall not involve a disposition for value, or (iii) to the Underwriters
pursuant to the Underwriting Agreement. For purposes of this Agreement,
"immediate family" shall mean any relationship by blood, marriage or adoption,
not more remote than first cousin. In addition, notwithstanding the foregoing,
if the undersigned is a corporation, the corporation may transfer the capital
stock of the Company to any wholly-owned subsidiary of such corporation;
provided, however, that in any such case, it shall be a condition to the
transfer that the transferee execute an agreement stating that the transferee is
receiving and holding such capital stock subject to the provisions of this
Agreement and there shall be no further transfer of such capital stock except in
accordance with this Agreement, and provided further that any such transfer
shall not involve a disposition for value.
The undersigned understands that whether or not the Public Offering
actually occurs depends on a number of factors, including stock market
conditions. The Public Offering will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiation among the Company and
the Underwriters.
The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
B-2
<PAGE>
This Agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.
Very truly yours,
----------------------------------------
(Name)
----------------------------------------
(Address)
B-3
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CRUEL WORLD, INC.
A DELAWARE CORPORATION
ARTICLE I
The name of this corporation is Cruel World, Inc.
ARTICLE II
The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue one class of stock to be
designated Common Stock. The total number of shares of Common Stock authorized
to be issued is one hundred (100) shares with a par value of $0.001 per share.
ARTICLE V
The name and mailing address of the incorporator is as follows:
Jack Helfand, Esq.
c/o Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
ARTICLE VI
The corporation is to have perpetual existence.
-1-
<PAGE>
ARTICLE VII
SECTION 1. BOARD OF DIRECTORS. The management of the business and the
conduct of the affairs of the corporation shall be vested in the Board of
Directors. The number of directors which shall constitute the whole Board of
Directors shall be fixed in the manner designated in the Bylaws of the
corporation.
SECTION 2. BYLAWS. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
alter, amend or repeal the Bylaws of the corporation.
SECTION 3. ELECTION OF DIRECTORS. Elections of directors need not be by
written ballot unless a stockholder demands election by written ballot at the
meeting and before voting begins or unless the Bylaws of the corporation shall
so provide.
SECTION 4. CUMULATIVE VOTING RIGHTS. Until a Registration Statement
regarding the sale of the Common Stock to the public is declared effective by
the Securities and Exchange Commission, stockholders shall be entitled to
cumulative voting rights. At all elections of directors of the corporation, each
holder of stock or of any class or classes or of a series or series thereof
shall be entitled to as many votes as shall equal the number of votes which
(except for this provision as to cumulative voting) such stockholder would be
entitled to cast for the election of directors with respect to such
stockholder's shares of stock multiplied by the number of directors to be
elected, and such stockholder may cast all of such votes for a single director
or may distribute them among the number of directors to be voted for, or for any
two or more of them as such stockholder may see fit. As of the date that a
Registration Statement regarding the sale of the Common Stock to the public is
declared effective by the Securities and Exchange Commission, this Article VII,
Section 4, shall no longer be effective and may be deleted herefrom upon any
restatement of this Certificate of Incorporation.
ARTICLE VIII
SECTION 1. DIRECTOR LIABILITY. To the fullest extent permitted by the
Delaware General Corporation Law as the same exists or as may hereafter be
amended, a director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director.
SECTION 2. INDEMNIFICATION. The corporation may indemnify to the
fullest extent permitted by law any person made or threatened to be made a party
to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate is or
was a director, officer, employee or agent of the corporation or any predecessor
of the corporation or serves or served at any other enterprise as a director,
officer, employee or agent at the request of the corporation or any predecessor
to the corporation.
SECTION 3. AMENDMENT OR REPEAL. Neither any amendment nor repeal of
this Article VIII, nor the adoption of any provision of this corporation's
Certificate of Incorporation inconsistent with this Article VIII, shall
eliminate or reduce the effect of this Article VIII, in respect of any matter
occurring, or any action or proceeding accruing or arising or that, but for this
Article VIII, would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
-2-
<PAGE>
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE X
Vacancies created by the resignation of one or more members of the
Board of Directors and newly created directorships, created in accordance with
the Bylaws of this corporation, may be filled by the vote of a majority,
although less than a quorum, of the directors then in office, or by a sole
remaining director.
ARTICLE XI
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the corporation.
ARTICLE XII
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purposes of forming a corporation pursuant to corporation law of the State of
Delaware, does make this certificate, hereby declaring and certifying, under
penalties of perjury, that this is my act and deed and the facts herein stated
are true, and accordingly, has hereunto set his hand this 28th day of March,
2000.
CRUEL WORLD, INC.
a Delaware corporation
By: /s/ Jack Helfand
-------------------------
Jack Helfand
Incorporator
-3-
<PAGE>
By-Laws
Of
Cruel World, Inc.
ARTICLE 1
STOCKHOLDERS
1.1 ANNUAL MEETINGS
An annual meeting of stockholders shall be held for the election of
directors at such date, time and place, either within or without the State of
Delaware, as may be designated by resolution of the Board of Directors from time
to time. Any other proper business may be transacted at the annual meeting.
1.2 SPECIAL MEETINGS
Special meetings of stockholders for any purpose or purposes may be
called at any time by the Board of Directors, or by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as expressly provided in a resolution of the Board of
Directors, include the power to call such meetings, but such special meetings
may not be called by any other person or persons.
1.3 NOTICE OF MEETINGS
Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which shall state the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Unless otherwise provided
by law, the certificate of incorporation or these by-laws, the written notice of
any meeting shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.4 ADJOURNMENTS
Any meeting of stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date
<PAGE>
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.
1.5 QUORUM
Except as otherwise provided by law, the certificate of incorporation
or these by-laws, at each meeting of stockholders the presence in person or by
proxy of the holders of shares of stock having a majority of the votes which
could be cast by the holders of all outstanding shares of stock entitled to vote
at the meeting shall be necessary and sufficient to constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 1.4 of these
by-laws until a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
1.6 ORGANIZATION
Meetings of stockholders shall be presided over by the Chairman of the
Board, if any, or in his absence by the Vice Chairman of the Board, if any, or
in his absence by the Chief Executive Officer (if not the President), or in his
absence by the President, or in his absence by a Vice President, or in the
absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
1.7 VOTING; PROXIES
Except as otherwise provided by the certificate of incorporation, each
stockholder entitled to vote at any meeting of stockholders shall be entitled to
one vote for each share of stock held by him which has voting power upon the
matter in question. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the corporation. Voting at meetings of stockholders need not be by written
ballot and need not be conducted by inspectors of election unless so determined
by the holders of shares of stock having a majority of the votes which could be
cast by the holders of all outstanding shares of stock entitled to vote thereon
which are present in person or by proxy at such meeting. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall
be sufficient to elect. All other elections
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and questions shall, unless otherwise provided by law, the certificate of
incorporation or these by-laws, be decided by the vote of the holders of shares
of stock having a majority of the votes which could be cast by the holders of
all shares of stock entitled to vote thereon which are present in person or
represented by proxy at the meeting.
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD
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, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors and which record date: (1) in the case of
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more than
sixty nor less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) 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; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. 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.
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The Secretary shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be
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produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.
1.10 ACTION BY CONSENT OF STOCKHOLDERS
Unless otherwise restricted by the certificate of incorporation, any
action required or permitted to 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.
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.
ARTICLE 2
BOARD OF DIRECTORS
2.1 NUMBER; QUALIFICATIONS
The Board of Directors shall consist of such number of persons as shall
be determined from time to time by the Board of Directors. Directors need not be
stockholders.
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES
The Board of Directors shall initially consist of the persons named as
directors in the incorporator's statement and each director so elected shall
hold office until the first annual meeting of stockholders or until his
successor is elected and qualified. At the first annual meeting of stockholders
and at each annual meeting thereafter, the stockholders shall elect directors
each of whom shall hold office for a term of one year or until his successor is
elected and qualified. Any director may resign at any time upon written notice
to the corporation. Any newly created directorship or any vacancy occurring in
the Board of Directors for any cause may be filled by a majority of the
remaining members of the Board of Directors, although such majority is less than
a quorum, or by a plurality of the votes cast at a meeting of stockholders, and
each director so elected shall hold office until the expiration of the term of
office of the director whom he has replaced or until his successor is elected
and qualified.
2.3 REGULAR MEETINGS
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Regular meetings of the Board of Directors may be held at such places
within or without the State of Delaware and at such times as the Board of
Directors may from time to time determine, and if so determined notices thereof
need not be given.
2.4 SPECIAL MEETINGS
Special meetings of the Board of Directors may be held at any time or
place within or without the State of Delaware whenever called by the President,
the Chief Executive Officer or by any member of the Board of Directors. Notice
of a special meeting of the Board of Directors shall be given by the person or
persons calling the meeting at least twenty-four hours before the special
meeting.
2.5 TELEPHONIC MEETINGS PERMITTED
Members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting thereof 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
pursuant to this by-law shall constitute presence in person at such meeting.
2.6 QUORUM; VOTE REQUIRED FOR ACTION
At all meetings of the Board of Directors a majority of the whole Board
of Directors shall constitute a quorum for the transaction of business. Except
in cases in which the certificate of incorporation or these by-laws otherwise
provide, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
2.7 ORGANIZATION
Meetings of the Board of Directors shall be presided over by the
Chairman of the Board, if any, or in his absence by the Vice Chairman of the
Board, if any, or in his absence the Chief Executive Officer (if not the
President), or in his absence by the President, or in their absence by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
2.8 INFORMAL ACTION BY DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board of Directors or such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors or such committee.
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ARTICLE 3
COMMITTEES
3.1 COMMITTEES
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the 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 place of any
such absent or disqualified member. Any such committee, to the extent permitted
by law and to the extent 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.
3.2 COMMITTEE RULES
Unless the Board of Directors otherwise provides, each committee
designated by the Board of Directors may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of Directors conducts its
business pursuant to Article 2 of these by-laws.
ARTICLE 4
OFFICERS
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES
All officers of the corporation shall be appointed by the Board of
Directors. The Board of Directors may remove any officer with or without cause
at any time, but such removal shall be without prejudice to the contractual
rights of such officer, if any, with the corporation. Any number of offices may
be held by the same person. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise may be filled for the
unexpired portion of the term by the Board of Directors at any regular or
special meeting or upon written consent of the Board of Directors.
4.2 POWERS AND DUTIES OF OFFICERS
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The officers of the corporation shall have such powers and duties in
the management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
4.3 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS
No officer shall take any action, enter into any agreement, make any
representation or, by purposeful inaction, effect any of the actions or
decisions which the Board of Directors is prohibited or restricted from enacting
pursuant to this Section 4 hereof or any other section of these Bylaws and their
further amendments or the certificate of incorporation.
ARTICLE 5
STOCK
5.1 CERTIFICATES
Every holder of stock shall be entitled to have a certificate signed by
or in the name of the corporation by the Chairman or Vice Chairman of the Board
of Directors, if any, or the Chief Executive Officer (if not the President) if
any, or the President or Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the corporation,
certifying the number of shares owned by him in the corporation. Any of or all
the signatures on the certificate may be a facsimile. 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 by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue. No certificates may be issued without the
written consent of the Board of Directors.
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES
The corporation may issue a new certificate of stock in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE 6
INDEMNIFICATION
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6.1 RIGHT TO INDEMNIFICATION
The corporation shall indemnify and hold harmless, to the fullest
extent permitted by applicable law as presently exists or may hereafter be
amended, any person who was or is made or is threatened to be made a party or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact that he,
or a person for whom he is the legal representative, is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or non-profit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses reasonably incurred by such person. The
corporation shall be required to indemnify a person in connection with a
proceeding initiated by such person only if the proceeding was authorized by the
Board of Directors of the corporation.
6.2 PREPAYMENT OF EXPENSES
The corporation shall pay the expenses incurred in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this Article or otherwise.
6.3 CLAIMS
If a claim for indemnification or payment of expenses under this
Article is not paid in full within sixty days after a written claim therefor has
been received by the corporation the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
6.4 NON-EXCLUSIVITY OF RIGHTS
The rights conferred on any person by this Article 6 shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the certificate of incorporation, these by-laws,
agreement, vote of stockholders or disinterested directors or otherwise.
6.5 OTHER INDEMNIFICATION
The corporation's obligation, if any, to indemnify any person who was
or is serving at its request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, enterprise or non-profit
entity shall be reduced by any amount such person may collect as
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indemnification from such other corporation, partnership, joint venture, trust,
enterprise or non-profit enterprise.
6.6 AMENDMENT OR REPEAL
Any repeal or modification of the foregoing provisions of this Article
6 shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
ARTICLE 7
MISCELLANEOUS
7.1 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the board of
directors and may be changed by the board of directors.
7.2 DESIGNATION OF AUDITORS
The corporate accountants/auditors of the corporation shall be
determined from time to time by the Board of Directors.
7.3 FINANCIAL STATEMENTS
The Corporation shall provide to the Board of Directors such financial
statements and such further information in such detail and with such frequency
as the Board of Directors shall determine.
7.4 SEAL
The corporate seal shall have the name of the corporation inscribed
thereon and shall be in such form as may be approved from time to time by the
Board of Directors.
7.5 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES
Any written waiver of notice, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
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7.6 INTERESTED DIRECTORS; QUORUM
No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if: (1) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
7.7 FORM OF RECORDS
Any records maintained by the corporation in the regular course of its
business, including its stock ledger, books of account, and minute books, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device, provided that the
records so kept can be converted into clearly legible form within a reasonable
time. The corporation shall so convert any records so kept upon the request of
any person entitled to inspect the same and any record shall at any time be made
available to the Board of Directors or an individual appointed by the Board of
Directors.
7.8 AMENDMENT OF BY-LAWS
These by-laws may be altered or repealed, and new by-laws made, by the
Board of Directors or stockholders.
7.9 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) ten (10) 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) two (2) business days
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one business day after the business day of
delivery by facsimile transmission with copy by first class mail, postage
prepaid, and shall be
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addressed, if to a director or stockholder, to the director or stockholder's
address as it appears on the records of the Company, and, if to the Company, at
the address of its principal corporate offices (attention: Secretary) or at such
other address as designated by the addressee.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
CRUEL WORLD, INC.
ADOPTION BY INCORPORATOR
The undersigned person appointed in the Certificate of Incorporation to act as
the Incorporator of Cruel World, Inc. hereby adopts the foregoing bylaws,
comprising eleven (11) pages, as the Bylaws of the corporation.
Executed this 28th day of March, 2000.
/s/ Jack Helfand
---------------------------------------
Jack Helfand, Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
The undersigned hereby certifies that he is the duly elected, qualified, and
acting Secretary of Cruel World, Inc. and that the foregoing Bylaws, comprising
eleven (11) pages, were adopted as the Bylaws of the corporation on March 28,
2000, by the person appointed in the Certificate of Incorporation to act as the
Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the
corporate seal this 28th day of March, 2000.
/s/ Jeffrey Hyman
---------------------------------------
Jeffrey Hyman, Secretary
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By-Laws
Of
Cruel World, Inc.
<PAGE>
CAREER CENTRAL CORPORATION
THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Third Amended and Restated Investors' Rights Agreement (the
"AGREEMENT") is made effective as of September 27, 1999.
RECITALS
A. In connection with the sale and issuance of its Series A Preferred
Stock, Career Central Corporation, a California corporation (the "COMPANY"),
entered into that certain Registration Rights Agreement (the "SERIES A
REGISTRATION RIGHTS AGREEMENT") with Jeffrey Hyman ("HYMAN") and the purchasers
of such Series A Preferred Stock (such purchasers, the "SERIES A INVESTORS").
B. In connection with the sale and issuance of its Series B Preferred
Stock, the Company entered into that certain First Amended and Restated
Registration Rights Agreement dated July 26, 1996 (the "SERIES B REGISTRATION
RIGHTS AGREEMENT") with the purchasers of such Series B Preferred Stock (such
purchasers, the "SERIES B INVESTORS") and certain Series A Investors. The Series
B Registration Rights Agreement was an amendment and restatement of, and fully
replaced and superseded, the Series A Registration Rights Agreement.
C. In connection with the sale and issuance of its Series C Preferred
Stock, the Company entered into that certain Amended and Restated Investors'
Rights Agreement dated September 10, 1997 (the "INVESTORS' RIGHTS AGREEMENT")
with the purchasers of such Series C Preferred Stock (such purchasers, the
"SERIES C INVESTORS") and certain Series A Investors, Series B Investors and
other parties. The Investors' Rights Agreement was an amendment and restatement
of, and fully replaced and superseded, the Series B Registration Rights
Agreement.
D. In connection with the sale and issuance of its Series D Preferred
Stock, the Company entered into that certain Second Amended and Restated
Investors' Rights Agreement dated July 2, 1998 (the "SECOND INVESTORS' RIGHTS
AGREEMENT") with the purchasers of such Series D Preferred Stock (such
purchasers, the "SERIES D INVESTORS") and certain parties to the Investors'
Rights Agreement. The Second Investors' Rights Agreement was an amendment and
restatement of, and fully replaced and superseded, the Investors' Rights
Agreement.
E. The obligations of the Company and the purchasers of the Company's
Series E Preferred Stock (the "SERIES E INVESTORS") under that certain Series E
Preferred Stock and Warrant Purchase Agreement of even date herewith (the
"SERIES E STOCK AND WARRANT PURCHASE AGREEMENT") by and between the Company and
the Series E Investors are conditioned, among other
<PAGE>
things, upon the execution and delivery of this Agreement by the Company and
the other parties necessary for the effectiveness of this Agreement.
F. Section 10 of the Second Investors' Rights Agreement provides that
the consent of the Company and holders (the "PRIOR HOLDERS") of a majority of
the outstanding or issuable Registrable Securities (as such term is defined
thereunder) is required to amend such agreement.
G. The Company, the Series E Investors and the undersigned Prior
Holders who together hold not less than a majority of the Registrable Securities
(as defined under the Second Investors' Rights Agreement) now desire to amend
and restate the Second Investors' Rights Agreement in its entirety as set forth
below in order to grant the Series E Investors the rights, and bind the Series E
Investors to the obligations, set forth herein and to make certain other changes
to the Second Investors' Rights Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants hereinafter set forth, all parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"ADVISORS" means Glenn Kaufman, Tycho Ventures, L.L.C. and any
other advisor to the Company who was a party to the Series B Registration
Rights Agreement.
"COMMISSION" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"CONVERSION STOCK" means the Common Stock issued or issuable
pursuant to conversion of the Preferred Stock.
"CLOSING DATE" means the effective date of this agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal rule or statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
"FOUNDER" OR "FOUNDERS" means Jeffrey Hyman and Lun Yuen.
"FOUNDERS' STOCK" means the Common Stock held by the Founders or
issuable upon the exercise of stock options granted to the Founders by the
Company.
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"HOLDER" means any Advisor, Founder, Series A Investor, Series B
Investor, Series C Investor, Series D Investor or Series E Investor holding
Registrable Securities, or any person holding Registrable Securities to whom
the rights under this Agreement have been transferred either (i) in
accordance with Section 5.10 hereof or, (ii) prior to the date hereof, in
accordance with the analogous transfer provisions of the Series A
Registration Rights Agreement, the Series B Registration Rights Agreement,
the Investors' Rights Agreement or the Second Investors' Rights Agreement.
"INITIATING HOLDERS" means any Holder or Holders who, in the
aggregate, hold not less than twenty-five percent (25%) of the Registrable
Securities then outstanding.
"INVESTOR" means any Series A Investor, Series B Investor,
Series C Investor, Series D Investor or Series E Investor.
"PREFERRED STOCK" shall mean the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Series E Preferred Stock of the Company.
"REGISTRABLE SECURITIES" means (i) the Conversion Stock, (ii)
the Founders' Stock, (iii) the Warrant Stock and (iv) any Common Stock of the
Company issued or issuable in respect of any of the foregoing upon any
conversion, stock split, stock dividend, recapitalization, or similar event;
PROVIDED, HOWEVER, that securities shall only be treated as Registrable
Securities if and for so long as (i) they have not been registered or sold to
or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, (ii) they have not been sold in a private
transaction in which the transferor's rights under this Agreement are not
properly assigned in accordance with the terms hereof and (iii) the
registration rights with respect to such securities have not terminated
pursuant to Section 5.11.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with Sections
5.1, 5.2 and 5.3 hereof, including without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, fees of one special legal counsel
to the selling Holders as a group (not to exceed $10,000), blue sky fees and
expenses, and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear the legends set forth in Section 3 hereof.
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"RULE 144" shall mean Rule 144 of the Securities Act or any
similar Federal rule or statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar Federal rule or statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and all fees and disbursements of counsel to any
Holder (other than up to $10,000 in fees and disbursements of one special
legal counsel to selling Holders as a group).
"WARRANT STOCK" shall mean the Common Stock issued or issuable
upon the exercise of options or warrants granted to Investors and/or Advisors.
2. RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock, the
Conversion Stock, the Founder's Stock, the Warrant Stock and any other
securities issued in respect of such stock upon any stock split, stock
dividend, recapitalization, merger, or similar event, shall not be sold,
assigned, transferred or pledged except upon the conditions specified in this
Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each Holder or transferee will cause any
proposed purchaser, assignee, transferee, or pledgee of any such shares held
by the Holder or transferee to agree to take and hold such securities subject
to the restrictions and upon the conditions specified in this Agreement,
including without limitation the restrictions set forth in Section 8.
3. RESTRICTIVE LEGEND. Each certificate representing the Preferred
Stock, the Conversion Stock, the Founder's Stock, the Warrant Stock or any
other securities issued in respect of such stock upon any stock split, stock
dividend, recapitalization, merger, or similar event, shall (unless otherwise
permitted by the provisions of Section 4 below) be stamped or otherwise
imprinted with a legend in substantially the following form (in addition to
any legends required by agreement or by applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. SUCH SHARES GENERALLY MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT.
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THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCKUP
PERIOD OF UP TO 180-DAYS FOLLOWING THE EFFECTIVE DATE OF CERTAIN
REGISTRATION STATEMENTS OF THE COMPANY FILED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER
AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH LOCKUP PERIOD IS
BINDING ON TRANSFEREES OF THESE SHARES.
Each Holder consents to the Company making a notation on its
records and giving instructions to any transfer agent of its capital stock in
order to implement the restrictions on transfer established in this
Agreement. The Company shall be obligated to reissue a certificate without
such legends promptly at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to
the Company) reasonably acceptable to the Company to the effect (i) that the
securities evidenced by such certificate may be lawfully disposed of without
registration or qualification and (ii) that the restrictions referred to in
such legends are no longer applicable to such holder or such holder's
transferees or assigns.
4. NOTICE OF PROPOSED TRANSFERS. In addition to other restrictions
on transfer which such holder, by agreement or otherwise, may be subject, the
holder of each certificate representing Restricted Securities by acceptance
thereof agrees to comply in all respects with the provisions of this Section
4. Without in any way limiting the immediately preceding sentence, no sale,
assignment, transfer or pledge of Restricted Securities shall be made by any
holder thereof to any person unless such person shall first agree in writing
to be bound by the restrictions of this Agreement including, without
limitation, Section 8 and this Section 4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is
in effect a registration statement under the Securities Act covering the
proposed transfer, the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer, sale, assignment
or pledge. Each such notice shall describe the manner and circumstances of
the proposed transfer, sale, assignment or pledge in sufficient detail, and,
if reasonably requested by the Company, the holder shall also provide, at
such holder's expense, either (i) a written opinion of legal counsel who
shall be, and whose legal opinion shall be, reasonably satisfactory to the
Company addressed to the Company, to the effect that the proposed transfer of
the Restricted Securities may be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Commission to the
effect that the transfer of such securities without registration will not
result in a recommendation by the staff of the Commission that action be
taken with respect thereto, whereupon the holder of such Restricted
Securities shall be entitled to transfer such Restricted Securities in
accordance with the terms of the notice delivered by the holder to the
Company; PROVIDED, HOWEVER, that the Company shall not request an opinion of
counsel or "no action" letter with respect to (i) a transfer not involving a
change in beneficial ownership, (ii) a transaction involving the distribution
without consideration of Restricted Securities by the holder to any of its
constituent partners, former partners, members or former members, (iii) a
transaction involving the transfer without consideration of
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Restricted Securities by an individual holder during such holder's lifetime
by way of gift or on death by will or intestacy or (iv) a transaction
involving the transfer without consideration of Restricted Securities by a
holder that is a partnership to another partnership under common control with
such holder (such transferee, an "AFFILIATED PARTNERSHIP"). It is agreed that
the Company will not require opinions of counsel for transactions made
pursuant to Rule 144 except in unusual circumstances, provided that the
Company receives from the holder such representations and documentation as is
reasonably necessary to demonstrate that such disposition complies with Rule
144. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear, except if such transfer is made pursuant to Rule
144, the appropriate restrictive legend set forth in Section 3 above, except
that such certificate shall not bear such restrictive legend if in the
opinion of counsel for such holder and counsel for the Company such legend is
not required in order to establish compliance with any provision of the
Securities Act. Notwithstanding the foregoing, each holder of Restricted
Securities agrees that it will not request that a transfer of the Restricted
Securities be made or that the legend set forth in Section 3 be removed from
the certificate representing the Restricted Securities, solely in reliance on
Rule 144(k) if as a result thereof, the Company would be rendered subject to
the reporting requirements of the Exchange Act.
5. REGISTRATION.
5.1 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from Initiating Holders a written request that the Company effect any
registration with respect to shares of Registrable Securities, the Company
will:
(i) promptly, and in no event later than ten (10)
days from receipt of such written request, give written notice of the
proposed registration to all other Holders; and
(ii) as soon as practicable, and in any event within
ninety (90) days after receipt of such written request, use its best efforts
to effect such registration as part of a firm commitment underwritten public
offering (including, without limitation, appropriate qualification under
applicable state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining
in such request by delivering a written notice to such effect to the Company
within twenty (20) days after the date of such written notice from the
Company.
Notwithstanding the foregoing, the Company shall not be obligated to
take any action to effect or complete any such registration pursuant to this
Section 5.1:
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(A) Prior to the earlier of (i) six (6) months after
the effective date of the Company's first firm commitment underwritten
registered public offering of shares of its capital stock or (ii) three years
after the Closing Date;
(B) Unless the aggregate offering price to the
public of all Registrable Securities sought to be registered by all Holders
are reasonably anticipated to exceed $10,000,000;
(C) During the period starting with the date sixty
(60) days prior to the Company's estimated date of filing of, and ending on
the date six (6) months immediately following the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided the Company intends in good faith to file on
the estimated date, and provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration statement to
become effective;
(D) After the Company has effected two registrations
pursuant to this subparagraph 5.1(a), and such registrations have been
declared or ordered effective; or
(E) If the Company shall furnish to the Initiating
Holders a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for a registration statement
to be filed at such time. In such case, the Company's obligation to use its
best efforts to register, qualify or comply under this Section 5.1(a) shall
be deferred for a period not to exceed one hundred and twenty (120) days from
the date of receipt of the written request from the Initiating Holders,
provided that the Company may not exercise this deferral right more than once
per twelve month period or twice during the term of this Agreement.
(b) UNDERWRITING. In the event of a registration pursuant
to Section 5.1, the Company shall advise the Holders as part of the notice
given pursuant to Section 5.1(a)(i) that the right of any Holder to
registration pursuant to Section 5.1 shall be conditioned upon such Holder's
participation in the underwriting arrangements required by this Section 5.1,
and the inclusion of such Holder's Registrable Securities in the underwriting
to the extent requested shall be limited to the extent provided herein. A
Holder may elect to include in such underwriting all or a part of the
Holder's Registrable Securities.
The Company shall, together with all Holders proposing to distribute
their securities through such underwriting, enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 5.1, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Company shall so
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advise all Holders requesting to be included in the registration and
underwriting and the number of shares of Registrable Securities that may be
included in the registration and underwriting (for purposes of this sentence,
the "INCLUDABLE SHARES") shall be allocated as follows: (i) first, up to
fifty percent (50%) of the Includable Shares shall be allocated among all
Holders other than Founders requesting to be included in the registration and
underwriting in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by them at the time of filing the
registration statement and (ii) next, all remaining Includable Shares shall
be allocated among all Holders (including Founders) requesting to be included
in the registration and underwriting in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by them at the time
of filing the registration statement net of amounts included pursuant to
clause (i) of this sentence. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may
round the number of shares allocated to any Holder to the nearest one hundred
(100) shares. If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company.
5.2 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time
to time the Company shall determine to register any of its equity securities,
either for its own account or the account of a Holder or other holders, other
than (i) a registration relating solely to employee benefit plans, (ii) a
registration relating solely to a Rule 145 transaction, or (iii) a
registration in which the only equity security being registered is Common
Stock issuable upon conversion of convertible debt securities which are also
being registered, the Company will:
(i) promptly, and in no event later than ten (10)
days give to each Holder written notice thereof; and
(ii) include in such registration (and any related
qualifications including compliance with Blue Sky laws), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within twenty (20) days after the date of
such written notice from the Company, by any Holder.
(b) UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the
written notice given pursuant to Section 5.2(a)(i). In such event, the right
of any Holder to registration pursuant to Section 5.2 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
Registrable Securities in the underwriting shall be limited to the extent
provided herein.
All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such
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underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 5.2, if the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities to be included in such registration (i) in the case of
the Company's initial public offering, to zero, and (ii) in the case of any
other offering, to an amount no less than 30% of all shares to be included in
such offering. In such event, the Company shall so advise all Holders
requesting to be included in the registration and underwriting and the number
of shares of Registrable Securities that may be included in the registration
and underwriting (for purposes of this sentence, the "INCLUDABLE SHARES")
shall be allocated as follows: (i) first, up to fifty percent (50%) of the
Includable Shares shall be allocated among all Holders other than Founders
requesting to be included in the registration and underwriting in proportion,
as nearly as practicable, to the respective amounts of Registrable Securities
held by them at the time of filing the registration statement and (ii) next,
all remaining Includable Shares shall be allocated among all Holders
(including Founders) requesting to be included in the registration and
underwriting in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by them at the time of filing the
registration statement net of amounts included pursuant to clause (i) of this
sentence. To facilitate the allocation of shares in accordance with the above
provisions, the Company or the underwriters may round the number of shares
allocated to any Holder to the nearest one hundred (100) shares. If any
Holder disapproves of the terms of any such underwriting, such person may
elect to withdraw therefrom by written notice to the Company.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall
have the right to terminate or withdraw any registration initiated by it
under this Section 5.2 prior to the effectiveness of such registration
whether or not any Holder has elected to include securities in such
registration.
5.3 REGISTRATION ON FORM S-3.
(a) REQUEST FOR REGISTRATION. After its initia public
offering, the Company shall use its best efforts to qualify for registration
on Form S-3 or any comparable or successor form or forms. The Holders shall
have the right to request registrations on Form S-3. In case the Company
shall receive from a Holder or Holders of Registrable Securities a written
request that the Company file a registration statement on Form S-3 (or any
successor form to Form S-3) or any related qualification or compliance for a
public offering of shares of the Registrable Securities the aggregate price
to the public of which is reasonably anticipated to exceed $1,000,000, and
the Company is a registrant entitled to use Form S-3 to register the
Registrable Securities for such an offering, the Company shall use its best
efforts to cause such Registrable Securities to be registered for the
offering on such form and to cause such Registrable Securities to be
qualified in such jurisdictions as such Holder or Holders may reasonably
request; provided, however, that the Company shall not be required to effect
more than one registration pursuant to this Section 5.3 in any six (6) month
period. If such offer is to be an underwritten offer, the underwriters must
be acceptable to both such Holder or Holders and the Company. The Company
shall promptly give written notice to the other Holders of the proposed
registration and offer them upon at least twenty
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(20) days written notice the opportunity to participate. If registration is
proposed to be part of a firm commitment underwritten public offering, the
substantive provisions of Section 5.1(b) shall be applicable to each such
registration initiated under this Section 5.3. The Company shall cause each such
registration on Form S-3 to be maintained in effect until the earlier to occur
of 180 days or the date the shares under the S-3 are sold.
(b) Notwithstanding the foregoing, the Company shall not
be obligated to take any action pursuant to this Section 5.3:
(i) If the Company, within ten (10) days of the
receipt of the request described in Section 5.3(a), gives notice of its bona
fide intention to effect the filing of a registration statement with the
Commission within ninety (90) days of receipt of such request (other than
with respect to a registration statement relating to a Rule 145 transaction,
an offering solely to employees or any other registration which is not
appropriate for the registration of Registrable Securities) provided that the
Company is actively employing in good faith all reasonable efforts to cause
such filing;
(ii) During the period starting with the date sixty
(60) days prior to the Company's estimated date of filing of, and ending on
the date six (6) months immediately following the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration statement to
become effective; or
(iii) If the Company shall furnish to the Holder or
Holders who delivered the request described in Section 5.3(a) a certificate
signed by the President of the Company stating that, in the good faith
judgment of the Board of Directors, it would be seriously detrimental to the
Company or its shareholders for registration statements to be filed at such
time, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed one
hundred and twenty (120) days from the receipt of the request to file such
registration by such Holder or Holders, provided that the Company may not
exercise this deferral right more than once per twelve month period.
5.4 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. The Company
shall not enter into any agreement granting any holder or prospective holder
of any securities of the Company registration rights superior to the rights
granted hereunder without the written consent of the holders of a majority of
the Registrable Securities.
5.5 EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with (i) all registrations pursuant to Section 5.1,
(ii) all registrations pursuant to Section 5.2, and (iii) four (4)
registrations pursuant to Section 5.3 shall be borne by the Company.
Notwithstanding the foregoing, in the event that Initiating Holders cause the
Company to begin a registration pursuant to Section 5.1 or Section 5.3, and
the request for such registration is subsequently withdrawn by the
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Holders requesting such registration or such registration is not completed
due to failure to meet the net proceeds requirement set forth in such section
or is otherwise not successfully completed due to no fault of the Company,
all Holders shall be deemed to have forfeited their right to a registration
under Section 5.1, or a registration at the expense of the company under
Section 5.3, as applicable, unless such requesting Holders pay for, or
reimburse the Company for, the Registration Expenses incurred in connection
with such withdrawn or incomplete registration. Unless otherwise stated, all
Selling Expenses relating to securities registered on behalf of the Holders
and all other registration expenses shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered or
proposed to be so registered.
5.6 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep
each Holder advised in writing as to the initiation of such registration and
as to the completion thereof. The Company will, as expeditiously as
reasonably possible:
(a) Prepare and file with the Commission a registration
statement, the prospectus, and such amendments and supplements as may be
necessary and use its best efforts to cause such registration statement to
become and remain effective for at least one hundred and eighty (180) days or
until the distribution described in the registration statement has been
completed, whichever first occurs.
(b) Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents, including any
amendment or supplement to the prospectus, as such underwriters and Holders
may reasonably request in order to facilitate the public offering of such
securities.
(c) Use its best efforts to register and qualif the
securities covered by such registration statement under the securities laws
of such jurisdictions as shall be reasonably appropriate for the distribution
of the securities covered by the registration statement, provided that the
Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction, and provided further that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified
shall require that expenses incurred in connection with the qualification of
the securities in that jurisdiction be borne by selling shareholders, then
such expenses shall be payable by the selling Holders pro rata, to the extent
required by such jurisdiction if such Holders do not elect to withdraw from
the registration after notice of such requirement.
(d) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement with
terms generally satisfactory to the managing underwriter of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
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(e) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing.
(f) Cause all such Registrable Securities registered
hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(g) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration statement and
a CUSIP number for all such Registrable Securities, in each case not later
than the effective date of such registration.
5.7 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of
its officers and directors and partners, legal counsel and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this Agreement, against all expenses, claims, losses,
damages or liabilities (or actions in respect thereof) (including, without
limitation, reasonable attorney's fees and expenses and expenses related to
charges, proceedings, demands and judgments), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, preliminary or final prospectus,
offering circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance (including,
without limitation, any qualification and compliance activities incident to any
such registration), or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, or any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, as amended, state securities law or any rule
or regulation promulgated under such laws applicable to the Company in
connection with any such registration, and the Company will reimburse each such
Holder, each of its officers and directors, legal counsel and each person
controlling such Holder, for any legal and any other expenses reasonably
incurred, as such expenses are incurred, in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder or controlling person, and
stated to be specifically for use in connection with such registration;
provided, however, that the foregoing indemnity Agreement is subject to the
condition that, insofar as it relates to any such untrue statement, alleged
untrue statement, omission or alleged omission
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made in a preliminary prospectus on file with the Commission at the time the
registration statement becomes effective or the amended prospectus filed with
the Commission pursuant to Rule 424(b) (the "FINAL PROSPECTUS"), such
indemnity Agreement shall not inure to the benefit of any Holder, if a copy
of the Final Prospectus was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act, provided that selling Holders and/or their agents and
representatives were solely responsible for providing such Final Prospectus,
and if the Final Prospectus would have cured the defect giving rise to the
loss, liability, claim or damage.
(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration is
being effected, indemnify the Company, each of its directors and officers,
legal counsel and any underwriter of the Company's securities covered by such
a registration statement, each person who controls the Company within the
meaning of Section 15 of the Securities Act, and each other such Holder, each
of its officers and directors and each person controlling such Holder within
the meaning of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading. The indemnification obligations of the
Holders under this Section 5.7(b) shall only apply to the extent that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder expressly stating that
such information may be included in such document. Each Holder will reimburse
each person entitled to indemnification by such Holder hereunder for any
legal or any other expenses reasonably incurred, as such expenses are
incurred, in connection with investigating or defending any such claim, loss,
damage, liability or action, Notwithstanding the foregoing, the liability of
each Holder under this subsection 5.7(b) shall be limited to an amount equal
to the initial public offering price per share of the shares sold by such
Holder times the number of shares sold by Holder, unless such liability
arises out of or is based on willful misconduct by such Holder. The
obligation of any Holder pursuant to this Section 5.7(b) to indemnify the
parties identified herein shall not apply to amounts paid in settlement of
any such losses, claims, damages or liabilities (or actions in respect
thereof) if such settlement is effected without the consent of such Holder,
such consent not to be unreasonably withheld.
(c) Each party entitled to indemnification under this
Section 5.7 (the "INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
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Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
there are separate and different defenses. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party (whose consent shall not be unreasonably withheld), consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Section
5.7 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on other in connection with the
violation(s) that resulted in such loss, claim, damage or liability, as well
as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by a
court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, that in no event shall any contribution by a Holder hereunder
exceed the net proceeds from the offering received by such Holder.
5.8 INFORMATION BY HOLDER. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the
Company such information regarding such Holder or Holders, the Registrable
Securities held by them and the distribution proposed by such Holder or
Holders as the Company may request in writing and as shall be required in
connection with any registration referred to in this Agreement.
5.9 EXCHANGE ACT REPORTS. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public pursuant to a
registration on Form S-3 or without registration, in each case, after such
time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144, at all times after the
effective date that the Company becomes subject to the reporting requirements
of the Securities Act or the Exchange Act;
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<PAGE>
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act (at any time after it has become subject to such
reporting requirements);
(c) Take such other action as may be necessary to allow
the Holders to utilize Form S-3 for the resale of their Registrable
Securities; and
(d) So long as a Holder owns any Restricted Securities, to
furnish to the Holder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities
to the general public), and of the Securities Act and the Exchange Act (at
any time after it has become subject to such reporting requirements), that it
qualifies as a registrant whose securities may be resold pursuant to a
registration statement on Form S-3, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable
by the Company as the Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing the Holder to sell any such
securities without registration.
5.10 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted Holders under Sections 5.1, 5.2 and
5.3 may be assigned to a transferee or assignee in connection with any
transfer or assignment of Registrable Securities by the Holder provided that:
(i) such transfer is otherwise effected in accordance with applicable
securities laws and the terms of this Agreement, (ii) such assignee or
transferee is reasonably acceptable to the Company and acquires at least
250,000 shares of Registrable Securities, (iii) written notice is promptly
given to the Company and (iv) such transferee agrees to be bound by the
provisions of this Agreement. Notwithstanding the foregoing, the rights to
cause the Company to register securities may be assigned without compliance
with item (ii) above to (x) any constituent partner, former partner,
Affiliated Partnership, member or former member, or shareholder of a Holder
which is a partnership, limited liability company or corporation or (y) a
family member of a Holder or trust for the benefit of a Holder, the spouse of
a Holder or issue of a Holder. Registrable Securities acquired by two or more
transferees which are affiliates of each other shall be aggregated for the
purpose of determining the requirement set forth in item (ii) above.
5.11 TERMINATION OF REGISTRATION RIGHTS. The rights granted
pursuant to Sections 5.1, 5.2 and 5.3 of this Agreement shall terminate as to
any Holder upon the earlier of (i) the date five years after the effective
date of the Company's initial public offering and (ii) such time as a public
market for the Company's Common Stock exists that the Holder may sell all
Registrable Securities held by the Holder during any three-month period under
Rule 144.
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<PAGE>
6. FINANCIAL INFORMATION AND INSPECTION RIGHTS.
(a) The Company will provide the following reports to (i)
each Investor or Advisor (or affiliated group of Investors) who holds an
aggregate of at least 95,000 shares of Preferred Stock, Common Stock and
Conversion Stock and (ii) each Founder who continues to hold at least 100,000
shares of Founders' Stock, in each case, as adjusted for stock splits, stock
dividends, stock combinations and the like:
(i) As soon as practicable after the end
of the fiscal year ending December 31, 1999 and each fiscal year thereafter, and
in any event within ninety (90) days after the end of each such fiscal year,
consolidated balance sheets of the Company and its subsidiaries, if any, as of
the end of such fiscal year, and consolidated statements of operations and
consolidated statements of cash flows and shareholders' equity of the Company
and its subsidiaries, if any, for such year, prepared in accordance with
generally accepted accounting principles and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and audited by independent public accountants of national standing
selected by the Company, and a capitalization table in reasonable detail for
such fiscal year;
(ii) As soon as practicable after the end of each of
the first three quarters of each fiscal year of the Company and in any event
within forty-five (45) days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any, as of the end of each such quarterly
period, and consolidated statements of operations and consolidated statements
of cash flows of the Company and its subsidiaries, if any, for such period
and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (other than accompanying notes),
subject to changes resulting from year-end audit adjustments, in reasonable
detail and signed by the principal financial or accounting officer of the
Company, and a capitalization table in reasonable detail for such quarterly
period; and
(iii) At least 30 days prior to the beginning of each
fiscal year, commencing with the fiscal year beginning January 1, 2000, a
budget as adopted by the Company's Board of Directors for the following
fiscal year.
(b) The Company will afford to (i) each Investor who
continues to hold an aggregate of at least 200,000 shares of Preferred Stock
and Conversion Stock and (ii) each Founder who continues to hold 200,000
shares of Founder's Stock, in each case, as adjusted for stock splits, stock
dividends, stock combinations and the like: reasonable access during normal
business hours to the Company's accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors and committees of
the Board of Directors, and all information distributed to the Board of
Directors, for a purpose reasonably related to such shareholder's interests
as a shareholder of the Company. The Company shall not be required to
disclose details of transactions where to do so would violate confidentiality
obligations of the Company. The Company will afford to (i) each Investor who
continues to hold an aggregate of at least 200,000 shares of Preferred Stock
and Conversion Stock and (ii) each Founder who continues to hold 200,000
shares of Founder's Stock, in
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each case, as adjusted for stock splits, stock dividends, stock combinations
and the like: the right to meet periodically with the Company's executive
officers during normal business hours to discuss and make recommendations
regarding the conduct of the Company's business and affairs.
(c) For purposes of determining the minimum holdings
pursuant to this Section 6, (i) any Investor that is a partnership or limited
liability company shall be deemed to hold any Preferred Stock originally
purchased by such Investor and subsequently distributed to constituent
partners or members of such Investor, but which have not been resold by such
partners or members and (ii) securities held by two or more holders which are
affiliates of each other shall be aggregated. If the partnership or limited
liability company is still in existence, the Company may satisfy any
obligation to distribute reports to individual partners of the partnership or
members of a limited liability company by delivering a single copy of each
report to the partnership or limited liability company as agent for the
constituent partners or members.
(d) The rights granted pursuant to Section 6 may be
assigned to any transferee or group of affiliated transferees, other than a
competitor or potential competitor of the Company (as reasonably determined
by the Company's Board of Directors), if such transferee or group acquires at
least the minimum amounts of Preferred Stock and/or Conversion Stock provided
in Sections 6(a) and 6(b) above and such transferee or group agrees in
writing to be bound by the provisions of Section 6(e), below.
(e) Each Holder or transferee of rights under this Section
6 acknowledges and agrees that any information obtained pursuant to this
Section 6 which may reasonably be considered material nonpublic information,
trade secrets of the Company or similar proprietary or confidential
information of the Company will be maintained in confidence by such Holder or
transferee and will not be utilized by such Investor or transferee in
connection with purchases or sales of the Company's securities except in
compliance with applicable state and Federal securities laws.
7. TERMINATION OF COVENANTS. The covenants of the Company set
forth above in Section 6 shall terminate and be of no further force or effect
upon the closing of a firm commitment underwritten public offering or at such
time as the Company is required to file reports pursuant to Section 13 or
15(d) of the Exchange Act, whichever shall occur first.
8. LOCKUP AGREEMENT. Each Investor, Founder, Holder and transferee
hereby agrees that, in connection with each registration of the offering of
any securities of the Company under the Securities Act for the account of the
Company, if so requested by the Company or any representative of the
underwriters (the "MANAGING UNDERWRITER"), such Investor, Founder, Holder or
transferee shall not sell or otherwise transfer any Registrable Securities of
the Company during the period specified by the Company's Board of Directors
at the request of the Managing Underwriter, with such period not to exceed
one hundred and eighty (180) days in the case of the first such registration
and not to exceed ninety (90) days in all other cases (the "MARKET STANDOFF
Period"), following the effective date of a registration statement of the
Company filed under the Securities Act; PROVIDED,
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<PAGE>
HOWEVER, that the restriction contained in this Section 8 shall not apply
unless all officers and directors of the Company are bound by similar lockup
provisions as of the time of such registration. Notwithstanding the
foregoing, the restriction contained in this Section 8 shall only apply (i)
to Series C Investors, Series D Investors and Series E Investors in
connection with the first such registration and (ii) to Series D Investors
and Series E Investors if (A) all Series A Investors, Series B Investors,
Series C Investors and holders holding not less than 1% of the capital stock
of the Company are bound by similar lockup provisions as of the time of such
registration and (B) such lockup provisions provide that any discretionary
waiver or termination of the restrictions of such provisions by the Company
or the Managing Underwriter apply to all persons subject to such lockup
provisions pro rata based on those persons' holdings on an as converted to
Common Stock basis. The Company may impose stop-transfer instructions with
respect to securities subject to the restrictions contained in this Section 8
until the end of such Market Standoff Period. Notwithstanding the foregoing,
the provisions of this Section 8 shall not apply to any registration relating
solely to employee benefit plans on Form S-1 or Form S-8 or similar forms
which may be promulgated in the future, or a registration relating solely to
a transaction within Rule 145 of the Securities Act on Form S-4 or similar
form which may be promulgated in the future.
9. EFFECTIVENESS; AMENDMENT AND RESTATEMENT OF THE SECOND
INVESTORS' RIGHTS AGREEMENT. This Agreement constitutes an amendment and
restatement of the Second Investors' Rights Agreement pursuant to Section 10
thereof and shall become effective and binding on all parties thereto and
persons bound by the terms thereof upon obtaining the consent, evidenced by
execution of this Agreement, of the Company and holders of a majority of the
outstanding or issuable Registrable Securities (as such term is defined in
the Second Investors' Rights Agreement). Without limiting the generality of
the foregoing, the Company and the undersigned Prior Holders hereby consent
to the grant of the rights contained herein to the Series E Investors.
10. AMENDMENT. Except as otherwise provided above, any provision
of this Agreement may be amended or the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Registrable Securities then outstanding. Notwithstanding
the foregoing, no amendment shall be made to this Agreement which by its
terms adversely affects, or which was motivated primarily by an intent to
adversely affect, a particular Holder or class of Holders (i.e., Founders or
Investors) in a manner differently from the other Holders without the written
consent of such adversely affected Holder or a majority of the Registrable
Securities held by the Holders in such adversely affected class. Any
amendment or waiver effected in accordance with Section 5.4 or Section 10, as
applicable, shall be binding upon each Investor, Founder, Holder of
Registrable Securities at the time outstanding, each future holder of any of
such securities, and the Company. Notwithstanding the foregoing, no term or
provision of Section 8 of this Agreement expressly set forth for the benefit
of the Series D Investors or Series E Investors shall be amended or waived
without the unanimous written consent of the affected Series D Investors and
Series E Investors.
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<PAGE>
11. GOVERNING LAW. This Agreement shall be governed in all
respects by the internal laws of the State of California without regard to
conflict of laws provisions.
12. AGGREGATION OF SHARES. Notwithstanding anything to the
contrary contained herein, a Holder may, for the purpose of exercising any
right herein, the exercise of which is conditioned upon such Holder holding a
minimum number of shares of Registrable Securities, aggregate all such shares
of Registrable Securities owned by such Holder, its affiliates, partners or
members to meet or otherwise satisfy such minimum holding requirement.
13. ENTIRE AGREEMENT. This Agreement together, in the case of the
Series E Investors, with the Series E Stock and Warrant Purchase Agreement
and other documents referred to herein or therein constitutes the full and
entire understanding and Agreement among the parties regarding the matters
set forth herein. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon the
successors, assigns, heirs, executors and administrators of the parties
hereto.
14. NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission with written confirmation, by hand, by overnight delivery or by
messenger, addressed:
(a) if to a Holder, at such Holder's address or addresses
as set forth in EXHIBIT A, or at such other address as such Holder shall have
furnished to the Company.
(b) if to the Company, to:
Career Central Corporation
3500 West Bayshore Road
Palo Alto, CA 94303
Attn: Jeffrey Hyman
Fax: (650) 847-3591
or at such other address as the Company shall have furnished to the Holders,
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Chris Nicholson, Esq.
Fax: (650) 493-6811
Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered personally or by facsimile transmission, or, if sent by mail, at the
earlier of its receipt or seventy-two (72) hours after the same
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<PAGE>
has been deposited in a regularly maintained receptacle for the deposit of
the United States mail, addressed and mailed as aforesaid.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date written below.
THE COMPANY:
Career Central Corporation,
a California corporation
By: /s/ Jeffrey Hyman
-------------------------------------
Jeffrey Hyman. President
PRIOR HOLDERS:
SERIES E INVESTORS:
[COUNTERPART SIGNATURE PAGE TO CAREER CENTRAL THIRD AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
FORM OF
CRUEL WORLD, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ( "AGREEMENT") is entered into as of
________ __, 2000 by and between Cruel World, 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 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 Indemnitees 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.
(i) INDEMNIFICATION OF EXPENSES. The Company shall indemnify
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,
<PAGE>
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
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 twenty (20) days after written demand by Indemnitees therefor is
presented to the Company.
(ii) 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 agree to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commence 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). The Indemnitee's 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,
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<PAGE>
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.
(iii) 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 Indemnitee 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.
(iv) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any
other provision of this Agreement other than Section 8 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.
(i) 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 twenty (20) days after written demand by Indemnitee therefor to the
Company.
(ii) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's 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 Indemnitee's
power.
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<PAGE>
(iii) 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
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.
(iv) 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.
(v) 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 Indemnitee's counsel in any such Claim at Indemnitee's expense and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there 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's 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.
(i) SCOPE. The Company hereby agrees to indemnify Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by
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<PAGE>
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 Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(ii) 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 is entitled.
(6) MUTUAL ACKNOWLEDGMENT. 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. The Company shall, from time to time,
make the good faith determination whether or not it is practicable for the
Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the
Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
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coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or 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, if Indemnitee is not an officer
or director but is a key employee. Notwithstanding the foregoing, the Company
shall have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if
the premium costs for such insurance are disproportionate to the amount of
coverage provided, if the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit, or if Indemnitee is
covered by similar insurance maintained by a subsidiary or parent of the
Company.
(8) EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(i) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for
Expenses resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law;
(ii) 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;
(iii) 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
(iv) CLAIM 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
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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.
(i) 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.
(ii) 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 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.
(iii) For purposes of this Agreement a "Change in Control"
shall be deemed to have occurred IF, ON OR AFTER THE DATE OF THIS AGREEMENT, (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 acting in such
capacity 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, becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing more
than 50% 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 (2/3) 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
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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 related transactions) all or substantially all of the Company's assets.
(iv) 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 Indemnitees within the last three (3)
years (other than with respect to matters concerning the rights of Indemnitees
under this Agreement, or of other indemnitees under similar indemnity
agreements);
(v) 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 is
seeking indemnification, or Independent Legal Counsel.
(vi) For purposes of this Agreement, "Voting Securities" shall
mean any securities of the Company that vote generally in the election of
directors.
(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
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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's counterclaims and crossclaims 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's 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's address as set forth beneath
Indemnitee's signature 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
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.
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(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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CRUEL WORLD, INC.
a Delaware corporation
By:
------------------------------
Title:
---------------------------
Address: 3500 W. BAYSHORE ROAD
------------------------
PALO ALTO, CA 94303
------------------------
AGREED TO AND ACCEPTED BY:
- ------------------------------------
Name:
------------------------------
Address:
----------------------------
----------------------------
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1996 STOCK OPTION PLAN
<PAGE>
CAREER CENTRAL CORPORATION
1996 STOCK OPTION PLAN
ARTICLE 1
PURPOSE
The purpose of this 1996 Stock Option Plan (the "Plan") is to advance the
interests of Career Central Corporation, a California corporation (the
"Company"), by giving the Company's employees and others who perform substantial
services on behalf of the Company incentive through ownership of the Company's
common stock to continue in the service of the Company and thereby to help the
Company compete effectively with other enterprises for the services of qualified
individuals. This Plan is adopted under Section 408 of the California
Corporations Code.
ARTICLE 2
STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Article 11, the Company is authorized
to issue options ("Options") to purchase up to 320,000 shares of its common
stock ("Shares"). Any unpurchased Shares that are subject to an Option that
terminates for any reason other than exercise shall, unless the Plan has been
terminated, become available for future grant under the Plan. The Company shall
at all times reserve for issuance pursuant to the Plan a number of its
authorized but unissued Shares equal to the number of Shares issuable under the
Plan. Exercise of an Option shall decrease the number of Shares available, both
for purposes of the Plan and for sale under the Option, by the number of Shares
as to which the Option is granted.
ARTICLE 3
TERM OF PLAN
The Plan shall become effective upon its adoption by the Board of Directors
of the Company (the "Board"). Within 12 months after the date of such adoption,
the Plan shall be approved by the shareholders of the Company in the degree and
manner required under applicable state and federal law. No Option shall become
exercisable unless and until such shareholder approval has been obtained. Unless
sooner terminated under Article 10 or 11, the Plan shall terminate upon the
earlier of (a) the tenth anniversary of its adoption by the Board or (b) the
date on which all Shares available for issuance under the Plan have been issued.
Any Option outstanding under the Plan at the time of its termination shall
remain in effect in accordance with its terms and conditions and those of the
Plan.
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ARTICLE 4
PARTICIPANTS
SECTION 4.1. ELIGIBILITY. The following persons shall be eligible to
receive Options under the Plan: (a) any employee ("Employee") of the Company or
any present or future parent or subsidiary corporation of the Company
("Affiliate") as defined in Sections 424(e) and (f) of the Internal Revenue Code
of 1986, as amended (the "Code"), respectively, (b) any person who is engaged by
the Company or an Affiliate to render services and is compensated for such
services, but who is not an Employee ("Consultant") and (c) any director who is
not an Employee, whether compensated for such services or not ("Outside
Director"). Only Employees are eligible to receive Options that are intended to
be incentive options ("Incentive Options") within the meaning of Section 422 of
the Code. Employees, Consultants and Outside Directors are eligible to receive
Options that are not intended to be Incentive Options ("Nonstatutory Options").
SECTION 4.2. PARTICIPANTS. The Board shall have the authority in its sole
discretion to select the Employees, Consultants and Outside Directors to whom
Options may from time to time be granted under the Plan ("Participants").
SECTION 4.3. SOPHISTICATION REQUIREMENT. If the grant of an Option is
exempt from qualification under the California Corporate Securities Law of 1968
pursuant to Section 25102(f) thereof, the Board must determine that the
Participant has business or financial experience sufficient to enable the
Participant to protect his or her own interests in connection with the exercise
of the Option before granting such Participant an Option.
SECTION 4.4. LEGAL REPRESENTATIVES. As used in the Plan, the term
"Participant" includes any person who acquires the legal right to exercise a
Participant's Options by reason of the death or incompetence of the
Participant.
ARTICLE 5
GENERAL TERMS
SECTION 5.1. OPTION AGREEMENT. Grants of Options shall be evidenced by a
written option agreement ("Option Agreement"), which shall contain the
provisions that the Plan requires and may contain additional provisions that
do not conflict with the Plan as the Board deems appropriate. Each Option
Agreement shall be signed by the Participant and an officer of the Company
designated by the Board. The form of Option Agreement for use pursuant to the
Plan is attached hereto. The Board may modify said form as it deems
appropriate, subject to the provisions of the Plan. Option Agreements need
not have identical terms, but each Option Agreement shall be subject to the
Plan.
SECTION 5.2. EXERCISE PRICE.
5.2.1. GENERAL RULE. The exercise price of each Incentive Option shall
not be less than the fair market value of the Shares, as the Board may
determine, on the date the Option
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is granted. The exercise price of each Nonstatutory Option shall not be less
than 85% of the fair market value of the Shares, as the Board may determine, on
the date the Option is granted.
5.2.2. TEN PERCENT SHAREHOLDERS. The exercise price of each Option
granted to a Participant who, at the time the Option is granted, owns, as
that term is defined in Section 424(d) of the Code, stock possessing more
than 10% of the combined voting power of all stock of the Company or of its
Affiliates, shall be at least 110% of the fair market value of the Shares, as
the Board may determine, on the date the Option is granted.
5.2.3. DETERMINATION OF FAIR MARKET VALUE. The Board's determination of
fair market value shall be final and conclusive for the purposes of the Plan. In
determining fair market value, the Board may, but is not obligated to, obtain
and rely upon an independent appraisal. If the Company's common stock is
publicly traded, the fair market value of the Shares as of any date shall be
determined as follows: (a) if such stock is listed on a stock exchange or
national market system, fair market value shall be the closing sales price of a
share of the Company's common stock (or the closing bid price if no sales were
reported), as quoted on such exchange or system for the last market trading day
before the time of determination; or (b) if such stock is quoted on the NASDAQ
System (but not on its National Market System) or regularly quoted by a
recognized securities dealer but selling prices are not reported, fair market
value shall be the mean between the high and low asked prices for such stock for
the last market trading day before the time of determination.
SECTION 5.3. PAYMENT OF EXERCISE PRICE; TAXES.
5.3.1. FORM OF PAYMENT. The Participant shall pay the per Share
exercise price in full at the time of exercise by bank cashier's check or, with
the approval of the Board, a promissory note or shares of common stock of the
Company, or any combination of the foregoing such that the aggregate fair market
value of such stock (as determined by the Board) plus cash and notes equals the
total exercise price.
5.3.2. PROMISSORY NOTES. The Company may require a promissory note to
be with full recourse, to be adequately secured by collateral other than the
Shares purchased, and to bear interest at market or above market rates (if such
rates are not usurious). It is the Company's policy not to accept promissory
notes except in unusual circumstances. Inability to pay cash is not necessarily
an unusual circumstance.
5.3.3. WITHHOLDING TAXES. The Participant shall pay by bank cashier's
check or other form of payment acceptable to the Company, the amount of any
state or federal income or other tax that the Company is required to pay or
withhold upon exercise of an Option unless the incidence of such tax cannot
lawfully be placed on the Participant.
SECTION 5.4. CONDITIONS TO EXERCISE. No Option may be exercised if the
transfer of Shares upon such exercise or the method of payment of consideration
for such Shares would constitute a violation of any applicable securities or
other law or regulation. Unless the Shares are registered under the Securities
Act of 1933 and any applicable state Securities law, as a condition to
exercising an Option, the Participant shall provide the Company with such
written
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<PAGE>
assurances as the Company deems appropriate for the Option grant and exercise to
qualify for exemption from registration. Such assurances may include, among
others, a representation that the Participant intends to hold the Shares for
investment and not for distribution to the public. The Company has no obligation
to register the Options or Shares under the Securities Act of 1933 or any other
law.
SECTION 5.5. NO EMPLOYMENT AGREEMENT. No Option Agreement, nor anything
contained in the Plan, shall alter a Participant's status as an "at will"
employee of the Company, confer upon any Participant any right to continue in
the employ of the Company, or limit the right of the Company to terminate a
Participant's employment at any time and for any or no reason.
SECTION 5.6. RESTRICTIONS ON TRANSFER. If transfer of the Shares is
restricted under any applicable law, each certificate representing such Shares
shall bear a legend in form and substance satisfactory to the Company reflecting
that such Shares are so restricted. The Company may also place a notation on any
certificate representing Shares purchased upon exercise of an Incentive Option.
To enforce any restrictions on transfer of the Shares, the Company may set forth
in its stock transfer records a "stop transfer" order with respect to the
Shares. The Company shall not be liable for any refusal to transfer the Shares
on the books of the Company unless the transfer complies with all terms and
conditions of any restrictions imposed on such Shares.
SECTION 5.7. CANCELLATION OF OPTION WHEN EMPLOYMENT TERMINATES. If a
Participant exercises an Option after his or her employment or other
relationship terminates, the Company may pay to the Participant an amount equal
to the then Current Market Price (as defined in Section 7.9) of the Shares less
the exercise price of the Shares in lieu of issuing such Shares. The Company
shall not be obligated to deliver such amount to the Participant unless the
Participant accepts such payment in full satisfaction of his or her rights under
the Option exercised.
SECTION 5.8. STANDOFF AGREEMENT. Upon delivery of a written request by
the Company or the underwriter(s) managing a registered offering of the
Company's securities, the Participant shall not sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any
Shares (other than those included in the registration, and other than to
donees who agree to be similarly bound) to the public without the prior
written consent of the Company or the underwriter(s) for such time not to
exceed 180 days following the effective date of the Company's initial public
offering as the Company or the underwriter(s) may request.
ARTICLE 6
TERMS OF OPTION AGREEMENTS
SECTION 6.1. LIMITATION ON INCENTIVE OPTION GRANTS. The aggregate fair
market value (determined at the time the Option is granted) of the Shares for
which one or more Incentive Options granted under the Plan (or any other
incentive stock option plan of the Company or any Affiliate) become
exercisable by a Participant for the first time during any calendar year
shall not exceed $100,000 or such other amount as may be permitted under
subsequent amendments to
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Section 422 of the Code. To the extent that any two or more Incentive Options
violate this limitation, such excess Options shall be treated as Nonstatutory
Options. For purposes of this Section 6.1, Incentive Options shall be taken
into account in the order in which they were granted, and the fair market value
of the Shares shall be determined as of the time the Option with respect to such
Shares was granted.
SECTION 6.2. DURATION OF OPTION.
6.2.1. GENERAL RULE. Except as provided in this Section and Section
6.3, Options shall be exercisable only for so long as the Participant has the
same relationship with the Company as an Employee, Consultant or Outside
Director as the Participant had when the Option was granted, but not longer than
10 years after the date the Option is granted.
6.2.2. EXERCISE FOLLOWING TERMINATION. Upon termination of a
Participant's employment or other relationship with the Company by reason of the
Participant's death or disability (within the meaning of Section 22(e)(3) of the
Code), the Participant or the Participant's estate or any person who acquires
the right to exercise the option by bequest or inheritance, may exercise the
Option at any time within one year after such termination, but only to the
extent that the Option is exercisable on the date of such termination and does
not otherwise expire. Upon termination of a Participant's employment or other
relationship with the Company by reason of the Participant's disability other
than as defined in Section 22(e)(3) of the Code, the Participant may exercise
the Option at any time within 6 months after termination, but only to the extent
that the Option is exercisable on the date of such termination and does not
otherwise expire. If Options are exercised more than 90 days after termination
of employment or other relationship with the Company by reason of the
Participant's disability other than as defined in Section 22(e)(3) of the Code,
Incentive Options shall automatically convert to Nonstatutory Options of such
Participant. Upon termination of a Participant's employment or other
relationship with the Company for any other reason, the Participant may exercise
the Option at any time within three months after such termination, but only to
the extent that the Option is exercisable on the date of such termination and
does not otherwise expire. Employment shall not be considered terminated in the
case of (a) sick leave; (b) military leave; (c) any other leave of absence
approved by the Board, provided that such leave is for a period of not more than
90 days, unless reemployment upon the expiration of such leave is guaranteed by
contract or statute; or (d) transfers between locations of the Company or
between the Company, its Affiliates or its successor. For Consultants,
employment terminates when such Consultant ceases to render services on a
periodic basis to the Company or any Affiliate.
6.2.3. EFFECT OF CHANGE OF RELATIONSHIP. If a Participant's
employment or other relationship with the Company is terminated but the
Participant continues to be eligible under Section 4.1 of the Plan, the Board
may, in its sole discretion, elect to permit one or more of the Participant's
Options to continue as if the Participant's employment or other relationship
had not terminated, except that any such continued Option shall be a
Nonstatutory Stock Option if the Participant is no longer an Employee.
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<PAGE>
6.2.4. TEN PERCENT SHAREHOLDERS. Any Option granted to a Participant
who, at the time the Option is granted, owns, as that term is defined in Section
424(d) of the Code, stock possessing more than 10% of the combined voting power
of all stock of the Company or of its Affiliates, shall be exercisable as
described in this Section 6.2, but for no longer than 5 years after the date the
Option is granted.
SECTION 6.3. EXERCISABILITY. All Options granted under the Plan shall
become exercisable at a rate that, when considered in conjunction with all
other then unexercisable options to purchase common stock of the Company held
by the optionee, is not slower than in cumulative annual increments of 20%
per year from the date of grant. Nothing in the Plan requires Options to be
exercisable immediately upon grant.
SECTION 6.4. EXERCISE OF OPTION. To exercise an Option for all or part
of the Shares, the Participant must do the following: (a) Provide the Chief
Financial Officer of the Company with a written notice of exercise that
specifies the number of Shares for which the Option is being exercised; (b)
Pay the total exercise price for that number of Shares and any withholding
taxes as provided in Section 5.3; (c) Provide the Company with any written
representations as required under Section 5.4; and (d) Furnish to the Company
appropriate documentation that the person(s) exercising the Option, if other
than the Participant named in the Option Agreement, have the right to do so.
SECTION 6.5. TRANSFERABILITY OF OPTION. Options shall be transferable
only by will or the laws of descent and distribution. Only the Participant
may exercise the Options during the Participant's lifetime, except as
provided in subsection 6.2.2. Any other purported transfer or assignment of
any Option shall be void and of no effect, and shall give the Company the
right to terminate such Option as of the date of such purported transfer or
assignment.
SECTION 6.6. NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE OPTIONS.
Participants shall give the Company written notice of any disposition of any
Share acquired pursuant to exercise of an Incentive Option if such
disposition occurs before the second anniversary of the date the Option was
granted or the first anniversary of the date of purchase of the Share
disposed of, whichever occurs later. A disposition includes any sale,
exchange, gift, or other transfer or attempted transfer of legal title. The
notice shall include the Participant's name, the number of Shares disposed of
and the dates and prices the Shares were both acquired and disposed of.
SECTION 6.7. ADJUSTMENTS TO OPTION RIGHTS. Subject to the general
limitations of the Plan, the Board may adjust the exercise price, term, or
any other provision of an Option by canceling and regranting the Option or by
amending or substituting the Option. Options that have been so adjusted may
have higher or lower exercise prices, have longer or shorter terms, or be
subject to different rights and restrictions than prior Options. The Board
may also adjust the number of Options granted to a Participant by canceling
outstanding Options or granting additional Options. Except for adjustments
necessary to ensure compliance with any applicable state or federal law, or
adjustments deemed appropriate to reflect a change in a Participant's duties,
employment status, or other relationship with the Company, no such adjustment
shall impair a Participant's rights under any Option Agreement without the
consent of the Participant.
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SECTION 6.8. IDENTIFICATION OF INCENTIVE OPTIONS. Each Option Agreement
shall state whether or not the Option is intended to qualify as an Incentive
Option. If only a portion of an Option is intended to so qualify, (a) the Option
Agreement shall so state, and (b) the Option Agreement shall not require that
the number of Incentive Options exercised reduces the size of the Nonstatutory
Option portion, or vice-versa.
ARTICLE 7
SHARE REPURCHASE RIGHT
SECTION 7.1. RIGHT TO REPURCHASE SHARES. In the event the Participant's
employment or other relationship with the Company is terminated for any
reason, with or without cause, the Company or its assignee may, without the
necessity of notice from the Participant, purchase all or, upon Participant's
consent, part of, the Participant's Shares under the terms and conditions of
this Article 7 (the "Share Repurchase Right").
SECTION 7.2. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. For purposes
of the Plan, the phrase "employment or other relationship" refers to the
Participant's employment or other relationship with the Company on the date the
Option is granted, as follows:
(a) If the Participant was a full-time Employee, the Participant's
employment will be deemed terminated for the purpose of the Plan if the
Participant becomes a part-time Employee, a Consultant or Outside Director.
(b) If the Participant was a part-time Employee, the Participant's
employment will be deemed terminated FOR the purpose of the Plan if the
Participant becomes a Consultant or Outside Director but not if the Participant
becomes a full-time Employee.
(c) If the Participant was a Consultant or Outside Director, the
Participant's relationship will be deemed terminated for the purpose of the
Plan if the nature of such relationship changes, unless the Participant
becomes a full-time Employee.
SECTION 7.3. EXERCISE OF SHARE REPURCHASE OPTION. The Company or its
assignee shall exercise the Share Repurchase Right by giving written notice
(the "Repurchase Notice") to the Participant. If some or all of the
Participant's Shares are held by a transferee when the Participant's
employment or other relationship with the Company terminates, the Company may
repurchase the transferred Shares by giving a Repurchase Notice to the
transferee. The purchase price of the Shares shall be the greater of their
exercise price or their Current Market Price determined as of the date the
Participant's employment or other relationship with the Company terminates.
The Share Repurchase Right shall expire 60 days after the Participant gives
written notice to the Company of its right to purchase the Shares, but in any
event no longer than 90 days from termination or any other event of which the
Company has actual notice.
SECTION 7.4. EFFECT OF FAILURE TO EXERCISE SHARE REPURCHASE RIGHT. If
the Company declines to exercise the Share Repurchase Right after a deemed
termination of a Participant's
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employment or other relationship with the Company, it may exercise the Share
Repurchase Right upon a subsequent termination of the new employment or other
relationship.
SECTION 7.5. PAYMENT FOR SHARES AND RETURN OF SHARES. Shares shall be
deemed repurchased when the Participant or other holder of the Shares receives a
Repurchase Notice. All rights accorded a holder of such Shares, other than the
right to payment therefor, shall cease at that time. Upon delivery of a
Repurchase Notice, the Company shall as soon as practicable thereafter deliver
the purchase price to the Company's transfer agent. The Company shall pay the
purchase price of any Shares so purchased upon tender of the certificates
representing such Shares to the Company's transfer agent. Upon delivery of a
Repurchase Notice, the Company shall immediately thereafter deliver the purchase
price to the Company's transfer agent. For purposes of the foregoing,
cancellation of any promissory note of the Participant to the Company shall be
treated as payment to the Participant in cash to the extent of the unpaid
principal and any accrued interest cancelled.
SECTION 7.6. ASSIGNMENT OF SHARE REPURCHASE RIGHT. The Company may
assign the Share Repurchase Right to one or more persons as may be selected
by the Board.
SECTION 7.7. TERMINATION OF SHARE REPURCHASE RIGHT. The Share Repurchase
Right shall terminate when a public market exists for the Shares. A public
market shall be deemed to exist if any of the Company's shares of common
stock have been registered under Section 5 of the Securities Act of 1933 or
Section 12 of the Securities Exchange Act of 1934, and (a) such stock is
listed on a national securities exchange or national market system or (b)
such stock is traded in the over-the-counter market and prices therefor are
published daily for 90 days in a recognized financial journal.
SECTION 7.8. LEGENDS. Unless a public market exists for the Shares, each
certificate representing the Shares shall bear a legend in form and substance
satisfactory to the Company to the effect that the Shares are subject to the
Share Repurchase Right.
SECTION 7.9. "CURRENT MARKET PRICE."
7.9.1. DEFINITION. "Current Market Price" means (a) if securities of
the same class are publicly traded on an active market of substantial depth,
the recent market price of such securities; or (b) if securities of the same
class have not been so publicly traded, the price at which securities of
reasonably comparable corporations (if any) in the same industry are being
traded, subject to appropriate adjustments for the dissimilarities between
the corporations being compared. In the absence of any reliable indicator
under subsection (a) or subsection (b), the earnings history, net book value
and prospects of the Company in the light of market conditions generally, as
determined by the Board.
7.9.2. REFERENCE TO NET BOOK VALUE. Not book value per share of the
common stock of Company shall be determined on a fully-diluted basis as of the
last day of the preceding fiscal year, as determined in accordance with
generally accepted accounting principles by the independent accountants of the
Company based on their review, but not necessarily an audit, of the Company's
financial statements. Net book value shall be calculated using the historical
cost
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of the Company's assets as reflected on its financial statements, net of any
book depreciation reflected on the financial statements. Net book value shall
not include any unrealized gain or loss on the Company's assets or the value, if
any, of the Company's goodwill or other assets that are not reflected in its
financial statements.
7.9.3. EFFECT ON TIME PERIODS. For purposes of the Plan, the date the
Participant's employment or other relationship is deemed to terminate shall be
deemed to be not earlier than the date the accountants deliver their written
determination of such net book value to the Company.
ARTICLE 8
RIGHT OF FIRST REFUSAL
SECTION 8.1. RESTRICTION ON TRANSFER. Except as expressly permitted in an
Option Agreement or the Plan, a Participant shall not transfer, encumber or
dispose of any Shares or any interest in the Shares.
SECTION 8.2. RIGHT OF FIRST REFUSAL. In the event the Participant
proposes to sell, exchange, transfer, pledge or otherwise dispose of any
Shares (whether voluntarily or involuntarily) (collectively referred to
sometimes herein as a "Transfer"), the Company or its assignees shall have
the right to purchase such Shares under the terms and conditions of this
Article 8 (the "Right of First Refusal").
SECTION 8.3. NOTICE OF PROPOSED TRANSFER. Before any proposed Transfer
of any Shares the Participant must deliver to the Company at its principal
office (a) a written notice describing the proposed Transfer and stating the
name of the proposed transferee, the number of Shares to be transferred, and
the consideration for which the Shares are to be transferred ("Transfer
Notice") and (b) a written offer signed by the proposed transferee (if the
proposed transfer is voluntary) to acquire the Shares on the terms specified
in the Transfer Notice, subject only to the Right of First Refusal.
SECTION 8.4. EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company
exercises the Right of First Refusal, the Company and the Participant shall
immediately consummate the sale of the Shares to the Company at the purchase
price and on the terms set forth in the Transfer Notice. To exercise the
Right of First Refusal, the Company shall deliver to the Participant a notice
of exercise of the Right of First Refusal within 30 days after the date the
Company receives the Transfer Notice. Shares shall be deemed purchased by the
Company when the Participant or other holder of the Shares receives such
notice of exercise of the Right of First Refusal. All rights accorded a
holder of such Shares, other than the right to payment therefor, shall cease
at that time. The Company shall pay the purchase price of any Shares so
purchased within 5 business days after tender of the certificates
representing such Shares to the Company's transfer agent. For this purpose,
cancellation of any promissory note from the Participant to the Company shall
be treated as payment to the Participant in cash to the extent of the unpaid
principal and any accrued interest canceled. If the Company purchases any
Shares pursuant to the Right of First Refusal, it must purchase all of the
Shares proposed to be transferred.
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SECTION 8.5. EXCHANGES OR OTHER TRANSFERS. When the consideration specified
in a Transfer Notice is property other than cash, the Company may nonetheless
pay the purchase price for the Shares in cash. If the consideration so specified
has a readily ascertainable fair market value, the purchase price of the Shares
shall be an amount equal to the fair market value of such consideration;
otherwise, if the Participant (a) agrees that the purchase price for the Shares
shall be the Current Market Price of the Shares determined as of the date the
Company receives the Transfer Notice; or (b) does not agree that the purchase
price for the Shares shall be the Current Market Price, then the purchase price
shall be the value of such consideration as determined in good faith by the
Company's Board of Directors.
SECTION 8.6. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
fails to exercise in full the Right of First Refusal within 30 days from the
date the Company receives the Transfer Notice, the Participant may not later
than 120 days following delivery to the Company of the Transfer Notice, conclude
a Transfer of the Shares to the proposed transferee named in the Transfer Notice
on the terms and conditions described in the Transfer Notice. Any proposed
Transfer on terms and conditions different from those described in the Transfer
Notice, as well as any subsequent proposed Transfer by the Participant, shall
again be subject to the Right of First Refusal and shall require compliance by
the Participant with the procedure described in this Article 8.
SECTION 8.7. TRANSFEREES OF THE TRANSFER SHARES. All transferees of any
Shares or any interest therein, other than the Company, shall be required as
a condition of such Transfer to agree in writing (in a form satisfactory to
the Company) that such transferee shall receive and hold such Shares or
interests subject to the provisions of the Plan, including without limitation
Articles 7 and 8 providing for the Share Repurchase Right and the Right of
First Refusal. Any sale or Transfer of any Shares shall be void unless the
provisions of this Article 8 are met.
SECTION 8.8. SPECIAL TRANSFERS.
8.8.1. CREDITORS' PROCEEDINGS. Upon any proposed Transfer of the
Shares in connection with any receivership, bankruptcy, extension,
readjustment, stay, composition, or other creditors' proceeding regarding a
Participant, or the taking of any of the Shares by legal process (such as
levy of execution), the Right of First Refusal shall expire 60 days after the
Company receives a Transfer Notice from the Participant; provided, however,
that the Company may not exercise its Right of First Refusal during the
pendency of a bankruptcy proceeding filed under Title 11 of the United
States Code to the extent not permitted to do so by 11 U.S.C. Section 365.
If the Company or its assignee does not exercise the Right of First Refusal,
the Shares may be transferred only pursuant to the proceeding or transaction
that gave rise to the Right of First Refusal. Shares transferred pursuant to
this subsection shall continue to be subject to the provisions of the Option
Agreement and the Plan, including without limitation Articles 7 and 8 of the
Plan.
8.8.2. DISSOLUTION OF MARRIAGE. Shares transferred pursuant to a
distribution of Shares by a Participant to his or her spouse as such spouse's
marital, joint, or community property pursuant to a decree of divorce or
property settlement agreement, shall continue to be
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subject to the provisions of the Option Agreement and the Plan, including
without limitation Articles 7 and 8 of the Plan, and the non employee spouse
shall provide the employee spouse a proxy to vote the Shares so long as the
employee remains with the Company.
8.8.3. PLEDGE. A Participant may pledge Shares to the Company or a
bank or other financial institution if the pledge or security agreement under
which the Shares are pledged specifies that the pledgee shall not sell or
transfer the Shares (other than to the Participant on termination of the
pledge) without first offering them to the Company pursuant to Section 8.2.
8.8.4. FAMILY TRANSFERS. A Participant may transfer Shares to the
Participant's spouse, any parent, step-parent, child, or grandchild of the
Participant or the Participant's spouse, any other relative of the
Participant or the Participant's spouse approved by the Board, or any trust
for the exclusive benefit of the Participant or any such person, without
first offering the same to the Company pursuant to Section 8.2. Shares so
transferred shall remain subject to the Option Agreement and the Plan. The
Right of First Refusal under subsection 8.8.1 shall then arise when the
transferee (as opposed to the Participant) proposes a Transfer in connection
with a creditor's proceeding. The Share Repurchase Right shall arise when the
Participant's employment or other similar relationship terminates, regardless
of whether the Shares have been transferred.
8.8.5. TIME PERIODS. For purposes of this subsection, the date of the
event giving rise to the Right of First Refusal and the date the Company is
deemed to receive notice of such event shall be deemed to be not earlier than
the date the accountants deliver to the Company their written determination of
net book value for determining the Current Market Price, if applicable.
SECTION 8.9. ASSIGNMENT OF THE RIGHT OF FIRST REFUSAL. The Company may
assign the Right of First Refusal to one or more persons as may be selected by
the Board.
SECTION 8.10. TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate when a public market exists for the Shares. A public
market shall be deemed to exist if any of the Company's shares of common stock
have been registered pursuant to Section 5 of the Securities Act of 1933 or
Section 12 of the Securities Exchange Act of 1934, and (a) such stock is listed
on a national securities exchange or national market system or (b) such stock is
traded in the over-the-counter market and prices therefor are published daily
for 90 days in a recognized financial journal.
SECTION 8.11. LEGENDS. Unless a public market exists for the Shares, each
certificate representing the Shares shall bear a legend in form and substance
satisfactory to the Company to the effect that the Shares are subject to the
Right of First Refusal.
ARTICLE 9
SHARE ESCROW
SECTION 9.1. ESCROW. As security for the faithful performance of the
Option Agreement, and to ensure the availability of the Shares for delivery upon
exercise of the Share
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Repurchase Option or the Right of First Refusal, the Company may require a
Participant to deposit each certificate representing Shares with the secretary
of the Company, or such other person as the Board may designate ("Escrow
Agent"), along with two stock assignments duly endorsed (with date and number of
shares blank). The Company may require the signatures to be guaranteed by a
national bank or a member of a national Stock Exchange. The Escrow Agent shall
then hold the certificates pursuant to the instructions set forth in this
Article and as they may be modified in any Option Agreement.
SECTION 9.2. COPIES OF NOTICES. The Participant and the Company shall give
the Escrow Agent a copy of any Transfer Notice, Repurchase Notice, notice from
the Participant advising the Company of its right to purchase the Shares, or any
other notice required or permitted under Article 7 or 8 at the same time they
deliver such notices to the intended parties. The Company shall deliver the
purchase price of Shares held in escrow to the Escrow Agent instead of to the
holder of the Shares.
SECTION 9.3. DELIVERY OF SHARES AND PURCHASE PRICE. Promptly upon
receipt of a Repurchase Notice or notice that the Company or its assignee is
exercising the Right of First Refusal, the Escrow Agent shall (a) date the
stock assignments necessary for the transfer in question, (b) fill in the
number of Shares being transferred, and (c) deliver the same, together with
the certificate evidencing the Shares to be transferred, to the transfer
agent of the Company's common stock. The Escrow Agent shall deliver the
purchase price to the Participant promptly after receiving it from the
Company or its assignee.
SECTION 9.4. ATTORNEY-IN-FACT". Each Participant, by accepting the
Option Agreement, irrevocably constitutes and appoints the Escrow Agent as
Participant's attorney-in-fact and agent to execute all documents necessary
or appropriate to transfer Shares as contemplated in this Article.
SECTION 9.5. OWNERSHIP OF THE SHARES. Each Participant shall have the full
right to vote all Shares held in the escrow and shall receive all distributions
with respect to such Shares for so long as such Participant is the record owner
of the Shares.
SECTION 9.6. LEASE OF CERTIFICATES. Upon each Participant's written
request, the Escrow Agent shall release the Share certificates and stock
assignments with respect thereto if, and to the extent that, the restrictions
on transfer of the Shares set forth in Articles 7 and 8 terminate.
SECTION 9.7. POWERS AND RIGHTS OF ESCROW AGENT.
9.7.1. ESCROW AGENT'S RELIANCE. The Escrow Agent shall be obligated
only to perform such duties as are specifically set forth in the Plan and any
applicable Option Agreement. The Escrow Agent may rely and shall be protected in
relying or refraining from acting on any instrument the Escrow Agent reasonably
believes to be genuine and to have been signed or presented by the proper party
or parties. The Escrow Agent shall not be personally liable for any act or
omission as Escrow Agent or as attorney-in-fact for Participant while acting
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reasonably and in good faith. Any act or omission pursuant to the advice of
counsel shall be deemed to be reasonable and in good faith.
9.7.2. THIRD-PARTY BENEFICIARY. The Escrow Agent is an intended
third-party beneficiary of the Plan.
9.7.3. WARNINGS AND COURT ORDER. The Escrow Agent is expressly
authorized to disregard any and all warnings given by any party to the escrow
or by any other person, other than orders or process of courts or arbitrators
provided for in the Plan or the Option Agreement. The Escrow Agent is
expressly authorized to comply with and obey orders, judgments, or decrees of
any court or the arbitrators provided for in the Plan. The Escrow Agent shall
not be liable to any person by reason of such compliance, notwithstanding any
such order, judgment, or decree being subsequently reversed, modified,
annulled, set aside, vacated, or found to have been entered without
jurisdiction.
9.7.4. COUNSEL TO ESCROW AGENT. The Escrow Agent may employ legal
counsel and such other experts as the Escrow Agent deems necessary in
connection with its duties and may pay such experts reasonable compensation.
9.7.5. RESIGNATION. The Escrow Agent may resign by giving 10 days
written notice to the Company.
9.7.6. FURTHER INSTRUCTIONS. If the Escrow Agent reasonably requires
other or further instruments in connection with the escrow, the Company and
the affected Participant shall furnish such instructions.
9.7.7. FEES. The Company shall pay all of the Escrow Agent's fees
and expenses in such amount as the Company and the Escrow Agent may agree.
ARTICLE 10
ADMINISTRATION AND AMENDMENT OF THE PLAN
SECTION 10.1. ADMINISTRATION. The Plan shall be administered by the Board
and/or by a duly appointed committee of the Board having such powers as the
Board may delegate to such committee. All references to the Board in the Plan
shall also mean the committee if one has been appointed.
SECTION 10.2. RIGHTS AND POWERS. Subject to the Plan and, in the case of a
committee, the specific rights and powers delegated by the Board to such
committee, the Board shall have the authority and discretion to:
(a) determine who shall be a Participant;
(b) determine when Options are granted,
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(c) determine the terms and conditions of Option Agreements (which terms
and conditions may differ among Agreements);
(d) interpret the Plan;
(e) adopt rules and regulations for implementing the Plan; and
(f) take such other action as is appropriate to the administration of the
Plan.
All decisions, determinations, and interpretations of the Board shall be final
and binding on all Participants.
SECTION 10.3. TERMINATION: AMENDMENT. The Board may from time to time
suspend the Plan, terminate the Plan or amend the Plan as it deems desirable,
without further action on the part of the shareholders of the Company. The
approval of the shareholders shall be required, however, to (a) increase the
total number of Shares that may be issued under this Plan (except as otherwise
provided herein); (b) change the description of the persons eligible to be
Participants; or (c) change the minimum exercise price. Except as provided in
Article 11, or in an Option Agreement, the suspension, termination, or amendment
of this Plan shall not, without the consent of the Participant, alter or impair
any rights of the Participant under any Option Agreement.
SECTION 10.4. REQUIREMENTS OF OTHER LAWS. In the event that the Company
becomes subject to Section 16 of the Securities Exchange Act of 1934, the
Plan shall be administered in accordance with Rule 16b-3 promulgated under
such Act, or any successor rule. Unless the Board determines otherwise in a
specific case, Options granted to persons subject to Section 16(b) of the
Securities Exchange Act of 1934 must comply with Rule 16b-3 and shall contain
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 with respect to Plan
transactions. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any other applicable law
or regulation, including the requirements of the NASD or in established stock
exchange), the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as required.
ARTICLE 11
ADJUSTMENT OF AND CHANGES IN STOCK
SECTION 11.1. RECAPITALIZATIONS. If the number of the Company's outstanding
shares of common stock is changed by any stock dividend, stock split, reverse
stock split, combination or reclassification, the number of Shares subject to
the Plan and to Options outstanding, and the exercise price for such Shares,
shall be equitably adjusted as determined by the Board.
SECTION 11.2. LIQUIDATION. In the event of the proposed liquidation or
dissolution of the Company, the Company shall notify the Participants at least
10 days before such proposed action is taken. All unexercised Options shall
terminate immediately before such event.
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SECTION 11.3. REORGANIZATIONS IN WHICH THE COMPANY DISAPPEARS.
11.3.1. NOTICE OF REORGANIZATION. The Company shall give each holder of
Options at least 10 days prior written notice of (a) a sale of all or
substantially all of the Company's assets, (b) any reorganization, merger, or
consolidation of the Company with any other corporation in which the Company is
not the surviving entity (except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated), or (c) any
other corporate reorganization or business combination in which the beneficial
ownership of 50% or more of the Company's voting securities outstanding is
transferred.
11.3.2. RIGHT TO CANCEL OPTIONS. If an exercisable Option is not
exercised within 5 days before such event, the Company may cancel the Option by
paying the Participant an amount equal to the fair market value of the
consideration that the Participant would receive in exchange for the Shares
underlying the Option, less the exercise price of the Option.
11.3.3. EXPIRATION OF OPTIONS. Unless a successor corporation or parent
or subsidiary thereof assumes the unexercised Options or substitutes options to
purchase substantially equivalent securities of the successor or its parent or
subsidiary for the Options outstanding at the time of the closing of such event,
all outstanding Options shall terminate upon such event.
SECTION 11.4. REORGANIZATIONS IN WHICH COMPANY SURVIVES. Upon any other
merger or consolidation of the Company in which there is any adjustment in
the common stock of the Company outstanding immediately before such merger or
consolidation, there shall be substituted for each Share then subject to the
Plan, the number and kind of shares of stock or other securities or property
into which each outstanding share of common stock of the Company is converted
by such merger or consolidation.
SECTION 11.5. OTHER CHANGES. Upon any other relevant change in the
capitalization of the Company, the Board may provide for an equitable adjustment
in the number of Shares then subject to the Plan, to any Options granted under
the Plan, and to the exercise price for such Shares as it deems appropriate.
SECTION 11.6. NO FRACTIONAL SHARES. No right to purchase fractional
Shares shall result from any adjustment in Options pursuant to this Article.
Upon any such adjustment, the Shares subject to Options of each Participant
shall be rounded down to the nearest whole Share. The Company shall give
notice of any adjustment to each holder of Options that have been so
adjusted. Such adjustment (whether or not such notice is given) shall be
effective and binding for all purposes of the Plan.
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ARTICLE 12
SUSPENSION OF OPTIONS TO SATISFY SECURITIES LAWS
SECTION 12.1. POWER TO SUSPEND. The Board may suspend the exercisability of
outstanding Options from time to time if appropriate to satisfy an exemption
from registration under the Securities Act (such as SEC Rule 701) or any state
securities law.
SECTION 12.2. MINIMUM PERIOD. The minimum period of suspension shall be
long enough to ensure that, under applicable federal or state securities
regulations, sales of stock made before the suspension will not be integrated
with sales made after the suspension.
SECTION 12.3. MAXIMUM PERIOD. The maximum period of suspension shall only
be so long as needed to ensure that, under applicable federal or state
securities regulations, sales made before the suspension will not be aggregated
with sales made after the suspension, unless the Board, in its discretion,
determines that such aggregation will not be detrimental to the best interests
of the Company or the Participants.
SECTION 12.4. OPTION GRANTS DURING SUSPENSION. The Company may continue to
grant Options during a period of suspension, provided that such Options are not
exercisable until after the suspension.
SECTION 12.5. OPTION TERMINATION DURING PERIOD OF SUSPENSION. If an
outstanding Option terminates during a period of suspension or during the 90 day
period after the suspension, the Optionee shall have until 90 days after the
suspension to exercise the Option, but in no event later than 10 years after the
date of grant.
Section 12.6. ALLOCATION OF EXERCISE RIGHTS BEFORE SUSPENSION. If the Board
believes that a number of Participants wish to exercise Options to an extent
that would result in non-compliance with an applicable federal or state
securities exemption, the Board may limit the right to exercise outstanding
Options and allocate such right among the Participants in a manner that the
Board determines to be fair.
SECTION 12.7. ALL OPTIONS MUST BE SUSPENDED. The Board shall not suspend
any Options granted pursuant to this Plan under this Article unless it suspends
all such outstanding Options.
SECTION 12.8. ADVICE OF COUNSEL. The Board may rely upon advice of counsel
in determining whether to suspend exercisability of the outstanding Options and
in determining the period of suspension. Nothing contained in this Plan requires
the Board to determine the length of the suspension in advance.
SECTION 12.9. SUNSET PROVISION. This Article shall be void and of no force
and effect beginning on the date the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act.
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ARTICLE 13
INFORMATION TO PARTICIPANTS
SECTION 13.1. INFORMATION PROVIDED. The Company shall provide to
Participant on a periodic basis (but not less than annually), financial
statements of the Company. The Company may provide other information regarding
the Company as determined by the Board in its discretion.
SECTION 13.2. INFORMATION CONFIDENTIAL. No Participant shall disclose any
confidential information about the Company disclosed to the Participant in his
or her capacity as a holder of Options. A Participant may, however, disclose
such information to his or her legal and financial advisers in connection with
advice to be rendered by them to the Participant, or to any transferee of the
Shares, but only if the advisor or transferee agrees not to further disclose
such information or to use the information for the benefit of anyone other than
the Participant, the transferee as a holder of the Shares, or the Company.
ARTICLE 14
TAX STATUS
The Company does not, by way of the Plan, any document, Option Agreement,
or otherwise, represent or warrant to any person, including the Participants,
that the grant or exercise of an Option or the subsequent disposition of Shares
obtained by the exercise of an Option pursuant to the Plan, or any other aspect
of the Plan, will have any particular tax effect.
ARTICLE 15
MISCELLANEOUS
SECTION 15.1. ADDITIONAL ACTIONS AND DOCUMENTS. Each Participant shall
execute and deliver such further documents and instruments and shall take such
other further actions as may be required or appropriate to carry out the intent
and purposes of the Plan or any Option Agreement.
SECTION 15.2. SUCCESSORS AND ASSIGNS. All obligations imposed upon the
Participants and all rights granted to the Company under the Plan, including
without limitation the provisions of Articles 7 and 8, shall be binding upon
each Participant's heirs, legal representatives, successors and assigns. The
Plan, and the Option Agreement with each Participant, shall be the sole and
exclusive source of any and all rights that a Participant and his or her heirs,
legal representatives, or successors shall have in respect to the Plan or any
Options granted hereunder.
SECTION 15.3. NO THIRD-PARTY BENEFICIARIES. Nothing in the Plan or any
Option Agreement is or shall be intended to confer any rights or remedies on any
persons other than the Company and the Participants and their respective
successors and assigns, other than an Escrow Agent appointed pursuant to Article
9. Nothing in the Plan or any Option Agreement is or shall be intended to
relieve or discharge the obligation or liability of any third persons to any
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Participant. No provision of the Plan or any Option Agreement shall give any
third person any right of subrogation or action over or against the Company or
any Participant.
SECTION 15.4. AMENDMENTS, WAIVERS, AND CONSENTS. Except as provided in
the Plan, no Option Agreement shall be amended except in a writing signed by
the Participant and the Company. No waiver or consent shall be binding except
in a writing signed by the party making the waiver or giving the consent. No
waiver of any provision of an Option Agreement or consent to any action shall
constitute a waiver of any other provision or consent to any other action,
whether or not similar. No waiver or consent shall constitute a continuing
waiver or consent, except to the extent specifically set forth in writing.
For the protection of all parties, amendments, waivers, and consents
concerning Option Agreements that are not in writing and signed by the party
to be bound may be enforced only if they are detrimentally relied upon and
proved by clear and convincing evidence. Such evidence may not include the
alleged reliance.
SECTION 15.5. NOTICE. Any notice, instruction, or communication required
or permitted to be given under the Plan or any Option Agreement to any party
shall be in writing (which may include telex, telegram, telecopier, or other
similar form of reproduction followed by a mailed hard copy) and shall be
deemed given when actually received or, if earlier, five days after deposit
in the United States Mail by certified mail, return receipt requested,
postage prepaid, or two days after deposit with a nationally recognized air
courier, fees prepaid, addressed to the principal office or residence of such
party as shown on the books of the Company, or to such other address as such
party may request by written notice. The Company and each Participant shall
make an ordinary, good faith effort to ensure that the person to be given
notice actually receives such notice.
SECTION 15.6. ARBITRATION. At the request of any party, any and all
disputes or controversies of law, fact, or any kind arising from or relating
to the Plan or any Option Agreement shall be decided by binding arbitration
in accordance with the commercial rules of the American Arbitration
Association (except to the extent such rules are inconsistent with the
provisions of this Section). Such arbitration shall also comply with the
California Arbitration Act, except that discovery will be allowed for a
period of up to three months. Such discovery shall be conducted in accordance
with the California Code of Civil Procedure. At the request of any party, the
arbitrators, attorneys, parties to the arbitration, witnesses, experts, court
reporters, or other persons present at the arbitration shall agree in writing
to maintain the strict confidentiality of the arbitration proceedings.
Arbitration shall be conducted by a single, neutral arbitrator or, at the
election of any party, three neutral arbitrators, appointed in accordance
with the commercial rules of the American Arbitration Association. The award
of the arbitrator shall be enforceable according to the applicable provisions
of the California Code of Civil Procedure. Notwithstanding the foregoing, a
party may apply to a court of competent jurisdiction for emergency relief in
the form of a temporary restraining order pending final determination of a
claim through arbitration in accordance with this Section. The parties shall
share the costs of arbitration equally.
SECTION 15.7. JURISDICTION AND VENUE. Each Participant consents to the
personal jurisdiction of all federal and state courts in the state of the
Participant's employment, and agrees
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that venue shall lie exclusively in the county of the Participant's employment
if the Participant is an Employee or former Employee at the time of the dispute,
or otherwise in the county of the Company's principal place of business.
SECTION 15.8. GOVERNING LAW. The rights and obligations of the parties
shall be governed by, and the Plan and each Option Agreement shall be
construed and enforced in accordance with, the laws of the State of
California, excluding its conflict of laws rules to the extent such rules
would apply the law of another jurisdiction. Incentive Options granted under
the Plan shall be interpreted and administered in accordance with Section 422
of the Code. If any provision is susceptible of more than one interpretation,
it shall be interpreted in a manner consistent with the Plan being an
incentive stock option plan. If any provision of the Plan or any Option
Agreement is found by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions shall continue to be fully effective.
SECTION 15.9. PLAN GOVERNS. If there is any inconsistency between the Plan
and any documents related to the Plan, including any Option Agreement, the Plan
shall govern. Nothing in the Plan shall be construed to constitute, or be
evidence of, any right in favor of any person to receive Options hereunder or
any obligation on the part of the Company to issue Options with respect to its
common stock.
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<PAGE>
CERTIFICATE OF SECRETARY
KNOW ALL BY THESE PRESENTS:
That the undersigned does hereby certify that the undersigned is the
Secretary of Career Central Corporation, a corporation duly organized and
existing under and by virtue of the laws of the State of California; that the
above and foregoing 1996 Stock Option Plan was duly and regularly adopted as
such by the Board of Directors on July 1, 1996 and the shareholders of said
corporation on July 1, 1996; and that the above and foregoing 1996 Stock Option
Plan is now in full force and effect.
Dated: July 1, 1996.
/s/ Jeffrey Hyman
-------------------------------
Jeffrey Hyman, Secretary
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<PAGE>
STOCK OPTION AGREEMENT
PURSUANT TO THE CAREER CENTRAL CORPORATION
1996 STOCK OPTION PLAN
- ------------------------------------ ------------------------------------
Participant
------------------------------------
Address
This Stock Option Agreement, dated as of the Date of Agreement set forth
below, is entered into between Career Central Corporation, a California
corporation and the Participant named above pursuant to the Career Central
Corporation 1996 Stock Option Plan. Capitalized terms not defined in this
Agreement are defined in the Plan.
Pursuant to the Plan, the Company authorizes the issuance of an Option to
the Participant to purchase shares of the common stock of the Company as
follows:
Date of Agreement
--------------
Exercise Price Per Share $
--------------
Total Number of Shares Granted
--------------
Total Exercise Price $
--------------
Type of Option Incentive Option
---------
Nonstatutory Option
---------
Expiration Date Per the Plan
Subject to the provisions of this Agreement and the Plan, the Options
become exercisable in cumulative installments as set forth below. Exercisable
Options may be exercised from time to time until the Expiration Date set forth
above or termination of the Options as set forth in the Plan.
DATE ON WHICH
OPTIONS FIRST
NUMBER OF SHARES BECOME EXERCISABLE
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During the Participant's lifetime, the Option is exercisable only by the
Participant. The form of Exercise Notice and Agreement is attached hereto as
Exhibit A. The Option or this Agreement shall not be sold, pledged, assigned,
transferred or disposed of in any manner other than by will or by the laws of
descent or distribution. Any attempted sale, pledge, assignment, transfer or
other disposition of the Option shall be void and of no effect.
If the Participant is an Employee, the Participant's status as an "at-will"
Employee is not affected by the Plan or this Agreement. The Company's right to
terminate the Participant's employment is not limited or restricted by this
Agreement or the Plan.
The Participant and the Company agree that this Option is granted under
and governed by the terms and conditions of the Plan, which is attached to
and made a part of this Agreement. The Plan imposes substantial restrictions
on the Options and the Shares. By signing this Agreement, the Participant
acknowledges that Optionee has read and understood the Plan and agrees to be
bound by it and this Agreement, including the provisions of Articles 7 and 8
of the Plan.
OPTIONEE: CAREER CENTRAL CORPORATION
By:
- ----------------------------- -----------------------------
Signature
Title:
- ----------------------------- --------------------------
Print Name
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<PAGE>
EXHIBIT A
EXERCISE NOTICE AND AGREEMENT
Carter Central Corporation
873 Santa Cruz Avenue, #208
Menlo Park, CA 94025
Attention: Jeffrey Hyman
RE: EXERCISE OF STOCK OPTION PURSUANT TO 1996 STOCK OPTION PLAN
1. EXERCISE OF OPTION. Pursuant to the Career Central Corporation 1996
Stock Option Plan (the "Plan") and the Stock Option Agreement ("Option
Agreement") entered into as of__________________, 199___ between _______________
("Participant") and Career Central Corporation, a California corporation (the
"Company"), Participant hereby elects, effective as of today, _______________,
to exercise Participant's option to purchase______________ shares of common
stock (the "Shares") of the Company.
2. PAYMENT; TAXES. Enclosed is Participant's check in the amount of
$____________, which is the full exercise price for the Shares. Participant
agrees to make appropriate arrangements with the Company for payment of
Participant's tax obligation as a result of this Option exercise.
3. DEEMED DATE OF EXERCISE. The date of exercise shall be deemed to be
the first date (after which an Exercise Notice is filed with Company) upon
which Shares become eligible for transfer to the Participant under applicable
state and federal laws and regulatory requirements.
4. COMPLIANCE WITH LAWS. Participant understands and acknowledges that
the purchase and sale of the Shares may be subject to approval under the
state and federal securities laws and other laws and, notwithstanding any
other provision of the Option Agreement to the contrary, the exercise of any
rights to purchase Shares is expressly conditioned upon approval (if
necessary) and compliance with all such laws.
5. REPRESENTATIONS OF PARTICIPANT. Participant represents and warrants
to the Company, as follows:
a) Participant has received, read and understood the Plan and the
Option Agreement and agrees to abide by and be bound by their terms and
conditions.
b) The Options exercised herewith are exercisable according to the
schedule in the Option Agreement.
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<PAGE>
c) Participant is aware of the business affairs and financial condition
of the Company and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares.
d) Participant is acquiring the Shares for investment for Participant's
own account only and not with a view to, for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
e) Participant acknowledges and understands that the Shares are
"restricted securities" and have not been registered under the Securities Act in
reliance upon a specific exemption from registration. Participant acknowledges
that such exemption depends upon, among other things, the bona fide nature of
Participant's investment intent as expressed herein. Participant further
understands that the Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Participant further acknowledges and understands that
the Company is under no obligation to register the Shares. Participant
understands that the certificate representing the Shares will bear a legend that
prohibits the transfer of the Shares unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company, and any other legend required under applicable state securities law.
f) Participant is aware of the adoption of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly from the
Company in a nonpublic offering, subject to the satisfaction of certain
conditions. Participant further understands that if the applicable requirements
of Rule 701 or Rule 144 are not satisfied, the sale of the Shares will require
registration under the Securities Act or compliance with a registration
exemption. Participant understands that no assurances can be given that any such
registration exemption will be available.
g) Participant further agrees that Participant is acquiring the
Shams in accordance with and subject to the terms of the Option Agreement and
the Plan, including the Share Repurchase Right and the Right of First
Refusal, to all of which Participant expressly assents.
6. REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement, the Option Agreement
or the Plan or (ii) to treat as owner of such Shares or to accord the right
to vote or receive dividends to any purchaser or other transferee to whom
such Shares shall have been so transferred.
7. TAX CONSULTATION. Participant understands that Participant may suffer
adverse tax consequences as a result of Participant's purchase or disposition
of the Shares. Participant represents that Participant has consulted with any
tax consultants Participant
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<PAGE>
deems advisable in connection with the purchase or disposition of the Shares and
that Participant is not relying on the Company for any tax advice.
8. ENTIRE AGREEMENT. The Plan and the Option Agreement are incorporated
herein by reference. This Agreement, the Plan and the Option Agreement
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Participant with
respect to the subject matter hereof
Submitted by: Accepted by:
PARTICIPANT CAREER CENTRAL CORPORATION
By:
- ----------------------- ------------------------
Signature Its:
-----------------------
ADDRESS: ADDRESS:
873 Santa Cruz Avenue, #208
- ----------------------- Menlo Park, CA 94025
- -----------------------
- -----------------------
Social Security Number:
- -----------------------
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<PAGE>
CRUEL WORLD
2000 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this 2000 Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Cruel World, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
<PAGE>
(k) "EMPLOYEE" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months following the 91st day of
such leave, any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the day of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "NOTICE OF GRANT" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
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<PAGE>
(s) "OPTION AGREEMENT" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTIONED STOCK" means the Common Stock subject to an
Option or Stock Purchase Right.
(u) "OPTIONEE" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(v) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "PLAN" means this Cruel World, Inc. 2000 Stock Plan.
(x) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(y) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(z) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(aa) "SECTION 16(b) " means Section 16(b) of the Exchange Act.
(bb) "SERVICE PROVIDER" means an Employee, Director or
Consultant.
(cc) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(dd) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ee) "SUBSIDIARY" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 600,000 Shares plus (a) any Shares which were reserved
but unissued under the Company's 1996 Stock Option Plan ("1996 Plan") as of the
date of stockholder approval of the original adoption of this Plan, (b) any
Shares subsequently returned to the 1996 Plan as a result of termination of
options or repurchase of Shares issued under the 1996 Plan, and (c) an annual
increase to be added on the first day of the Company's fiscal year beginning in
2001, equal to the lesser of (i) 1,000,000 shares, (ii) 5% of the outstanding
shares on such date or (iii) an amount determined by the Board.. The Shares may
be authorized, but unissued, or reacquired Common Stock.
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<PAGE>
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); PROVIDED, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. Different Committees
with respect to different groups of Service Providers may administer the Plan.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase
Right granted hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or Stock
-4-
<PAGE>
Purchase Right or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(vii) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of satisfying applicable foreign laws;
(viii) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;
(ix) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(x) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xi) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
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<PAGE>
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than [________] Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
[________] Shares, which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
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<PAGE>
(B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares, provided Shares acquired from the
Company, (A) have been owned by the Optionee for more than six (6) months on the
date of surrender, and (B) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
-7-
<PAGE>
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not
-8-
<PAGE>
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company.
-9-
<PAGE>
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 13 of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the number of shares that may be added annually to the shares
reserved under the Plan (pursuant to Section 3(a)(i)), as well as the price per
share of Common Stock covered by each such outstanding Option or Stock Purchase
Right, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the
-10-
<PAGE>
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. DATE OF GRANT. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
-11-
<PAGE>
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to
the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise
of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<PAGE>
CRUEL WORLD, INC.
2000 OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _____________________________________
Date of Grant _____________________________________
Vesting Commencement Date _____________________________________
Exercise Price per Share $____________________________________
Total Number of Shares Granted _____________________________________
Total Exercise Price $____________________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _____________________________________
VESTING SCHEDULE:
Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
[25% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST TWELVE MONTHS AFTER
THE VESTING COMMENCEMENT DATE, AND 1/48 OF THE SHARES SUBJECT TO THE OPTION
SHALL VEST EACH MONTH THEREAFTER, SUBJECT TO THE OPTIONEE CONTINUING TO BE A
SERVICE PROVIDER ON SUCH DATES].
<PAGE>
TERMINATION PERIOD:
This Option may be exercised for [THREE MONTHS] after Optionee ceases to
be a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for [TWELVE MONTHS] after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
A. GRANT OF OPTION.
The Plan Administrator of the Company hereby grants to the
Optionee named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery
of an exercise notice, in the form attached as EXHIBIT A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
completed by the Optionee and delivered to [TITLE] of the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.
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<PAGE>
C. METHOD OF PAYMENT.
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash;
2. check;
3. consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
4. surrender of other Shares, which in the case of Shares
acquired from the Company, (i) have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
D. NON-TRANSFERABILITY OF OPTION.
This Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
E. TERM OF OPTION.
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
F. TAX OBLIGATIONS.
1. WITHHOLDING TAXES. Optionee agrees to make appropriate
arrangements with the Company (or the Parent or Subsidiary employing or
retaining Optionee) for the satisfaction of all Federal, state, and local income
and employment tax withholding requirements applicable to the Option exercise.
Optionee acknowledges and agrees that the Company may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
2. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
-3-
<PAGE>
G. ENTIRE AGREEMENT; GOVERNING LAW.
The Plan is incorporated herein by reference. The Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
H. NO GUARANTEE OF CONTINUED SERVICE.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's
representative below, you and the Company agree that this Option is granted
under and governed by the terms and conditions of the Plan and this Option
Agreement. Optionee has reviewed the Plan and this Option Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option Agreement and fully understands all provisions of the Plan
and Option Agreement. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Administrator upon any
questions relating to the Plan and Option Agreement. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
OPTIONEE: CRUEL WORLD, INC.
- ---------------------------------- ---------------------------------
Signature By
- ---------------------------------- ---------------------------------
Print Name Title
- ----------------------------------
Residence Address
- ----------------------------------
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<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
---------------------------------------
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
CRUEL WORLD
2000 STOCK OPTION PLAN
EXERCISE NOTICE
Cruel World, Inc.
3500 W. Bayshore Road
Palo Alto, CA 94303
Attention: [Title]
1. EXERCISE OF OPTION. Effective as of today, ________________,
_____, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of Cruel World, Inc (the "Company")
under and pursuant to the 2000 Stock Plan (the "Plan") and the Stock Option
Agreement dated, _____ (the "Option Agreement"). The purchase price for the
Shares shall be $_____, as required by the Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: CRUEL WORLD, INC.
- ----------------------------------- ----------------------------------
Signature By
- ----------------------------------- ----------------------------------
Print Name Its
ADDRESS: ADDRESS:
Cruel World, Inc.
- ----------------------------------- 3500 W. Bayshore Road
- ----------------------------------- Palo, Alto, CA 94303
-------------------------------------
Date Received
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<PAGE>
CRUEL WORLD, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of Cruel World, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company or any
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the common stock of the Company.
(d) "COMPANY" shall mean Cruel World, Inc. and any Designated
Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross earnings
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary that has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the first Trading Day on or after
Feburary 15 and August 15 of each year.
<PAGE>
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "OFFERING PERIODS" shall mean the periods of approximately twelve
(12) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after February 15 and
August 15 of each year and terminating on the first Trading Day on or after the
February 15 and August 15 Offering Period commencement date approximately twelve
months later; provided, however, that the first Offering Period under the Plan
shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the first Trading Day on or after August 15, 2001. The
duration and timing of Offering Periods may be changed pursuant to Section 4 of
this Plan.
(l) "PLAN" shall mean this 2000 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month period
commencing on one Exercise Date and ending with the next Exercise Date, except
that the first Purchase Period of any Offering Period shall commence on the
Enrollment Date and end with the next Exercise Date.
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
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<PAGE>
(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "TRADING DAY" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after February 15 and August 15 each year, or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the first Trading Day on or after
August 15, 2001. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of EXHIBIT A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
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<PAGE>
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding 15% of the Compensation
which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the nature and/or
number of participation rate changes during any Offering Period. The change in
rate shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of
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<PAGE>
the Company's Common Stock an Employee may purchase during each Purchase Period
of such Offering Period. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of EXHIBIT B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant
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<PAGE>
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period.
If a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 300,000 shares plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 2001, equal to the lesser of (i) 500,000
shares, (ii) 1% of the outstanding shares on such date or (iii) an amount
determined by the Board].
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
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<PAGE>
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), the
number of shares that may be added annually to the shares reserved under the
Plan (pursuant to Section 13(a)(i)), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the
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<PAGE>
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be
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<PAGE>
entitled to change the Offering Periods, limit the frequency and/or number of
changes in the amount withheld during an Offering Period, establish the exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a participant
in order to adjust for delays or mistakes in the Company's processing of
properly completed withholding elections, establish reasonable waiting and
adjustment periods and/or accounting and crediting procedures to ensure that
amounts applied toward the purchase of Common Stock for each participant
properly correspond with amounts withheld from the participant's Compensation,
and establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent with
the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or the
consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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<PAGE>
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period.
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<PAGE>
EXHIBIT A
CRUEL WORLD, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Cruel World, Inc.
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE
OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR
FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE
UPON THE
<PAGE>
DISPOSITION OF THE COMMON STOCK. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
-----------------------------------------------------
(First) (Middle) (Last)
------------------------- ---------------------------------------
Relationship
---------------------------------------
(Address)
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<PAGE>
Employee's Social
Security Number:
------------------------------------
Employee's Address:
------------------------------------
------------------------------------
------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------------- -------------------------------------
Signature of Employee
-------------------------------------
Spouse's Signature (If beneficiary other than
spouse)
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<PAGE>
EXHIBIT B
CRUEL WORLD, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Cruel World, Inc.
Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:
----------------------------
<PAGE>
CRUEL WORLD, INC.
2000 DIRECTOR OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 2000 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the common stock of the Company.
(d) "COMPANY" means Cruel World, Inc. a Delaware corporation.
(e) "DIRECTOR" means a member of the Board.
(f) "DISABILITY" means total and permanent disability as defined in
section 22(e)(3) of the Code.
(g) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the day of
<PAGE>
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "INSIDE DIRECTOR" means a Director who is an Employee.
(k) "OPTION" means a stock option granted pursuant to the Plan.
(l) "OPTIONED STOCK" means the Common Stock subject to an Option.
(m) "OPTIONEE" means a Director who holds an Option.
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(o) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 2000 Director Option Plan.
(q) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 100,000 Shares (the "Pool") plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2001, equal to
the lesser of (i) the number of shares issued under the Plan in the prior fiscal
year top off or (ii) an amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
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<PAGE>
4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 15,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) the effective date of this Plan, as
determined in accordance with Section 6 hereof, or (B) the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 5,000 Shares (a "Subsequent Option") on the date of the
Company's annual stockholder's meeting each year provided he or she is then an
Outside Director and if as of such date, he or she shall have served on the
Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be
as follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option
shall become exercisable as to 1/3 of the Shares subject to the First Option on
each anniversary of its date of grant, provided that the Optionee continues to
serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder
shall be as follows:
(A) the term of the Subsequent Option shall be ten
(10) years.
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<PAGE>
(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable as to 100% percent of the Shares subject to the
Subsequent Option on the third anniversary of its date of grant, provided that
the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made
until such time, if any, as additional Shares become available for grant under
the Plan through action of the Board or the shareholders to increase the number
of Shares which may be issued under the Plan or through cancellation or
expiration of Options previously granted hereunder.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other Shares, provided Shares acquired
directly from the Company, (x) have been owned by the Optionee for more than six
(6) months on the date of surrender, and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (iv) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (v) any combination of the foregoing methods of payment.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however,
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<PAGE>
that no Options shall be exercisable until shareholder approval of the Plan in
accordance with Section 16 hereof has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to
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<PAGE>
exercise such Option does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, the number of
shares that may be added annually to the shares reserved under the Plan
(pursuant to Section 3(a)(i)), as well as the price per Share covered by each
such outstanding Option, and the number of Shares issuable pursuant to the
automatic grant provisions of Section 4 hereof shall be proportionately adjusted
for any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of Shares subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a director
of the Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(b) through (d)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that
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<PAGE>
the Option shall be fully exercisable for a period of thirty (30) days from the
date of such notice, and upon the expiration of such period the Option shall
terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
-7-
<PAGE>
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
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<PAGE>
FIRST OPTION
CRUEL WORLD, INC.
DIRECTOR OPTION AGREEMENT
Cruel World, Inc., (the "Company"), has granted to ___________________ (the
"Optionee"), an option to purchase a total of 15,000 shares of the Company's
Common Stock (the "Optioned Stock"), at the price determined as provided herein,
and in all respects subject to the terms, definitions and provisions of the
Company's 2000 Director Option Plan (the "Plan") adopted by the Company which is
incorporated herein by reference. The terms defined in the Plan shall have the
same defined meanings herein.
1. NATURE OF THE OPTION. This Option is a nonstatutory option and is not
intended to qualify for any special tax benefits to the Optionee.
2. EXERCISE PRICE. The exercise price is $_______ for each share of
Common Stock.
3. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the provisions of Section 8 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) This Option shall become exercisable in installments
cumulatively with respect to 1/3 of the Optioned Stock on each anniversary of
its date of grant, so that one hundred percent (100%) of the Optioned Stock
shall be exercisable 3 years after the date of grant; provided, however, that in
no event shall any Option be exercisable prior to the date the stockholders of
the Company approve the Plan.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by
written notice which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such
written notice, in the form attached hereto as EXHIBIT A, shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company. The written notice shall be accompanied by payment of the
exercise price.
4. METHOD OF PAYMENT. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check;
<PAGE>
(iii) surrender of other Shares, provided Shares acquired directly
from the Company, (x) have been owned by the Optionee for more than six (6)
months on the date of surrender, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together
with such other documentation as the Company and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. TERM OF OPTION. This Option may not be exercised more than ten (10)
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the
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<PAGE>
date of exercise of the Option, to the extent not included in income as
described above, will be treated as capital gain or loss.
DATE OF GRANT:
--------------
CRUEL WORLD, INC.,
A Delaware corporation
By:
---------------------------------
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated:
-----------------
------------------------------
Optionee
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<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
Cruel World, Inc.
3500 W. Bayshore Road
Palo Alto, CA 94303
Attention: Corporate Secretary
1. EXERCISE OF OPTION. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of Cruel World, Inc. (the "Company") under and pursuant to the
Company's 2000 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Agreement.
3. FEDERAL RESTRICTIONS ON TRANSFER. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act"), or unless an exemption from such
registration is available, and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is
under no obligation to register the Shares and that an exemption may not be
available or may not permit Optionee to transfer Shares in the amounts or at the
times proposed by Optionee.
4. TAX CONSEQUENCES. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. ENTIRE AGREEMENT. The Agreement is incorporated herein by reference.
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the
<PAGE>
subject matter hereof. This Exercise Notice and the Agreement are governed by
California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: CRUEL WORLD, INC.
By: By:
----------------------- -------------------------
Its:
------------------------
Address:
Dated: Dated:
-------------------- ----------------------
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<PAGE>
SUBSEQUENT OPTION
CRUEL WORLD, INC.
DIRECTOR OPTION AGREEMENT
Cruel World, Inc., (the "Company"), has granted to ___________________ (the
"Optionee"), an option to purchase a total of 5,000 shares of the Company's
Common Stock (the "Optioned Stock"), at the price determined as provided herein,
and in all respects subject to the terms, definitions and provisions of the
Company's 2000 Director Option Plan (the "Plan") adopted by the Company which is
incorporated herein by reference. The terms defined in the Plan shall have the
same defined meanings herein.
1. NATURE OF THE OPTION. This Option is a nonstatutory option and is not
intended to qualify for any special tax benefits to the Optionee.
2. EXERCISE PRICE. The exercise price is $_______ for each share of
Common Stock.
3. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the provisions of Section 8 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) This Option shall become exercisable with respect to
100% of the Optioned Stock on the third anniversary of its date of grant;
provided, however, that in no event shall any Option be exercisable prior to the
date the stockholders of the Company approve the Plan.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by
written notice which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such
written notice, in the form attached hereto as EXHIBIT A, shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company. The written notice shall be accompanied by payment of the
exercise price.
4. METHOD OF PAYMENT. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check;
(iii) surrender of other Shares, provided Shares acquired from the
Company, (x) have been owned by the Optionee for more than six (6) months on the
date of surrender, and (y)
<PAGE>
have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together
with such other documentation as the Company and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. TERM OF OPTION. This Option may not be exercised more than ten (10)
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the
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<PAGE>
date of exercise of the Option, to the extent not included in income as
described above, will be treated as capital gain or loss.
DATE OF GRANT:
--------------
CRUEL WORLD, INC.,
A Delaware corporation
By:
------------------------------
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated:
-----------------
------------------------------
Optionee
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<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
Cruel World, Inc.
3500 W. Bayshore Road
Palo Alto, CA 94303
Attention: Corporate Secretary
1. EXERCISE OF OPTION. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of Cruel World, Inc. (the "Company") under and pursuant to the
Company's 2000 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Agreement.
3. FEDERAL RESTRICTIONS ON TRANSFER. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act"), or unless an exemption from such
registration is available, and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is
under no obligation to register the Shares and that an exemption may not be
available or may not permit Optionee to transfer Shares in the amounts or at the
times proposed by Optionee.
4. TAX CONSEQUENCES. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. ENTIRE AGREEMENT. The Agreement is incorporated herein by reference.
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the
<PAGE>
subject matter hereof. This Exercise Notice and the Agreement are governed by
California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: CRUEL WORLD, INC.
By: By:
---------------------- ---------------------------
Its:
--------------------------
Address:
Dated: Dated:
------------------- -------------------
-2-
<PAGE>
EXHIBIT 10.6
LEASE
(MULTI-TENANT SINGLE-BUILDING MODIFIED NET)
by and between
PALO ALTO PROPERTY
("Landlord")
and
CAREER CENTRAL CORPORATION
("Tenant")
For the 8,544 SF Premises at
3500 and 3510 West Bayshore Road
Palo Alto, California 94303
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
1. Parties 1
2. Premises 1
3. Definitions 1
4. Lease Term 3
5. Rent 3
6. Late Payment Charges 4
7. Security Deposit 5
8. Holding Over 5
9. [Intentionally omitted] 5
10. Condition of Premises 6
11. Use of the Premises 6
12. Quiet Enjoyment 7
13. Alterations 7
14. Surrender of the Premises 8
15. Real Property Taxes 8
16. Utilities and Services 9
17. Repair and Maintenance 9
18. Liens 11
19. Landlord's Right to Enter the Premises 12
20. Signs 12
21. Insurance 12
(i)
<PAGE>
22. Waiver of Subrogation 14
23. Damage or Destruction 14
24. Condemnation 16
25. Assignment and Subletting 16
26. Default 17
27. Subordination 19
28. Notices 20
29. Attorneys' Fees 20
30. Estoppel Certificates and Financial Statements 21
31. Transfer of the Building or the Property by Landlord 21
32. Landlord's Right to Perform Tenant's Covenants 21
33. Tenant's Remedy 22
34. Mortgagee Protection 22
35. Brokers 22
36. Acceptance 22
37. Modifications for Lender 22
38. Parking 23
39. General 23
</TABLE>
TABLE OF EXHIBIT
<TABLE>
<S> <C>
EXHIBIT A The Premises
EXHIBIT B The Property
</TABLE>
(ii)
<PAGE>
LEASE
(MULTI-TENANT BUILDING ON SINGLE-BUILDING PROPERTY)
1. PARTIES.
THIS LEASE (the "Lease"), dated February 1998, is entered into
by and between Palo Alto Property, a California general partnership
("Landlord"), whose address is 1275 Lincoln Avenue, Suite 4B, San Jose,
California 95125, and Career Central Corporation, a California corporation
("Tenant"), whose address is 3500 West Bayshore Road, Palo Alto, California
94303.
2. PREMISES.
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises consisting of approximately eight thousand
five hundred forty four (8,544) square feet, as shown in EXHIBIT A (the
"Premises"), commonly known as 3500 and 3510 West Bayshore Road in the City
of Palo Alto, County of Santa Clara (the "County"), California, located on
that certain real property more particularly described in EXHIBIT B (the
"Property") together with a right in common to use the Common Area as defined
in paragraph 3.E. The Premises is located within the Building, defined in
paragraph 3.B.
3. DEFINITIONS.
The following terms shall have the following meanings in this
Lease:
A. ALTERATIONS. Any alterations, additions or improvements
made in, on or about the Building or the Premises after the Commencement
Date, including, but not limited to, lighting, heating, ventilating, air
conditioning, electrical, partitioning, drapery and carpentry installations.
B. BUILDING. That certain building on the Property consisting
of approximately nineteen thousand four hundred thirty nine (19,439) square
feet.
C. [Intentionally omitted].
D. COMMENCEMENT DATE. The Commencement Date of this Lease
shall be the first day of the Term determined in accordance with paragraph 4.A.
E. COMMON AREA. All areas and facilities within the Property
provided and designated by Landlord for the general use and convenience of
Tenant and other tenants and occupants of any part of the Property,
including, without limitation, those portions of the Building for the general
use and convenience of all tenants of the Building if any, such as the roof,
entrances and exits, central alarm systems, appurtenant equipment serving the
Building, parking areas, sidewalks, landscaped areas, service areas, trash
disposal facilities, and similar areas and facilities, subject to the
reasonable rules and regulations and changes therein from time to time
promulgated by Landlord governing the use of the Common Area.
<PAGE>
F. HVAC. Heating, ventilating and air conditioning.
G. INTEREST RATE. Ten percent (10%) per annum, however, in no
event to exceed the maximum rate of interest permitted by law.
H. LANDLORD'S AGENTS. Landlord's authorized agents, partners,
subsidiaries, directors, officers and employees.
I. MONTHLY RENT. The rent payable pursuant to paragraph 5.A,
as adjusted from time to time pursuant to the terms of this Lease.
J. REAL PROPERTY TAXES. Any form of assessment, license, fee,
rent tax, levy, penalty (if a result of Tenant's delinquency) or tax (other
than net income, estate, succession, inheritance, transfer or franchise
taxes) imposed by any authority having the direct or indirect power to tax or
by any city, county, state or federal government or any improvement or other
district or division thereof; whether such tax is: (i) determined by the area
of the Property or any part thereof or the rent and other sums payable
hereunder by Tenant or by other tenants, including, but not limited to, any
gross income or excise tax levied by any of the foregoing authorities with
respect to receipt of such rent or other sums due under this Lease; (ii) upon
any legal or equitable interest of Landlord in the Property or the Premises
or any part thereof; (iii) upon this transaction or any document to which
Tenant is a party creating or transferring any interest in the Property; (iv)
levied or assessed in lieu of, in substitution for, or in addition to,
existing or additional taxes against the Property whether or not now
customary or within the contemplation of the parties; or (v) surcharged
against the parking area.
K. RENT. Monthly Rent plus the Additional Rent defined in
paragraph 5.B.
L. SECURITY DEPOSIT. That amount paid by Tenant pursuant to
paragraph 7.
M. SUBLET. Any transfer, sublet, assignment, license or
concession agreement, change of ownership, mortgage or hypothecation
("transfer") of this Lease or the Tenant's interest in the Lease or in and to
all or a portion of the Premises, or any cumulative transfer of any interest
in Tenant exceeding 50 percent.
N. SUBRENT. Any consideration of any kind received or to be
received by Tenant from a subtenant if such sums are related to Tenant's
interest in this Lease or in the Premises, including, but not limited to,
bonus money and payments (in excess of fair market value) for Tenant's
assets, including its trade fixtures, equipment and other personal property,
goodwill, general intangibles and any capital stock or other equity ownership
of Tenant.
O. SUBTENANT. The person or entity with whom a Sublet
agreement is proposed to be or is made.
P. [Intentionally omitted.]
Q. [Intentionally omitted.]
2
<PAGE>
R. TENANT'S PERCENTAGE. The percentage of the area of the
Premises to the total area of the Building. Tenant's Percentage is agreed to
be forty four percent (44%) for the purpose of this Lease.
S. TENANT'S PERSONAL PROPERTY. Tenant's trade fixtures,
furniture, equipment and other personal property in the Premises.
T. TERM. The term of this Lease set forth in paragraph 4.A,
as it may be extended hereunder pursuant to any options to extend granted
herein.
4. LEASE TERM.
A. TERM. The Term shall be a period of thirteen (13) days and
five (5) years, beginning on the Commencement Date of March 19, 1998, and
terminating on March 31, 2003, unless sooner terminated, subject to any
extensions granted hereunder. Tenant agrees that if Landlord, for any reason
whatsoever, is unable to deliver possession of the Premises on the
Commencement Date, Landlord shall not be liable to Tenant for any loss or
damage therefrom, nor shall this Lease be void or voidable. In such event,
the Commencement Date and termination date shall not be extended and Tenant
shall not be obligated to pay Monthly Rent or other sums due Landlord
hereunder until possession of the Premises is tendered to Tenant. Tenant
shall have the right to terminate this lease if delivery of possession is
more than 25 days after the scheduled Commencement Date, provided that Tenant
do so within 35 days after the scheduled Commencement Date.
B. EARLY ENTRY. If Tenant is permitted to occupy the Premises
prior to the Commencement Date for the purpose of fixturing or my other
purpose permitted by Landlord, such early entry shall be at Tenant's sole
risk and subject to all the terms and provisions hereof, except for the
payment of Monthly Rent which shall commence on the Commencement Date.
Landlord shall have the right to impose such additional conditions on
Tenant's early entry as Landlord shall deem appropriate, and shall further
have the right to require that Tenant execute an early entry agreement
containing such conditions prior to Tenant's early entry.
5. RENT.
A. MONTHLY RENT. Tenant shall pay to Landlord, in lawful
money of the United States, for each calendar month of the Term, net Monthly
Rent in the amount of Nineteen Thousand Two Hundred Twenty Four Dollars
($19,224), in advance, on the first day of each calendar month, without
abatement, deduction, claim, offset, prior notice or demand. Additionally,
Tenant shall pay, as and with the net Monthly Rent, Tenant's Percentage of
the estimated monthly Common Area Expenses, as set forth in
paragraph 17.B(iii), subject to adjustment as provided in paragraph 17.B(iv),
and Tenant's Percentage of the monthly cost of insurance premiums required
pursuant to paragraph 22.C, as adjusted from time to time hereunder. Tenant
shall deposit with Landlord upon execution of this Lease the following
amounts to be applied toward the Rent due for the first partial month and the
first full month of the Term:
3
<PAGE>
<TABLE>
<S> <C>
Monthly Rent (net) $19,224.00/month
Tenant's Percentage
of Common Area Expenses $ 3,142.72/month
and Insurance Premiums
----------------
TOTAL $22,366.72/month
</TABLE>
When Landlord tenders possession of the Premises to Tenant and the actual
Commencement Date is determined, Tenant shall pay to Landlord the Monthly
Rent and Tenant's Percentage of Common Area Expenses and Insurance Premiums
from the Commencement Date to the end of the calendar month in which the
Commencement Date occurs, prorated based on the actual number of days in that
partial month. Tenant shall make such payment to Landlord on the later of
April 1, 1998, or the date that the actual Commencement Date is determined.
B. RENT INCREASES. Beginning on April 1, 1999, and on each
April 1 thereafter, the Monthly Rent shall be increased by the annual
percentage increase in the Index published not less than two months prior to
the applicable April 1. The Index shall be the Consumer Price Index (All
Urban Consumers), San Francisco-Oakland-San Jose Area, 1982=100, as published
by the Bureau of Labor Statistics, U.S. Department of Labor, or some other
comparable index chosen by Landlord if the Index is no longer published. In
no event shall the Monthly Rent on any April 1 be less than the Monthly Rent
for the immediately preceding calendar month. Notwithstanding the foregoing,
the minimum increase in the Monthly Rent on each April 1 shall be four
percent (4%).
C. ADDITIONAL RENT. All monies required to be paid by Tenant
under this Lease, including, without limitation, Real Property Taxes pursuant
to paragraph 15, Common Area Expenses pursuant to paragraph 17, and insurance
premiums pursuant to paragraph 21, shall be deemed Additional Rent.
D. PRORATION. If the Commencement Date is not the first (1st)
day of a month, or if the termination date of this Lease is not the last day
of a month, a prorated installment of Monthly Rent based on a thirty (30) day
month shall be paid for the fractional month during which the Lease commences
or terminates.
6. LATE PAYMENT CHARGES.
Tenant acknowledges that late payment by Tenant to Landlord of
Rent and other charges provided for under this Lease will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of such costs
being extremely difficult or impracticable to fix. Therefore, if any
installment of Rent or any other charge due from Tenant is not received by
Landlord when due, Tenant shall pay to Landlord an additional sum equal to
seven percent (7%) of the amount overdue as a late charge. The parties agree
that this late charge represents a fair and reasonable estimate of the costs
that Landlord will incur by reason of the late payment by Tenant. In addition,
4
<PAGE>
if any Rent or other sum due hereunder is not paid by Tenant within thirty
(30) days after the date such Rent or other payment is due, then Tenant shall
pay interest on the amount due at the maximum rate permitted by law from date
such Rent or other sum was due until paid.
INITIALS
[ILLEGIBLE] [ILLEGIBLE]
- -------------------------- ----------------------------
Landlord Tenant
7. SECURITY DEPOSIT.
Tenant shall deposit with Landlord upon execution the sum of
Thirty Eight Thousand Four Hundred Forty Eight Dollars ($38,448) as the
Security Deposit for the full and faithful performance of every provision of
this Lease to be performed by Tenant. If Tenant defaults with respect to any
provision of this Lease, Landlord may apply all or any part of the Security
Deposit for the payment of any rent or other sum in default, the repair of
any damage to the Premises caused by Tenant or the payment of any other
amount which Landlord may spend or become obligated to spend by reason of
Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default to the full extent
permitted by law. Tenant hereby waives any restriction on the use or
application of the Deposit by Landlord as set forth in California Civil Code
Section 1950.7. If any portion of the Security Deposit is so applied, Tenant
shall, within ten (10) days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its
original amount. Landlord shall not be required to keep the Security Deposit
separate from its general funds, and Tenant shall not be entitled to interest
on the Security Deposit. If Tenant is not otherwise in default, the Security
Deposit or any balance thereof shall be returned to Tenant within thirty (30)
days of termination of the Lease. In the event of any termination of
Landlord's interest in the Premises, Landlord shall transfer the Security
Deposit to Landlord's successor-in-interest whereupon Landlord shall be
released from liability for the return of the Security Deposit or the
accounting therefor.
8. HOLDING OVER.
If Tenant remains in possession of all or any part of the
Premises after the expiration of the Term, with the express or implied
consent of Landlord, such tenancy shall be month-to-month only and shall not
constitute a renewal or extension for any further term. If Tenant remains in
possession either with or without Landlord's consent, Monthly Rent shall be
increased to an amount equal to one hundred fifty percent (150%) of the
Monthly Rent payable during the last month of the Term, and any other sums
due under this Lease shall be payable in the amount and at the times
specified in this Lease. Such month-to-month tenancy shall be subject to
every other term, condition, and covenant contained herein. If Tenant fails
to surrender the Premises upon the expiration of the Term despite demand to
do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all
loss or liability, including without limitation any claim made by a
succeeding tenant, resulting from tenants failure to surrender.
9. [Intentionally omitted].
5
<PAGE>
10. CONDITION OF PREMISES.
By taking possession of the Premises, Tenant shall be deemed to
have accepted the Premises in its as-is condition, subject to all applicable
laws, codes and ordinances, except that Landlord shall deliver the Premises
in a clean condition with all systems in working order. Any damage to the
Premises caused by Tenant's move-in shall be repaired or corrected by Tenant,
at its expense. Tenant acknowledges that neither Landlord nor its Agents have
made any representations or warranties as to the suitability or fitness of
the Premises for the conduct of Tenant's business or for any other purpose,
nor has Landlord or its Agents agreed to undertake any Alterations or
construct any Tenant Improvements to the Premises.
11. USE OF THE PREMISES.
A. TENANT'S USE. Tenant shall use the Premises solely for
career marketing, sales and marketing research, general office and
administration, customer service, and operations and software development
purposes and shall not use the Premises for any other purpose without the
prior written consent of Landlord.
B. COMPLIANCE.
(i) Tenant shall not use the Premises or suffer or
permit anything to be done in or about the Premises or the Property which
will in any way conflict with any law, statute, zoning restriction, ordinance
or governmental law, rule, regulation or requirement of public authorities
now in force or which may hereafter be in force, relating to or affecting the
condition, use or occupancy of the Premises or the Property. Tenant shall not
commit any public or private nuisance or any other act or thing which might
or would disturb the quiet enjoyment of any other tenant of Landlord or any
occupant of nearby property. Tenant shall place no loads upon the floors,
walls or ceilings in excess of the maximum designed load determined by
Landlord or which endanger the structure; nor place any harmful liquids in
the drainage systems; nor dump or store waste materials or refuse or allow
such to remain outside the Building proper, except in the enclosed trash
areas provided. Tenant shall not store or permit to be stored or otherwise
placed any other material of any nature whatsoever outside the Building.
Notwithstanding the foregoing, Tenant shall not be required to pay the cost
of complying with laws with respect to items that are not in compliance with
such laws on the Commencement Date unless the requirement for compliance is
triggered by an act of Tenant, e.g., Tenant's application for a building
permit.
(ii) In particular, Tenant, at its sole cost, shall
comply with all laws relating to the storage, use and disposal of hazardous,
toxic or radioactive matter, including those materials identified in Sections
66680 through 66685 of Title 22 of the California Code of Regulations,
Division 4, Chapter 30 as they may be amended from time to time (collectively
"Toxic Materials"). If Tenant does store, use or dispose of any Toxic
Materials, Tenant shall notify Landlord in writing at least ten (10) days
prior to their first appearance on the Premises. Tenant shall be solely
responsible for and shall defend, indemnify and hold Landlord and its Agents
harmless from and against all claims, costs and liabilities, including
attorneys' fees and costs, arising out of or in connection with its storage,
use and disposal of Toxic Materials. Tenant shall further be solely
responsible for and shall defend, indemnify and hold Landlord and its Agents
harmless from and against any and all claims, costs, and liabilities,
including attorneys' fees and costs, arising out of or in connection with the
removal, clean-up and restoration work and materials necessary to return the
6
<PAGE>
Premises and the Property and any other property of whatever nature to their
condition existing prior to the appearance of the Toxic Materials on the
Premises. If any governmental agency or the beneficiary of any deed of trust
covering the Property requires any testing of the Premises or the Property,
including the soil or groundwater of the Property, to ascertain whether there
has been any release of Toxic Materials in, on or about the Premises or the
Property, Landlord shall have the right to install monitoring wells on or
about the Outside Area and to perform such other tests and investigations of
the Premises and the Property for such purpose. Tenant shall reimburse
Landlord as Additional Rent for the reasonable cost of such tests and
investigations and of the installation, maintenance, repair and replacement
of such monitoring wells or other measuring devices if the results of such
tests and investigations disclose the existence of facts which give rise to
the liability of Tenant pursuant to the indemnity provisions of this
paragraph 11.B(ii). Tenant's obligations hereunder shall survive the
termination of this Lease.
12. QUIET ENJOYMENT.
Landlord covenants that Tenant, upon performing the terms,
conditions and covenants of this Lease, shall have quiet and peaceful
possession of the Premises as against any person claiming the same by,
through or under Landlord.
13. ALTERATIONS.
After the Commencement Date, Tenant shall not make or permit
any Alterations in, on or about the Premises, except for nonstructural
Alterations not exceeding One Thousand Dollars ($1,000.00) in cost, without
the prior written consent of Landlord, and according to plans and
specifications approved in writing by Landlord, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing Tenant shall not,
without the prior written consent of Landlord, make any:
(i) Alterations to the exterior of the Building;
(ii) Alterations to and penetrations of the roof of the
Building; and
(iii) Alterations visible from outside the Premises,
including the Common Area, to which Landlord may withhold Landlord's consent
on wholly aesthetic grounds.
All Alterations shall be installed at Tenant's sole expense, in compliance
with all applicable laws, by a licensed contractor, shall be done in a good
and workmanlike manner conforming in quality and design with the Premises
existing as of the Commencement Date, and shall not diminish the value of
either the Building or the Premises. All Alterations made by Tenant shall be
and become the property of Landlord upon installation and shall not be deemed
Tenant's Personal Property; provided, however, that Landlord may, at its
option, require that Tenant, at Tenant's expense, remove any or all
Alterations installed by Tenant and return the Premises to their condition as
of the Commencement Date of this Lease, normal wear and tear excepted and
subject to the provisions of paragraph 23. Notwithstanding any other
provision of this Lease, Tenant shall be solely responsible for the
maintenance and repair of any and all Alterations made by it to the Premises.
Tenant shall give Landlord written notice of Tenant's intention to perform
work on the Premises at least twenty
7
<PAGE>
(20) days prior to the commencement of such work to enable Landlord to post
and record a Notice of Nonresponsibility or other notice deemed proper before
the commencement of any such work.
Landlord hereby consents to Tenant constructing or completing a demising wall
between the Premises and adjacent space. The improvements related thereto
shall not be required to be removed at the expiration of the Lease. However,
such improvements are otherwise subject to the provisions of this paragraph 13.
14. SURRENDER OF THE PREMISES.
Upon the expiration or earlier termination of the Term, Tenant
shall surrender the Premises to Landlord in its condition existing as of the
Commencement Date, normal wear and tear and fire or other casualty excepted,
with all interior walls repaired and repainted if marked or damaged, all
carpets shampooed and cleaned, all broken, marred or nonconforming acoustical
ceiling tiles replaced, all windows washed, the plumbing and electrical
systems and lighting in good order and repair, including replacement of any
burned out or broken light bulb or ballasts, and all floors cleaned and
waxed, all to the reasonable satisfaction of Landlord, but only to the extent
required to return the Premises to the condition in which it existed on the
Commencement Date, excepting only Alterations that Landlord has agreed in
writing that may remain. Tenant shall remove from the Premises all of
Tenant's Alterations required to be removed pursuant to paragraph 13, and all
Tenant's Personal Property, and repair any damage and perform any restoration
work caused by such removal. If Tenant fails to remove such Alterations and
such failure continues after the expiration or earlier termination of this
Lease, Landlord may retain such property and all rights of Tenant with
respect to it shall cease. If Tenant fails to remove its Personal Property at
the expiration or earlier termination of this Lease, Landlord may place all
or any portion of such property in public storage for Tenant's account.
Tenant shall be liable to Landlord for costs of removal of any such
Alterations and Tenant's Personal Property and storage and transportation
costs of same, and the cost of repairing and restoring the Premises, together
with interest at the Interest Rate from the date of expenditure by Landlord.
If the Premises are not so surrendered at the termination of this Lease,
Tenant shall indemnify Landlord and its Agents against all loss or liability,
including attorneys' fees and costs, resulting from delay by Tenant in so
surrendering the Premises.
Normal wear and tear for the purposes of this Lease shall be
construed to mean wear and tear caused to the Premises by a natural aging
process which occurs in spite of prudent application of commercially
reasonable standards for maintenance, repair and janitorial practices. It is
not intended, nor shall it be construed, to include items of neglected or
deferred maintenance which would have or should have been attended to during
the Term of the Lease if the best standards had been applied to properly
maintain and keep the Premises at all times in good condition and repair.
15. REAL PROPERTY TAXES.
A. PAYMENT BY TENANT. Tenant shall pay to Landlord
one-twelfth (1/12th) of the estimated annual Real Property Taxes on the first
(1st) day of each calendar month. Assessments, taxes, fees, levies and
charges may be imposed by governmental agencies for such purposes as fire
protection, street, sidewalk, road, utility construction and maintenance,
refuse removal and for other governmental services which may formerly have
been provided without charge to property owners
8
<PAGE>
or occupants. It is the intention of the parties that all new and increased
assessments, taxes, fees, levies and charges are to be included within the
definition of Real Property Taxes. Upon Landlord's receipt of the Real
Property Tax payment from Tenant and other tenants of the Property, Landlord
shall pay the taxes to the county. If Tenant fails to pay Tenant's Percentage
of the Real Property Taxes, Tenant shall pay to Landlord any penalty incurred
by such late payment.
B. TAXES ON TENANT IMPROVEMENTS AND PERSONAL PROPERTY. Tenant
shall pay any increase in Real Property Taxes resulting from any and all
Alterations and Tenant Improvements of any kind whatsoever placed in, on or
about the Premises for the benefit of, at the request of, or by Tenant.
Tenant shall pay prior to delinquency all taxes assessed or levied against
Tenant's Personal Property in, on or about the Premises or elsewhere. When
possible, Tenant shall cause its Personal Property to be assessed and billed
separately from the real or personal property of Landlord.
C. PRORATION. Tenant's liability to pay Real Property Taxes
shall be prorated on the basis of a 365-day year to account for any
fractional portion of a fiscal tax year included at the commencement or
expiration of the Term. With respect to any assessments which may be levied
against or upon the Property, or which under the laws then in force may be
evidenced by improvements or other bonds or may be paid in annual
installments, only the amount of such annual installment (with appropriate
proration for any partial year) and interest due thereon shall be included
within the computation of the annual Real Property Taxes levied against the
Premises.
16. UTILITIES AND SERVICES.
Tenant shall be responsible for and shall pay promptly all
charges for water, gas, electricity, telephone, janitorial service and all
other utilities, materials and services furnished directly to or used by
Tenant in, on or about the Premises during the Term, together with any taxes
thereon. If such utilities are not separately metered to the Premises,
Landlord shall bill Tenant for Tenant's pro rata share based on Tenant's
Percentage or other equitable basis as determined by Landlord. Landlord shall
not be liable in damages or otherwise for any failure or interruption, of any
utility service or other service furnished to the Premises, except that
resulting from the willful misconduct of Landlord. In addition, Tenant shall
not be entitled to any abatement or reduction of Rent by reason of such
failure or interruption, no eviction of Tenant shall result from such failure
or interruption and Tenant shall not be relieved from the performance of any
covenant or agreement in this Lease because of such failure or interruption.
17. REPAIR AND MAINTENANCE.
A. BUILDING.
(i) LANDLORD'S OBLIGATIONS. Landlord shall keep in good
order, condition and repair the structural parts of the Building, except for
any damage thereto caused by the negligence or willful acts or omissions of
Tenant or of Tenant's agents, employees or invitees, or by reason of the
failure of Tenant to perform or comply with any terms of this Lease, or
caused by Alterations made by Tenant or by Tenant's agents, employees or
contractors. Tenant shall have the benefit of any damage covered by casualty
insurance subject to the provisions of paragraph 22. It is an express
condition precedent to all obligations of Landlord to repair and maintain
that Tenant shall have notified Landlord of the need for such repairs or
maintenance. Tenant waives the
9
<PAGE>
provisions of Sections 1941 and 1942 of the California Civil Code and any
similar or successor law regarding Tenant's right to make repairs and deduct
the expenses of such repairs from the Rent due under this Lease.
(ii) TENANT'S OBLIGATIONS. Tenant shall at all times and
at its own expense clean, keep and maintain in good order, condition and
repair every part of the Premises which is not within Landlord's obligation
pursuant to paragraph 17.A (i). Tenant's repair and maintenance obligations
shall include, all plumbing and sewage facilities within the Premises,
fixtures, interior walls and ceiling, floors, windows, doors, entrances,
plate glass, showcases, skylights, all electrical facilities and equipment,
including lighting fixtures, lamps, fans and any exhaust equipment and
systems, any automatic fire extinguisher equipment within the Premises,
electrical motors and all other appliances and equipment of every kind and
nature located in, upon or about or exclusively serving the Premises,
excluding the HVAC system. Tenant shall also be responsible for all pest
control within the Premises. Tenant shall have the benefit of all warranties
available to Landlord regarding equipment. Notwithstanding the foregoing,
Landlord and not Tenant shall be responsible for installing capital
improvements and Tenant shall reimburse Landlord for the amortized cost
thereof allocable to the balance of the Lease term (based on the useful life
of the capital item in question). In no event shall Tenant be obligated to
pay for construction defects not caused by Tenant or repairs necessitated by
casualty to the extent the casualty was not caused by Tenant, in which event
Tenant shall pay any uninsured amount, excluding co-insurance payments.
B. COMMON AREA
(i) LANDLORD'S OBLIGATIONS. Landlord shall repair and
maintain the Common Area including those portions of the Building within the
Common Area, including the roof (subject to Tenant's obligation to pay for
annual roof inspection and repair as set forth in paragraph 17.B(ii)), HVAC
systems, refuse pick-up, and exterior walls (excluding the interior of all
walls and the exterior and interior of all windows, doors, ceiling and plate
glass). The manner in which the Common Area shall be maintained and the
expenditures therefor shall be at the sole discretion of Landlord. Landlord
shall at all times have exclusive control of the Common Area and may at any
time temporarily close any part thereof, exclude and restrain anyone from any
part thereof, except the bona fide customers, employees and invitees of
Tenant who use the Common Area in accordance with the rules and regulations
as Landlord may from time to time promulgate, and may change the
configuration or location of the Common Area. In exercising any such rights,
Landlord shall make a reasonable effort to minimize any disruption of
Tenant's business. Common Area expenses shall not include the following: (1)
reserves or depreciation; (2) the cost of capital improvements, except for
the amortized cost thereof (based on the useful life of the capital item in
question) over the balance of the term; (3) costs occasioned by casualty,
except to the extent caused by Tenant, in which event Tenant shall pay for
any uninsured amount, excluding co-insurance payments, which costs are
covered by insurance; (4) costs to correct any construction defect in the
Building or to comply with any law applicable to the Building on the
Commencement Date unless the requirement for compliance is triggered by an
act of Tenant, e.g., Tenant's application for a building permit; (5) debt
service; (6) costs for the maintenance, repair or replacement to or of the
structural elements of the Building; and (7) costs arising from the presence
of Hazardous Materials in, on or under the Building, except to the extent
caused by Tenant. With respect to deductibles allocable to earthquake
insurance coverage, Common Area expenses shall include only the cost thereof
amortized equally over the balance of the Lease term.
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(ii) TENANT TO PAY COMMON AREA EXPENSES. Tenant shall pay,
as Additional Rent, Tenant's Percentage of all reasonable costs and expenses
paid or incurred by Landlord during the Term in maintaining, repairing and
replacing the Common Area, including annual roof inspections, HVAC
maintenance contracts and preventive maintenance work on the roof, the cost
of capital expenditures provided they are amortized over their useful life at
reasonable interest rates, and appropriate reserves for any such maintenance
or repair, and a reasonable management fee (not to exceed 5% of the Monthly
Rent) for Landlord's property manager (the "Common Area Expenses").
(iii) MONTHLY PAYMENTS. From and after the Commencement
Date, Tenant shall pay to Landlord on the first day of each calendar month of
the Term an amount estimated by Landlord to be Tenant's Percentage of the
monthly Common Area Expenses. The foregoing estimated monthly charges may be
adjusted by Landlord at the end of any calendar quarter on the basis of
Landlord's experience and reasonably anticipated costs. Any such adjustment
shall be effective as of the calendar month next succeeding receipt by Tenant
of written notice of such adjustment. Within one hundred twenty (120) days
following the end of each calendar year Landlord shall furnish Tenant a
statement of the actual Common Area Expenses ("Actual Expenses") for the
calendar year and the payments made by Tenant with respect to such period. If
Tenant's payments for the Common Area Expenses do not equal the amount of the
Actual Expenses, Tenant shall pay Landlord the deficiency within ten (10)
days after receipt of such statement. If Tenant's payments exceed the Actual
Expenses, Landlord shall either offset the excess against the Common Area
Expenses, next thereafter to become due to Landlord, or shall refund the
amount of the overpayments to Tenant, in cash, as Landlord shall elect. There
shall be appropriate adjustments of the Common Area Expenses as of the
Commencement Date and expiration of the Term.
C. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Tenant shall, at
its cost, comply with, including the making by Tenant of any Alteration to
the Premises, all present and future regulations, rules, laws, ordinances,
and requirements of all governmental authorities (including, without
limitation state, municipal, county and federal governments and their
departments, bureaus, boards and officials) arising from the use or occupancy
of, or applicable to, the Premises or privileges appurtenant to or in
connection with the enjoyment of the Premises.
18. LIENS.
Tenant shall keep the Building and the Property free from any
liens arising out of any work performed, materials furnished or obligations
incurred by or on behalf of Tenant and hereby indemnifies and holds Landlord
and its Agents harmless from all liability and cost, including attorneys'
fees and costs, in connection with or arising out of any such lien or claim
of lien. Tenant shall cause any such lien imposed to be released of record by
payment or posting of a proper bond acceptable to Landlord within ten (10)
days after written request by Landlord. Tenant shall give Landlord written
notice of Tenant's intention to perform work on the Premises which might
result in any claim of lien at least ten (10) days prior to the commencement
of such work to enable Landlord to post and record a Notice of
Nonresponsibility. If Tenant fails to so remove any such lien within the
prescribed ten (10) day period, then Landlord may do so at Tenant's expense
and Tenant shall reimburse Landlord as Additional Rent for such amounts upon
demand. Such reimbursement shall include all costs incurred by Landlord
including Landlord's reasonable attorneys' fees with interest thereon at the
Interest Rate.
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19. LANDLORD'S RIGHT TO ENTER THE PREMISES.
Tenant shall permit Landlord and its Agents to enter the
Premises at all reasonable times with reasonable notice, except for
emergencies in which case no notice shall be required, to inspect the same,
to post Notices of Nonresponsibility and similar notices and "For Sale"
signs, to show the Premises to interested parties such as prospective lenders
and purchasers, to make necessary repairs, to discharge Tenant's obligations
hereunder when Tenant has failed to do so within a reasonable time after
written notice from Landlord, and at any reasonable time within one hundred
and eighty (180) days prior to the expiration of the Term, to place upon the
Building ordinary "For Lease" signs and to show the Premises to prospective
tenants. The above rights are subject to reasonable security regulations of
Tenant, and to the requirement that Landlord shall at all times act in a
manner to cause the least possible interference with Tenant's business.
Landlord shall have the right to require Tenant not to remove any permanent
sign structures (such as monuments, sign boxes, etc.) at the expiration or
earlier termination of the Lease.
20. SIGNS.
Tenant shall have no right to maintain any sign in any location
in, on or about the Building, Common Area or the Premises and shall not
display or erect any other Tenant identification sign, display or other
advertising material that is visible from the exterior of the Building
without Landlord's prior written consent, which shall not be unreasonably
withheld. The size, design, color and other physical aspects of the Tenant
identification sign shall be subject to the Landlord's written approval prior
to installation, which shall not be unreasonably withheld, and any
appropriate municipal or other governmental approvals. The cost of the sign,
its installation, maintenance and removal expense shall be Tenant's sole
expense. If Tenant fails to maintain its sign or if Tenant fails to remove
its sign upon termination of this Lease, Landlord may do so at Tenant's
expense and Tenant's reimbursement to Landlord for such amounts shall be
deemed Additional Rent due and payable within ten (10) days after demand
therefor and bearing interest at ten percent (10%) per annum from the time of
expenditure by Landlord until payment is delivered to Landlord.
21. INSURANCE.
A. INDEMNIFICATION. Tenant hereby agrees to defend, indemnify
and hold harmless Landlord and its Agents from and against any and all
damage, loss, liability or expense including attorneys' fees and legal costs
suffered directly or by reason of any claim, suit or judgment brought by or
in favor of any person or persons for damage, loss or expense due to, but not
limited to, bodily injury and property damage sustained by such person or
persons which arises out of, is occasioned by or in any way attributable to
the use or occupancy of the Premises or the Property or any part thereof and
adjacent areas by Tenant, the acts or omissions of the Tenant, its agents,
employees or any contractors brought onto the Premises or the Property by
Tenant, except to the extent caused by the negligence or willful misconduct
of Landlord or its Agents. Tenant agrees that the obligations assumed herein
shall survive this Lease.
B. TENANT'S INSURANCE. Tenant agrees to maintain in full
force and effect at all times during the Term, at its own expense, for the
protection of Tenant and Landlord, as their interests may appear, policies of
insurance issued by a responsible carrier or carriers acceptable to Landlord
which afford the following coverages:
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(i) Commercial general liability insurance in an amount
not less than Two Million Dollars ($2,000,000) combined single limit for both
bodily injury and property damage, which includes blanket contractual
liability broad form property damage, personal injury, completed operations,
products liability and fire damage legal (in an amount not less than
Twenty-Five Thousand Dollars ($25,000)), naming Landlord and its Agents as
additional insureds.
(ii) "All-risk" or causes of loss-special form property
insurance (including, without limitation, vandalism, malicious mischief,
inflation endorsement, plate glass and sprinkler leakage endorsement) on
Tenant's Personal Property located on or in the Premises and any Alterations
constructed or installed on the Premises by Tenant. Such insurance shall be
in the full amount of the replacement cost, as the same may from time to time
increase as a result of inflation or otherwise. As long as this Lease is in
effect, the proceeds of such policy shall be used for the repair and
replacement of such items so insured. Landlord shall have no interest in the
insurance proceeds on Tenant's Personal Property.
C. PREMISES INSURANCE. During the Term Landlord shall
maintain "all-risk" or causes of loss-special form property insurance
(including inflation endorsement, sprinkler leakage endorsement, and, at
Landlord's option, earthquake and flood coverage) on the Building, excluding
coverage of all Tenant's Personal Property located on or in the Premises, but
including the Tenant Improvements, if any are provided for in paragraph 9 of
this Lease. Such insurance shall also include insurance against loss of
rents, including, at Landlord's option, coverage for earthquake and flood, in
an amount equal to the Monthly Rent and Additional Rent, and any other sums
payable under the Lease, for a period of at least twelve (12) months
commencing on the date of loss. Such insurance shall name Landlord and its
Agents as named insureds and include a lender's loss payable endorsement in
favor of Landlord's lender (Form 438 BFU Endorsement). Tenant shall reimburse
Landlord for Tenant's Percentage of Landlord's annual cost of such insurance
as Additional Rent, monthly on the first day of each calendar month of the
Term, prorated for any partial month, or on such other periodic basis as
Landlord shall elect. If the property insurance premiums are increased after
the Commencement Date, due to an increase in the value of the Building or its
replacement cost, Tenant shall pay Tenant's Percentage of such increase
within ten (10) days of notice of such increase. If such insurance premiums
are increased due to Tenant's use of the Premises, improvements installed by
Tenant, or any other cause solely attributable to Tenant, Tenant shall be
required to pay the full amount of the increase.
D. CO-INSURER. If, on account of the failure of Tenant to
comply with the foregoing provisions, Landlord is adjudged a co-insurer by
its insurance carrier, then any loss or damage Landlord shall sustain by
reason thereof, including attorneys' fees and costs, shall be borne by Tenant
and shall be immediately paid by Tenant upon receipt of a bill therefor and
evidence of such loss.
E. INSURANCE REQUIREMENTS. All insurance shall be in a form
satisfactory to Landlord and shall be carried with companies that have a
general policy holder's rating of not less than "A" and a financial rating of
not less than Class "X" in the most current edition of BEST'S INSURANCE
REPORTS; shall provide that such policies shall not be subject to material
alteration or cancellation except after at least thirty (30) days' prior
written notice to Landlord; and shall be primary as to Landlord. The policy
or policies or duly executed certificates for them, together with
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satisfactory evidence of payment of the premium thereon, shall be deposited
with Landlord upon the execution of this Lease and, upon renewal of such
policies, not less than thirty (30) days prior to the expiration of the term
of such coverage. If Tenant fails to procure and maintain the insurance
required hereunder, Landlord may, but shall not be required to, order such
insurance at Tenant's expense and Tenant shall reimburse Landlord upon
demand. Such reimbursement shall include all costs incurred by Landlord
including Landlord's reasonable attorneys' fees, with interest thereon at the
Interest Rate.
F. LANDLORD'S DISCLAIMER. Landlord and its Agents shall not be
liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheetrock, steam, gas,
electricity, water or rain which may leak from any part of the Building or
from the pipes, appliances or plumbing works therein or from the roof, street
or subsurface, or from any other cause whatsoever, except to the extent
caused by or due to the negligence or willful misconduct of Landlord, its
employees or agents. Landlord and its Agents shall not be liable for any
injury to persons or damage to property caused by latent defect in the
Premises. Tenant shall give prompt written notice to Landlord in case of a
casualty, accident or repair needed in the Premises.
22. WAIVER OF SUBROGATION.
Notwithstanding anything contrary in this Lease, Landlord and
Tenant each hereby waive all rights of recovery against the other on account
of loss or damage occasioned to such waiving party for its property or the
property of others under its control to the extent that such loss or damage
is insured against under any insurance policies which may be in force at the
time of such loss or damage. Tenant and Landlord shall, upon obtaining
policies of insurance required hereunder, give notice to the insurance
carrier that the foregoing mutual waiver of subrogation is contained in this
Lease and Tenant and Landlord shall cause each insurance policy obtained by
such party to provide that the insurance company waives all right of recovery
by way of subrogation against either Landlord or Tenant in connection with
any damage covered by such policy.
23. DAMAGE OR DESTRUCTION.
A. LANDLORD'S OBLIGATION TO REBUILD. If the Premises or the
Building is damaged or destroyed, Landlord shall promptly and diligently
repair the same unless it has the right to terminate this Lease as provided
herein and it elects to so terminate.
B. RIGHT TO TERMINATE. Landlord shall have the right to
terminate this Lease in the event any of the following events occur:
(i) Insurance proceeds are not available to pay one
hundred percent (100%) of the cost of such repairs in excess of Twenty
Thousand Dollars ($20,000), excluding the deductible for which Tenant shall
be responsible;
(ii) The Premises or the Building cannot, with reasonable
diligence, be fully repaired by Landlord within one hundred eighty (180) days
after the date of the damage or destruction; or
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(iii) The Premises or the Building cannot be safely
repaired because of the presence of hazardous factors, including, but not
limited to, earthquake faults, radiation, chemical waste and other similar
dangers.
If Landlord elects to terminate this Lease, Landlord may give Tenant
written notice of its election to terminate within thirty (30) days after
such damage or destruction and this Lease shall terminate fifteen (15) days
after the date Tenant receives such notice. If Landlord elects not to
terminate the Lease, subject to Tenant's termination right set forth below,
Landlord shall promptly commence the process of obtaining necessary permits
and approvals and repair of the Premises or the Building as soon as
practicable, and this Lease will continue in full force and effect. All
insurance proceeds from insurance under paragraph 21, excluding proceeds for
Tenant's Personal Property, shall be disbursed and paid to Landlord. Tenant
shall be required to pay to Landlord the amount of any deductibles payable in
connection with any insured casualties (earthquake deductibles shall be paid
as set forth in the last sentence of paragraph 17.B (i)), unless the casualty
was caused by the sole negligence or willful misconduct of Landlord.
Tenant shall have the right to terminate this Lease if the Premises
cannot, with reasonable diligence, be fully repaired within two hundred ten
(210) days from the date of damage or destruction. The determination of the
estimated repair period shall be made by Landlord in its good faith business
judgment within thirty (30) days after such damage or destruction. Landlord
shall deliver written notice of the repair period to Tenant after such
determination has been made and Tenant shall exercise its right to terminate
this Lease, if at all, within ten (10) days of receipt of such notice from
Landlord.
C. LIMITED OBLIGATION TO REPAIR. Landlord's obligation, should it
elect or be obligated to repair or rebuild, shall be limited to the basic
Premises, the Tenant Improvements, or the basic Building, as the case may be,
and Tenant shall, at Tenants expense, replace or fully repair all Tenant's
Personal Property and any Alterations installed by Tenant and existing at the
time of such damage or destruction.
D. ABATEMENT OF RENT. Rent shall be temporarily abated
proportionately during any period when, by reason of such damage or
destruction, there is material interference with Tenant's use of the
Premises, having regard to the extent to which Tenant may be required to
discontinue Tenant's use of the Premises. Such abatement shall commence upon
such damage or destruction and end upon substantial completion by Landlord of
the repair or reconstruction which Landlord is obligated or undertakes to do.
However, if the damage or destruction was caused by Tenant, Rent shall not be
abated after the rental abatement insurance described in paragraph 21.C has
been paid. Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the Premises, damage to Tenant's Personal
Property or any inconvenience occasioned by such damage, repair or
restoration. Tenant hereby waives the provisions of Section 1932, Subdivision
2, and Section 1933, Subdivision 4, of the California Civil Code, and the
provisions of any similar law hereinafter enacted.
E. DAMAGE NEAR END OF TERM. Anything herein to the contrary
notwithstanding, if the Premises or the Building is destroyed or damaged
during the last twelve (12) months of the Term, then Landlord may, at its
option, cancel and terminate this Lease as of the date of the
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occurrence of such damage. If Landlord does not elect to so terminate this
Lease, the repair of such damage shall be governed by paragraphs 23.A and 23.B.
24. CONDEMNATION.
If title to all of the Premises or Building or so much thereof
is taken for any public or quasi public use under any statute or by right of
eminent domain so that reconstruction of the Premises or Building will not,
in Landlord's and Tenant's mutual opinion, result in the Premises being
reasonably suitable for Tenant's continued occupancy for the uses and
purposes permitted by this Lease, this Lease shall terminate as of the date
that possession of the Premises or Building or part thereof be taken. A sale
by Landlord to any authority having the power of eminent domain, either under
threat of condemnation or while condemnation proceedings are pending, shall
be deemed a taking under the power of eminent domain for all purposes of this
paragraph.
If any part of the Premises or Building is taken and the
remaining part is reasonably suitable for Tenant's continued occupancy for
the purposes and uses permitted by this Lease, this Lease shall, as to the
part so taken, terminate as of the date that possession of such part of the
Premises or Building is taken. The Rent and other sums payable hereunder
shall be reduced in the same proportion that Tenant's use and occupancy of
the Premises is reduced. If any portion of the Common Area is taken, Tenant's
Rent shall be reduced only if such taking materially interferes with Tenant's
use of the Common Area and then only to the extent that the fair market
rental value is diminished by such partial taking. Each party hereby waives
the provisions of Section 1265.130 of the California Code of Civil Procedure
allowing either party to petition the Superior Court to terminate this Lease
in the event of a partial taking of the Property or Premises.
No award for any partial or entire taking shall be apportioned.
Tenant assigns to Landlord its interest in any award which may be made in
such taking or condemnation, together with any and all rights of Tenant
arising in or to the same or any part thereof. Nothing contained herein shall
be deemed to give Landlord any interest in or require Tenant to assign to
Landlord any separate award made to Tenant for the taking of Tenant's
Personal Property, or its moving costs.
25. ASSIGNMENT AND SUBLETTING.
A. LANDLORD'S CONSENT. Neither Tenant nor Subtenant nor any
successor Subtenant thereof, no matter how remote, shall enter into a Sublet
without Landlord's prior written consent, which consent shall not be
unreasonably withheld. Any attempted or purported Sublet without Landlord's
prior written consent shall be void and confer no rights upon any third
person and, at Landlord's election, shall terminate this Lease. Each
Subtenant shall agree in writing, for the benefit of Landlord, to assume, to
be bound by, and to perform the terms, conditions and covenants of this Lease
to be performed by Tenant. Notwithstanding anything contained herein, Tenant
shall not be released from liability for the performance of each term,
condition and covenant of this Lease by reason of Landlord's consent to a
Sublet unless Landlord specifically grants such release in writing. Consent
by Landlord to any Sublet shall not be deemed a consent to any subsequent
Sublet. Landlord acknowledges that Tenant intends to sublease 3510 West
Bayshore Road, subject however to the provisions of this paragraph 25. If
Landlord does consent to a Sublet, Tenant or each Subtenant or successor
Subtenant shall pay to Landlord a one-time Sublet fee of $1,000 for each
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Sublet, except the first Sublet to pay in part for Landlord's expenses in
reviewing the proposed Sublet transaction.
B. INFORMATION TO BE FURNISHED. If Tenant desires at any time
to Sublet the Premises or any portion thereof, it shall first notify Landlord
of its desire to do so and shall submit in writing to Landlord: (i) the name
of the proposed Subtenant; (ii) the nature of the proposed Subtenant's
business to be carried on in the Premises; (iii) the terms and provisions of
the proposed Sublet and a copy of the proposed Sublet form containing a
description of the subject premises; and (iv) such financial information,
including financial statements, as Landlord may reasonably request concerning
the proposed Subtenant.
C. LANDLORD'S ALTERNATIVES. At any time within fifteen (15)
days after Landlord's receipt of the information specified in paragraph 25.B,
Landlord may, by written notice to Tenant, elect: (i) to consent to the
Sublet by Tenant; (ii) to refuse its consent to the Sublet; or (iii) elect to
terminate this Lease, or in the case of a partial Sublet, terminate this
lease as to the portion of the Premises proposed to be Sublet. If Landlord
consents to the Sublet, Tenant may thereafter enter into a valid Sublet of
the Premises or portion thereof, upon the terms and conditions and with the
proposed Subtenant set forth in the information furnished by Tenant to
Landlord pursuant to paragraph 25.B, subject, however, at Landlord's
election, to the condition that fifty percent (50%) of any excess of the
Subrent over the Rent required to be paid by Tenant under this Lease shall be
paid to Landlord. In calculating such excess, Tenant shall have the right to
deduct from the monthly rent paid by Sublessee the total of the reasonable
costs of procuring the Sublet, including commissions, tenant improvements and
attorneys' fees, divided by the number of months in the Sublet term.
Notwithstanding the foregoing, Landlord shall have no right to terminate this
Lease for the initial Sublet of 3510 West Bayshore Road.
D. PRORATION. If a portion of the Premises is Sublet, the pro
rata share of the Rent attributable to such partial area of the Premises
shall be determined by Landlord by dividing the Rent payable by Tenant
hereunder by the total square footage of the Premises and multiplying the
resulting quotient (the per square foot rent) by the number of square feet of
the Premises which are Sublet.
E. EXEMPT SUBLETS. Notwithstanding the above, Landlord's
prior written consent shall not be required for an assignment of this Lease
to a subsidiary, affiliate or parent corporation of Tenant, or a corporation
into which Tenant merges or consolidates, provided that (i) Tenant gives
Landlord prior written notice of the name of any such assignee; (ii) at the
time of such assignment, the assignee has a net worth that is equal to or
greater than the net worth of Tenant immediately prior to such assignment;
and (iii) the assignee assumes, in writing, for the benefit of Landlord all
of Tenant's obligations under the Lease. An assignment or other transfer of
this Lease to a purchaser of all or substantially all of the assets of Tenant
shall be deemed a Sublet requiring Landlord's prior written consent.
26. DEFAULT.
A. TENANT'S DEFAULT. A default under this Lease by Tenant
shall exist if any of the following occurs:
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(i) If Tenant fails to pay Rent or any other sum
required to be paid hereunder when due;
(ii) If Tenant fails to perform any term, covenant or
condition of this Lease, except those requiring the payment of money, and
Tenant fails to cure such breach within twenty (20) days after written notice
from Landlord where such breach could reasonably be cured within such twenty
(20) day period; provided, however, that where such failure could not
reasonably be cured within the twenty (20) day period, that Tenant shall not
be in default if it commences such performance within the twenty (20) day
period and diligently thereafter prosecutes the same to completion;
(iii) If Tenant assigns its assets for the benefit of
its creditors;
(iv) If the sequestration or attachment of or
execution on any material part of Tenant's Personal Property essential to the
conduct of Tenant's business occurs and Tenant fails to obtain a return or
release of such Personal Property within thirty (30) days thereafter or prior
to sale pursuant to such sequestration, attachment or levy, whichever is
earlier;
(v) If Tenant shall have abandoned the Premises,
Tenant shall have the right to vacate the Premises so long as it continues to
timely pay Rent, comply with its obligations under this Lease, and keep in
effect all of its permits and licenses necessary to continue its business at
the Premises; or
(vi) If a court makes or enters any decree or order
other than under the bankruptcy laws of the United States adjudging Tenant to
be insolvent; or approving as properly filed a petition seeking
reorganization of Tenant; or directing the winding up or liquidation of
Tenant and such decree or order shall have continued for a period of thirty
(30) days.
B. REMEDIES. Upon a default, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by
law or otherwise provided in this Lease, to which Landlord may resort
cumulatively or in the alternative:
(i) Landlord may continue this Lease in full force
and effect and this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Rent when due.
(ii) Landlord may terminate Tenant's right to
possession of the Premises at any time by giving written notice to that
effect and relet the Premises or any part thereof. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in reletting the
Premises or any part thereof, including, without limitation, broker's
commissions, expenses of cleaning and redecorating the Premises required by
the reletting and like costs. Reletting may be for a period shorter or longer
than the remaining term of this Lease. No act by Landlord other than giving
written notice to Tenant shall terminate this Lease. Acts of maintenance,
efforts to relet the Premises or the appointment of a receiver on Landlord's
initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. On termination,
Landlord has the right to remove all Tenant's Personal Property and store
same at Tenant's cost and to recover from Tenant as damages:
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(a) The worth at the time of award of unpaid
Rent and other sums due and payable which had been earned at the time of
termination; plus
(b) The worth at the time of award of the
amount by which the unpaid Rent and other sums due and payable which would
have been payable after termination until the time of award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably
avoided; plus
(c) The worth at the time of award of the
amount by which the unpaid Rent and other sums due and payable for the
balance of the Term after the time of award exceeds the amount of such Rent
loss that Tenant proves could be reasonably avoided; plus
(d) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform Tenant's obligations under this Lease, or which, in the ordinary
course of things, would be likely to result therefrom, including, without
limitation, any costs or expenses incurred by Landlord: (i) in retaking
possession of the Premises; (ii) in maintaining, repairing, preserving,
restoring, replacing, cleaning, altering or rehabilitating the Premises or
any portion thereof, including such acts for reletting to a new tenant or
tenants; (iii) for leasing commissions; or (iv) for any other costs necessary
or appropriate to relet the Premises; plus
(e) At Landlord's election, such other amounts
in addition to or in lieu of the foregoing as may be permitted from time to
time by the laws of the State of California.
The "worth at the time of award" of the amounts referred to in
paragraphs 26.B(ii)(a) and 26.B(ii)(b) is computed by allowing interest at
the Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award"
of the amount referred to in paragraph 26.B(ii)(c) is 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%). Tenant waives redemption or
relief from forfeiture under California Code of Civil Procedure Sections 1174
and 1179, or under any other present or future law, in the event Tenant is
evicted or Landlord takes possession of the Premises by reason of any default
of Tenant hereunder.
C. LANDLORD'S DEFAULT. Landlord shall not be deemed to be in
default in the performance of any obligation required to be performed by it
hereunder unless and until it has failed to perform such obligation within
thirty (30) days after receipt of written notice by Tenant to Landlord
specifying the nature of such default; provided, however, that if the nature
of Landlord's obligation is such that more than thirty (30) days are required
for its performance, then Landlord shall not be deemed to be in default if it
shall commence such performance within such thirty (30) day period and
thereafter diligently prosecute the same to completion.
27. SUBORDINATION.
This Lease is subject and subordinate to any ground and
underlying leases and any first mortgages and first deeds of trust
(collectively "Encumbrances") which may now affect the Building or the
Property and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, if the holder or holders of any such
Encumbrance ("Holder")
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shall require this Lease be prior and superior to such Encumbrance, within
seven (7) days of written request of Landlord to Tenant, Tenant shall
execute, have acknowledged and deliver any and all documents or instruments,
which Landlord or Holder deems necessary or desirable for such purposes.
Landlord shall have the right to cause this Lease to be and become and remain
subject and subordinate to any and all Encumbrances which are now or may
hereafter be executed covering the Premises or any renewals, modifications,
consolidations, replacements or extensions thereof, for the full amount of
all advances made or to be made thereunder and without regard to the time or
character of such advances, together with interest thereon and subject to all
the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, so long as Tenant is not in default, Holder agrees to
recognize Tenant's rights under this Lease as long as Tenant shall pay the
Rent and observe and perform all the provisions of this Lease to be observed
and performed by Tenant. Within ten (10) days after Landlord's written
request, Tenant shall execute any and all documents required by Landlord or
the Holder to make this Lease subordinate to any lien of the Encumbrance,
provided that such purchaser agrees to recognize this Lease on all of its
terms. Landlord shall exercise diligent efforts to obtain a nondisturbance
agreement from the existing lender for Tenant as expeditiously as possible.
Notwithstanding anything to the contrary set forth in this
paragraph, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Building or the Property at any sale or
other proceeding or pursuant to the exercise of any other rights, powers or
remedies under such Encumbrance.
28. NOTICES.
Any notice or demand required or desired to be given under this
Lease shall be in writing and shall be personally served or in lieu of
personal service may be given by mail. If given by mail, such notice shall be
deemed to have been given when seventy-two (72) hours have elapsed from the
time when such notice was deposited in the United States mail, registered or
certified, and postage prepaid, addressed to the party to be served. At the
date of execution of this Lease, the addresses of Landlord and Tenant are as
set forth in paragraph 1. After the Commencement Date, the address of Tenant
shall be the address of the Premises. Either party may change its address by
giving notice of same in accordance with this paragraph.
29. ATTORNEYS' FEES.
If either party brings any action or legal proceeding for
damages for an alleged breach of any provision of this Lease, to recover
rent, or other sums due, to terminate the tenancy of the Premises or to
enforce, protect or establish any term, condition or covenant of this Lease
or right of either party, the prevailing party in such action or proceeding
shall be entitled to recover its reasonable attorneys' fees (including
attorneys' fees on appeal, and costs and expenses incurred in out-of-court
negotiations, workouts and/or settlements or in seeking relief from stay or
otherwise seeking to protect its rights in any bankruptcy proceeding) and all
reasonable costs (including costs of consultants and experts) incurred, which
shall be payable whether or not such action is prosecuted to judgment. In
addition, the prevailing party shall be entitled to its attorneys' fees,
costs and expenses incurred in post-judgment proceedings to collect and
enforce a judgment. This provision is separate and several and shall survive
the merger of this Lease into any judgment on this Lease.
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<PAGE>
30. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.
Tenant shall within ten (10) days following written request by
Landlord:
(i) Execute and deliver to Landlord any documents,
including estoppel certificates, in the form prepared by Landlord (a)
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 and the date to which the
Rent and other charges are paid in advance, if any, and (b) acknowledging
that there are not, to Tenant's knowledge, any uncured defaults on the part
of Landlord, or, if there are uncured defaults on the part of the Landlord,
stating the nature of such uncured defaults, and (c) evidencing the status of
the Lease as may be required either by a lender making a loan to Landlord to
be secured by deed of trust or mortgage covering the Building or the Property
or a purchaser of the Building or the Property from Landlord. Tenant's
failure to deliver an estoppel certificate within seven (7) days after
delivery of Landlord's written request therefor shall be conclusive upon
Tenant (a) that this Lease is in full force and effect, without modification
except as may be represented by Landlord, (b) that there are now no uncured
defaults in Landlord's performance and (c) that no Rent has been paid in
advance. Tenant shall have no obligation to provide an estoppel certificate
or financial statements more than twice in any calendar year and the estoppel
certificate shall not materially adversely affect the rights and obligations
of Tenant under the Lease.
If Tenant fails to so deliver a requested estoppel certificate
within the prescribed time it shall be conclusively presumed that this Lease
is unmodified and in full force and effect except as represented by Landlord.
(ii) Deliver to Landlord the current financial statements
of Tenant, and financial statements of the two (2) years prior to the current
financial statements year, certified as correct by an officer of Tenant,
including a balance sheet and profit and loss statement for the most recent
prior year, all prepared in accordance with generally accepted accounting
principles consistently applied. Tenant shall have no obligation to deliver
financial statements more than twice in any calendar year.
31. TRANSFER OF THE BUILDING OR THE PROPERTY BY LANDLORD.
In the event of any conveyance of the Building or the Property
and assignment by Landlord of this Lease, Landlord shall be and is hereby
entirely released from all liability under any and all of its covenants and
obligations contained in or derived from this Lease occurring after the date
of such conveyance and assignment and Tenant agrees to attorn to such
transferee provided such transferee assumes Landlord's obligations under this
Lease.
32. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS.
If Tenant shall at any time fail to make any payment or perform
any other act on its part to be made or performed under this Lease, Landlord
may, but shall not be obligated to and without waiving or releasing Tenant
from any obligation of Tenant under this Lease, make such payment or perform
such other act to the extent Landlord may deem desirable, and in connection
therewith, pay expenses and employ counsel. All sums so paid by Landlord and
all penalties, interest and costs in connection therewith shall be due and
payable by Tenant on the next day after
21
<PAGE>
any such payment by Landlord, together with interest thereon at the Interest
Rate from such date to the date of payment by Tenant to Landlord, plus
collection costs and attorneys' fees. Landlord shall have the same rights and
remedies for the nonpayment thereof as in the case of default in the payment
of Rent.
33. TENANT'S REMEDY.
If, as a consequence of a default by Landlord under this Lease,
Tenant recovers a money judgment against Landlord, such judgment shall be
satisfied only out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and interest of Landlord
in the Building and out of Rent or other income from such property received
by Landlord or out of consideration received by Landlord from the sale or
other, disposition of all or any part of Landlord's right, title or interest
in the Building, and neither Landlord nor its Agents shall be liable for any
deficiency.
34. MORTGAGEE PROTECTION.
If Landlord defaults under this Lease, Tenant will notify any
beneficiary of a first deed of trust or mortgagee of a first mortgage
covering the Building or the Property and offer such beneficiary or mortgagee
a reasonable opportunity to cure the default, including time to obtain
possession of the Building or the Property by power of sale or a judicial
foreclosure, if such should prove necessary to effect a cure.
35. BROKERS.
Tenant warrants and represents that it has had no dealings with
any real estate broker or agent in connection with the negotiation of this
Lease, except for Wayne Mascia Associates, which represents only Tenant, and
Cornish & Carey Commercial, which represents only Landlord, and that it knows
of no other real estate broker or agent who is or might be entitled to a
commission in connection with this Lease. Tenant agrees to indemnify, defend
and hold Landlord and its Agents harmless from and against any and all
liabilities or expenses, including attorneys' fees and costs, arising out of
or in connection with claims made by any other broker or individual
representing Tenant or claiming to represent Tenant for commissions or fees
resulting from Tenant's execution of this Lease.
36. ACCEPTANCE.
This Lease shall only become effective and binding upon full
execution hereof by Landlord and delivery of a signed copy to Tenant. Neither
party shall record this Lease nor a short form memorandum thereof.
37. MODIFICATIONS FOR LENDER.
If in connection with obtaining financing for the Building or
the Property or any portion thereof Landlord's lender shall request
reasonable modification to this Lease as a condition to such financing,
Tenant shall not unreasonably withhold, delay or defer its consent thereto,
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<PAGE>
provided such modifications do not materially adversely affect Tenant's
rights or obligations hereunder.
38. PARKING.
Tenant shall have the right to park in the thirty-one (31)
parking spaces on the north side of the Building closest to the Premises upon
terms and conditions as may from time to time be established by Landlord.
Tenant agrees not to overburden the parking facilities and agrees to
cooperate with Landlord and other tenants in the use of the parking
facilities. Landlord reserves the right in its discretion to determine
whether the parking facilities are becoming crowded and to allocate and
assign parking spaces among Tenant and the other tenants. Tenant shall not
and shall not permit its employees, agents and contractors to (1) park
anywhere on the street in front of or next to the Property, unless permitted
by the City of Palo Alto, or (2) use more than a total of thirty-one (31)
parking spaces. All parking spaces shall be unreserved and unassigned. Tenant
shall not park and shall not permit others to park vehicles overnight on the
Property, and shall not repair or service or permit others to repair or
service vehicles on the Property. Landlord shall not oversubscribe parking
through its leases to other tenants.
39. GENERAL.
A. CAPTIONS. The captions and headings used in this Lease are
for the purpose of convenience only and shall not be construed to limit or
extend the meaning of any part of this Lease.
B. EXECUTED COPY. Any fully executed copy of this Lease shall
be deemed an original for all purposes.
C. TIME. Time is of the essence for the performance of each
term, condition and covenant of this Lease.
D. SEPARABILITY. If one or more of the provisions contained
herein, except for the payment of Rent, is for any reason held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Lease, but this
Lease shall be construed as if such invalid, illegal or unenforceable
provision had not been contained herein.
E. CHOICE OF LAW. This Lease shall be construed and enforced
in accordance with the laws of the State of California. The language in all
parts of this Lease shall in all cases be construed as a whole according to
its fair meaning and not strictly for or against either Landlord or Tenant.
F. GENDER; SINGULAR, PLURAL. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture and the singular includes the
plural.
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<PAGE>
G. BINDING EFFECT. The covenants and agreement contained in
this Lease shall be binding on the parties hereto and on their respective
successors and assigns to the extent this Lease is assignable.
H. WAIVER. The waiver by Landlord of any breach of any term,
condition or covenant of this Lease shall not be deemed to be a waiver of
such provision or any subsequent breach of the same or any other term,
condition or covenant of this Lease. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach at the time of acceptance of such payment. No covenant, term or
condition of this Lease shall be deemed to have been waived by Landlord
unless such waiver is in writing signed by Landlord.
I. PREMISES AREA. Landlord and Tenant agree that each has had
an opportunity to determine to its satisfaction the actual area of the
Premises and the Building. All measurements of area contained in this Lease
are conclusively agreed to be correct and binding on the parties, even if a
subsequent measurement of one of these areas determines that it is more or
less than the area reflected in this Lease. Any such subsequent determination
that the area is more or less than the area shown in this Lease shall not
result in a change in any of the computations of rent, Tenant's Percentage,
improvement allowances, or any other matters described in this Lease where
area is a factor.
J. ENTIRE AGREEMENT. This Lease is the entire agreement
between the parties, and there are no agreements or representations between
the parties except as expressed herein. Except as otherwise provided herein,
no subsequent change or addition to this Lease shall be binding unless in
writing and signed by the parties hereto.
K. AUTHORITY. If Tenant is a corporation or a partnership,
each individual executing this Lease on behalf of said corporation or
partnership, as the case may be, represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said entity in
accordance with its corporate bylaws, statement of partnership or certificate
of limited partnership, as the case may be, and that this Lease is binding
upon said entity in accordance with its terms. Landlord, at its option, may
require a copy of such written authorization to enter into this Lease.
L. EXHIBITS. All exhibits, amendments, riders and addendums
attached hereto are hereby incorporated herein and made a part hereof.
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M. LEASE SUMMARY. The Lease Summary attached to this Lease is
intended to provide general information only. In the event of any
inconsistency between the Lease Summary and the specific provisions of this
Lease, the specific provisions of this Lease shall prevail.
THIS LEASE is effective as of the date the last signatory
necessary to execute the Lease shall have executed this Lease.
Dated: TENANT:
---------------------
Career Central Corporation, a California
corporation
By /s/ Jeffrey Hyman
-------------------------------------
Its CEO
----------------------------------
By
-------------------------------------
Its
----------------------------------
Dated: 2-17-98 LANDLORD:
---------------------
Palo Alto Property, a California general
partnership
By E. Hoffman Enterprises, Inc. Authorized
Agent
By /s/ Ken Hoffman
-------------------------------------
Ken Hoffman
25
<PAGE>
EXHIBIT A
[Floorplan]
<PAGE>
EXHIBIT B-1
All that Certain Real Property in the City of Palo Alto, County of Santa
Clara, State of California, described as follows:
All of Parcel 1, as shown upon that certain Parcel Map filed for record in
the County of Santa Clara, State of California, on May 15, 1969 in Book 253
of Maps, at Page 27.
Excepting therefrom that certain parcel of land granted in the Deed of Carol
Joseph Flynn, et al., to the Santa Clara County Flood Control and Water
District, a public corporation, recorded March 26, 1973 in Book 0293, Page
145, Official Records, described as follows:
Being a portion of the property conveyed to Carol Joseph Flynn by the Deed
recorded in Book 7941 of Official Records of Santa Clara County, at Page 143,
and being more particularly described an follows:
Beginning at the intersection of the Southeasterly line of the above
mentioned property with the Southwesterly line of that certain right of way
granted to the Santa Clara County Flood Control and Water District designated
as "parcel I" in Deed recorded in Book 5046 of Official Records of said
County at Page 71;
thence along said Southwesterly right of way (also being the Southwesterly
line of above mentioned property) (1) North 45 degrees 07' 10" West 139.91
feet;
thence along a tangent curve concave to the South having a radius of 130 feet
through a central angle of 25 degrees 03' 22" Westerly an arc distance of
56.85 feet;
thence continuing along said Northerly right of way line (2) North 45 degrees
31' 57" West 53.68 feet;
thence leaving said Northerly right of way line along a non-tangent curve
concave to the South (said curve being parallel with and 30-foot distant
Northerly of the first above mentioned curve) having radius of 160 feet
through a central angle of 42 degrees 48' 33" Easterly an arc distance of
119.55 feet;
thence leaving said curve tangentially along a line that is parallel with and
distant 30 feet, measured at right angles, from course (1) above, (3) South
45 degrees 07' 10" East 143.22 feet to the Southeasterly line of said
property conveyed to Flynn;
thence along said Southeasterly line (4) South 51 degrees 10' 25" West 30.18
feet to the Point of Beginning.
<PAGE>
EXHIBIT B-2
[Floorplan]
<PAGE>
NET LEASE AGREEMENT
(Single Tenant)
For and in consideration of the rentals, covenants, and conditions
hereinafter set forth, Landlord hereby leases to Tenant, and Tenant hereby rents
from Landlord, the herein described Premises for the term, at the rental and
subject to and upon all of the terms, covenants and agreements set forth in this
Net Lease Agreement, including Landlord's right to recover the Premises pursuant
to Paragraph 24 below ("Lease"):
1. SUMMARY OF LEASE PROVISIONS.
1.1 Tenant: Career Central Corporation, a California
corporation ("Tenant").
1.2 Landlord: Oakmead Investments, a California general
partnership ("Landlord").
1.3 Effective Date of Lease, for reference purposes only:
March 22, 2000.
1.4 Premises: That certain real property and building situated
thereon located in the City of Sunnyvale, County of Santa Clara, State of
California, shown cross-hatched on the site plan attached hereto as Exhibit "A",
and commonly referred to as 1237 E. Arques Avenue.
1.5 Term: Seven (7) years. (Paragraph 3)
1.6 Scheduled Commencement Date: May 1, 2000, subject
to the provisions of Paragraph 3 below. (Paragraph 3)
1.7 Ending Date: April 30, 2007, subject to the
provisions of Paragraph 3 below. (Paragraph 3)
1.8 Rent:
<TABLE>
<S> <C>
May 1, 2000 through April 30, 2001 $146,828 per month
May 1, 2001 through April 30, 2002 150,832 per month
May 1, 2002 through April 30, 2003 154,837 per month
May 1, 2003 through April 30, 2004 158,841 per month
May 1, 2004 through April 30, 2005 162,846 per month
May 1, 2005 through April 30, 2006 166,850 per month
May 1, 2006 through April 30, 2007 170,855 per month
</TABLE>
(Paragraph 4)
Receipt of the first month's Rent is hereby acknowledged by Landlord.
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<PAGE>
1.9 Use of Premises: Office, sales, research and development,
shipping, receiving and storage. (Paragraph 6)
1.10 Security Deposit: $170,855. (Paragraph 5)
1.11 Addresses for Notices:
To Landlord:
3375 Scott Boulevard, Suite 380
Santa Clara, CA 95054-3113
To Tenant: After the Commencement Date to the Premises;
prior to the Commencement Date to:
3500 West Bayshore Road
Palo Alto, CA 94303
Attention: Chief Executive Officer
1.12 SUMMARY PROVISIONS IN GENERAL. Parenthetical references
in this Paragraph 1 to other paragraphs in this Lease are for convenience of
reference, and designate some of the other Lease paragraphs where applicable
provisions are set forth. All of the terms and conditions of each such
referenced paragraph shall be construed to be incorporated within and are made a
part of each of the above referring Summary of Lease Provisions. In the event of
any conflict between any Summary of Lease Provision as set forth above and the
balance of the Lease, the latter shall control.
2. PROPERTY LEASED.
2.1 PREMISES. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord, upon the terms and conditions herein set forth,
that certain real property and building ("Premises") referred to in Paragraph
1.4 above, shown cross-hatched on the site plan attached hereto as Exhibit "A".
Tenant shall have the exclusive right to use all parking spaces on the Premises.
2.2. IMPROVEMENTS. The Premises are currently leased and
occupied by Amdahl Corporation ("Amdahl") pursuant to a lease (the "Amdahl
Lease") expiring on March 31, 2000. Pursuant to the terms of the Amdahl Lease,
Amdahl is to vacate the Premises on or before March 31, 2000. Landlord will
exert reasonably diligent efforts to cause such timely vacation but Landlord
does not warrant that such vacation will occur nor does Landlord warrant the
condition of the Premises upon the vacation by Amdahl. Tenant has heretofore
inspected the Premises and is satisfied with the condition thereof and the
level of maintenance performed by Amdahl with respect thereto. Landlord will
make no improvement, renovation, or refurbishment of the Premises prior to or
as a condition precedent to the Commencement Date. Tenant covenants and agrees
that by not later than nine (9) months following the
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<PAGE>
Commencement Date, Tenant at Tenant's cost and expense, will complete at
least one-half of the improvements to the Premises in accordance with the
Improvement Agreement attached hereto as Exhibit "C" and by not later than
eighteen (18) months following the Commencement Date Tenant, at Tenant's cost
and expense, will complete the balance of the improvements to the Premises in
accordance with the Improvement Agreement attached hereto as Exhibit "C".
Tenant will expend not less than $1,334,800 for said improvements.
2.3 ACCEPTANCE OF PREMISES. By taking possession of the
Premises, Tenant shall be deemed to have accepted the Premises as being in
good and sanitary order, condition and repair and to have accepted the
Premises in their condition existing as of the date Tenant takes possession of
the Premises, subject to all applicable laws, covenants, conditions,
restrictions, easements and other matters of public record and the rules and
regulations from time to time promulgated by Landlord governing the use of the
Premises. Tenant acknowledges that neither Landlord nor Landlord's agents have
made any representation or warranty as to the suitability of the Premises for
the conduct of Tenant's business, the condition of the Premises, or the use or
occupancy which may be made thereof and Tenant has independently investigated
and is satisfied that the Premises are suitable for Tenant's intended use and
that the Premises meets all governmental requirements for such intended use.
3. TERM.
3.1 COMMENCEMENT DATE. The term of this Lease ("Lease Term")
shall be for the period specified in Paragraph 1.5 above, commencing on the
later of May 1, 2000 or the date on which Landlord has delivered possession of
the Premises to Tenant. In the event the Commencement Date occurs on any date
other than May 1, 2000, the Ending Date, rent adjustment dates and similar
dates shall be adjusted to reflect the actual Commencement Date.
3.2 DELAY OF COMMENCEMENT DATE. Landlord shall not be liable
for any damage or loss incurred by Tenant for Landlord's failure for whatever
cause to deliver possession of the Premises by the Commencement Date nor shall
this Lease be void or voidable on account of such failure to deliver
possession of the Premises; provided that if Landlord does not deliver
possession of the Premises to Tenant by the date which is sixty (60) days from
the date this Lease is executed by both parties, Tenant shall have the right
to terminate this Lease by written notice delivered to Landlord within five
(5) days thereafter, and Landlord and Tenant shall be relieved of their
respective obligations hereunder.
3.3 EARLY OCCUPANCY. If Tenant takes possession of the
Premises at any time after April 1, 2000 and prior to the Commencement Date,
Tenant shall do so subject to all of the terms and conditions hereof and shall
pay the Additional Rent (but not Rent) provided for herein.
3.4 TENANT TO PHYSICALLY OCCUPY PREMISES. Tenant shall, no
later than thirty (30) days after the Commencement Date, go into actual
physical occupancy of the Premises; provided, however, the date of Tenant's
physical occupancy of the Premises shall in no event
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<PAGE>
extend the Commencement Date, the Lease Termination date or the date the
payment of Rentals hereunder commences. Time is of the essence.
4. RENT.
4.1 RENT. Tenant shall pay to Landlord as rent for the
Premises ("Rent"), in advance, on the first day of each calendar month,
commencing on the date specified in Paragraph 1.6 and continuing throughout
the Lease Term the Rent set forth in Paragraph 1.8 above. Rent shall be
prorated, based on thirty (30) days per month, for any partial month during
the Lease Term. Rent shall be payable without deduction, offset, prior notice
or demand in lawful money of the United States to Landlord at the address
herein specified for purposes of notice or to such other persons or such other
places as Landlord may designate in writing.
4.2 LATE CHARGE. Tenant hereby acknowledges that late payment
by Tenant to Landlord of Rent will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Landlord by
the terms of any mortgage or deed of trust covering the Premises. Accordingly,
Tenant shall pay to Landlord, as Additional Rent (as defined in Paragraph 4.3
below), without the necessity of prior notice or demand, a late charge equal
to five percent (5%) of any installment of Rent which is not received by
Landlord within ten (10) days after the due date for such installment. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by Tenant.
In no event shall this provision for a late charge be deemed to grant to
Tenant a grace period or extension of time within which to pay any installment
of Rent or prevent Landlord from exercising any right or remedy available to
Landlord upon Tenant's failure to pay such installment of Rent when due,
including without limitation the right to terminate this Lease. In the event
any installment of Rent is not received by Landlord by the thirtieth (30th)
day after the due date for such installment, such installment shall bear
interest at the annual rate set forth in Paragraph 34 below, commencing on the
thirty-first (31st) day after the due date for such installment and continuing
until such installment is paid in full.
4.3 ADDITIONAL RENT. All taxes, charges, costs and expenses
and other sums which Tenant is required to pay hereunder (together with all
interest and charges that may accrue thereon in the event of Tenant's failure
to pay the same), and all damages, costs and expenses which Landlord may incur
by reason of any Default by Tenant shall be deemed to be additional rent
hereunder ("Additional Rent"). Additional Rent shall accrue commencing on the
Commencement Date. In the event of nonpayment by Tenant of any Additional
Rent, Landlord shall have all the rights and remedies with respect thereto as
Landlord has for the nonpayment of Rent. The term "Rentals" as used in this
Lease shall mean Rent and Additional Rent.
5. SECURITY DEPOSIT. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord a security deposit ("Security
Deposit") in the amount set forth in Paragraph 1.10 above. The Security
Deposit shall be held by Landlord as security for the faithful performance by
Tenant of each and every term, covenant and condition of this Lease
-4-
<PAGE>
applicable to Tenant; and not as prepayment of Rent. If Tenant shall at any
time fail to keep or perform any term, covenant or condition of this Lease
applicable to Tenant, including, without limitation, the payment of Rentals
or those provisions requiring Tenant to repair damage to the Premises caused
by Tenant or to surrender the Premises in the condition required pursuant to
Paragraph 35 below, Landlord may, but shall not be obligated to and without
waiving or releasing Tenant from any obligation under this Lease, use, apply
or retain the whole or any part of the Security Deposit reasonably necessary
for the payment of any amount which Landlord may spend by reason of Tenant's
default or as necessary to compensate Landlord for any loss or damage which
Landlord may suffer by reason of Tenant's default. In the event Landlord uses
or applies any portion of the Security Deposit, Tenant shall, within five (5)
days after written demand by Landlord, remit to Landlord sufficient funds to
restore the Security Deposit to its original sum. Failure by Tenant to so
remit funds shall be a Default by Tenant. Should Tenant comply with all of
the terms, covenants and conditions of this Lease applicable to Tenant, the
balance of the Security Deposit shall be returned to Tenant within fourteen
(14) days after Lease Termination and surrender of the Premises by Tenant;
provided, however, if any portion of the Security Deposit is to be applied to
repair damages to the Premises caused by Tenant or Tenant's agents, to clean
the Premises, or to remove alterations and restore the Premises pursuant to
Paragraph 13.2 below, then the balance of the Security Deposit shall be
returned to Tenant no later than thirty (30) days after the date Landlord
receives possession of the Premises.
6. USE OF PREMISES.
6.1 PERMITTED USES Tenant shall use the Premises only in
conformance with applicable Laws for the purposes set forth in Paragraph 1.9
above, and for no other purpose without the prior written consent of Landlord.
Any change in use of the Premises without the prior written consent of
Landlord shall be a Default by Tenant. Tenant and Tenant's agents shall comply
with the provisions of any Declaration of Covenants, Conditions, and
Restrictions affecting the Premises.
6.2 TENANT TO COMPLY WITH LEGAL REQUIREMENTS. Tenant shall,
at its sole cost, promptly comply with any rule, regulation, order, law,
statute, ordinance or any other requirement of any governmental or
quasi-governmental authority now or hereafter in effect (collectively,
"Laws") relating to or affecting the use, occupational safety, occupancy or
condition of the Premises now in force, or which may hereafter be in force,
including without limitation those relating to utility usage and load or
number of permissible occupants or users of the Premises, whether or not the
same are now contemplated by the parties; with the provisions of all recorded
documents affecting the Premises insofar as the same relate to or affect the
use, occupational safety, occupancy, or condition of the Premises; and with
the requirements of any board of fire underwriters (or similar body now or
hereafter constituted) relating to or affecting the use, occupational safety,
occupancy or condition of the Premises. Tenant's obligations pursuant to this
Paragraph 6.2 shall tinclude without limitation maintaining or restoring the
Premises and making structural (if required in connection with Tenant's
improvements made pursuant to Exhibit "C" and/or if required due solely to
Tenant's specific use of the Premises) and non-structural alterations and
additions in compliance and conformity with all Laws and recorded documents
relating to the use, occupational safety, occupancy or condition of the
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Premises during the Lease Term; provided, however, that Landlord shall make
any alteration or addition required to bring the Premises into compliance
with legal requirements in effect at the time the Premises, or any
improvements installed therein by Landlord, respectively, were originally
constructed. At Landlord's option, Landlord may make the required alteration,
addition or change, and Tenant shall pay the cost thereof as Additional Rent.
With respect to any alterations or additions as may be hereafter required due
to a change in Laws and unrelated to Tenant's specific use of the Premises,
Tenant shall be required to pay in monthly installments a pro rata portion of
the cost thereof, which amount shall be determined by multiplying the total
cost by a fraction, the numerator of which is the number of months remaining
in the Lease Term at the time of the alteration or addition, and the
denominator of which is the number of months in the useful life of the
alteration or addition. Tenant shall obtain prior to taking possession of the
Premises any permits, licenses or other authorizations required for the
lawful operation of its business at the Premises. The judgment of any court
of competent jurisdiction or the admission of Tenant in any action or
proceeding against Tenant, regardless of whether Landlord is a party thereto
or not, that Tenant has violated such Law or recorded document relating to
the use, occupational safety, occupancy or condition of the Premises shall be
conclusive of the fact of such violation by Tenant. Any alterations or
additions undertaken by Tenant pursuant to this Paragraph 6.2 shall be
subject to the requirements of Paragraph 13.1 below.
6.3 PROHIBITED USES. Tenant and Tenant's agents shall not
commit or suffer to be committed any waste upon the Premises. Tenant and
Tenant's agents shall not do or permit anything to be done in or about the
Premises which will unreasonably obstruct or interfere with the rights of any
occupants of neighboring property, or injure or annoy them. Tenant shall not
conduct or permit any auction or sale open to the public to be held or
conducted on or about the Premises. Tenant and Tenant's agents shall not use
or allow the Premises to be used for any unlawful purpose or any purpose not
permitted by this Lease, nor shall Tenant or Tenant's agents cause, maintain,
or permit any nuisance in, on or about the Premises. Tenant and Tenant's
agents shall not do or permit anything to be done in or about the Premises nor
bring or keep anything in the Premises which will cause a cancellation of any
insurance policy covering the Premises or any part thereof or any of its
contents, nor shall Tenant or Tenant's agents keep, use or sell or permit to
be kept, used or sold in or about the Premises any articles which may be
prohibited by a standard form policy of fire insurance. In the event the rate
of any insurance upon the Premises or any part thereof or any of its contents
is increased because of the acts or omissions of Tenant or Tenant's agents,
Tenant shall pay, as Additional Rent, the full cost of such increase; provided
however this provision shall in no event be deemed to constitute a waiver of
Landlord's right to any other rights or remedies of Landlord in connection
with such increase. Tenant and Tenant's agents shall not place any loads upon
the floor, walls or ceiling of the Premises which would endanger the Premises
or the structural elements thereof, nor place any harmful liquids in the
drainage system of the Premises. No waste materials or refuse shall be dumped
upon or permitted to remain upon any part of the Premises except in enclosed
trash containers. No materials, supplies, equipment, finished products (or
semi-finished products), raw materials, or other articles of any nature shall
be stored upon, or be permitted to remain on, any portion of the Premises.
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Tenant shall not allow any activity which in the reasonable opinion of
Landlord is detrimental to the operation of other buildings located upon real
property owned by Landlord adjacent to the Premises, including but not limited
to any picketing, work stoppage, or other concerted activity. Landlord shall
have the right to require Tenant, at Tenant's own expense and within a
reasonable period of time, to use Tenant's best efforts to terminate or
control any such picketing, work stoppage or other concerted activity to the
extent necessary to eliminate any interference with the operation or such
tenants. Failure by Tenant to use its best efforts to do so shall be a Default
by Tenant. Nothing contained in this paragraph shall be construed as placing
Landlord in an employer-employee relationship with any of Tenant's employees
or with any other employees who may be involved in such activity.
6.4 HAZARDOUS MATERIALS. Neither Tenant nor Tenant's agents
shall permit the introduction, placement, use, storage, manufacture,
transportation, release or disposition (collectively "Release") of any
Hazardous Material(s) (defined below) on or about any portion of the Premises
in violation of Laws without the prior written consent of Landlord, which
consent may be withheld in the sole and absolute discretion of Landlord
without any requirement of reasonableness in the exercise of that discretion.
Notwithstanding the immediately preceding sentence to the contrary, Tenant may
use de minimis quantities of the types of materials which are technically
classified as Hazardous Materials but commonly used in domestic or office use
to the extent not in an amount, which, either individually or cumulatively,
would be a "reportable quantity" under any applicable Law. Tenant covenants
that, at its sole cost and expense, Tenant will comply with all applicable
Laws with respect to the Release of such permitted Hazardous Materials in
violation of Laws. Any Release beyond the scope allowed in this paragraph
shall be subject to Landlord's prior consent, which may be withheld in
Landlord's sole and absolute discretion, and shall require an amendment to the
Lease in the event Landlord does consent which shall set forth the materials,
scope of use, indemnification and any other matter required by Landlord in
Landlord's sole and absolute discretion. Tenant shall indemnify, defend and
hold Landlord and Landlord's agents harmless from and against any and all
claims, losses, damages, liabilities, or expenses arising in connection with
the Release of Hazardous Materials by Tenant, Tenant's agents, employees,
contractors, subcontractors, or invitees, in violation of Laws. Tenant's
obligation to defend, hold harmless and indemnify pursuant to this
Paragraph 6.4 shall survive Lease Termination.
As used in this Lease, the term "Hazardous Materials" means any
chemical, substance, waste or material which has been or is hereafter
determined by any federal, state or local governmental authority to be capable
of posing risk of injury to the environment, including without limitation,
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances," or "solid waste" under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1976, and the Hazardous
Materials Transportation Act, as amended, and in the regulations promulgated
pursuant to said laws; those substances defined as "hazardous wastes" in
section 25117 of the California Health & Safety Code, or as "hazardous
substances" in section 25316 of the California Health & Safety Code, as
amended, and in the regulations promulgated pursuant to said laws; those
substances listed in the United States Department of Transportation Table (49
CFR 172.101 and amendments thereto) or designated by the Environ-
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mental Protection Agency (or any successor agency) as hazardous substances
(SEE, E.G., 40 CFR Part 302 and amendments thereto); such other substances,
materials and wastes which are or become regulated or become classified as
hazardous or toxic under any Laws, including without limitation the
California Health & Safety Code, Division 20, and Title 26 of the California
Code of Regulations; and any material, waste or substance which is
(i) petroleum, (ii) asbestos, (iii) polychlorinated biphenyls,
(iv) designated as a "hazardous substance" pursuant to section 311 of the
Clean Water Act of 1977, 33 U.S.C. sections 1251 ET SEQ. (33 U.S.C. ` 1321)
or listed pursuant to section 307 of the Clean Water Act of 1977 (33 U.S.C. `
1317), as amended; (v) flammable explosives; (vi) radioactive materials; or
(vii) radon gas.
7. TAXES.
7.1 PERSONAL PROPERTY TAXES. Tenant shall cause Tenant's trade
fixtures, equipment, furnishings, furniture, merchandise, inventory,
machinery, appliances and other personal property installed or located on the
Premises (collectively the "personal property") to be assessed and billed
separately from the Premises. Tenant shall pay before delinquency any and all
taxes, assessments and public charges levied, assessed or imposed upon or
against Tenant's personal property. If any of Tenant's personal property shall
be assessed with the real property comprising the Premises, Tenant shall pay
to Landlord, as Additional Rent, the amounts attributable to Tenant's personal
property within ten (10) days after receipt of a written statement from
Landlord setting forth the amount of such taxes, assessments and public
charges attributable to Tenant's personal property. Tenant shall comply with
the provisions of any Law which requires Tenant to file a report of Tenant's
personal property located on the Premises.
7.2 OTHER TAXES PAYABLE SEPARATELY BY TENANT. Tenant shall pay
(or reimburse Landlord, as Additional Rent, if Landlord is assessed), ten (10)
days prior to delinquency any and all taxes, levies, assessments or surcharges
payable by Landlord or Tenant (other than Landlord's net income, succession,
transfer, gift, franchise, estate or inheritance taxes, and Taxes, as that
term is defined in Paragraph 7.3(a) below, payable as an Operating Expense),
whether or not now customary or within the contemplation of the parties
hereto, whether or not now in force or which may hereafter become effective,
including but not limited to taxes:
(a) Upon, allocable to, or measured by the area of the
Premises or the Rentals payable hereunder, including without limitation any
gross income, gross receipts, excise, or other tax levied by the state, any
political subdivision thereof, city or federal government with respect to the
receipt of such Rentals;
(b) Upon this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in the Premises; or
(c) Imposed as a means of controlling or abating the use of
energy or any natural resource (including without limitation gas, electricity
or water), including, without limitation, any parking taxes, levies or charges
or vehicular regulations imposed by any governmental agency. Tenant shall also
pay, prior to delinquency, all privilege, sales, excise,
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use, business, occupation, or other taxes, assessments, license fees or
charges levied, assessed or imposed upon Tenant's business operations
conducted at the Premises.
In the event any such taxes are payable by Landlord and it shall not be
lawful for Tenant to reimburse Landlord for such taxes, then the Rentals
payable hereunder shall be increased to net Landlord the same net Rental after
imposition of any such tax upon Landlord as would have been payable to
Landlord prior to the imposition of any such tax.
7.3 COMMON TAXES.
(a) DEFINITION OF TAXES. The term "Taxes" as used in this
Lease shall collectively mean (to the extent any of the following are not
paid by Tenant pursuant to Paragraphs 7.1 and 7.2 above) all real estate
taxes and general and special assessments (including, but not limited to,
assessments for public improvements or benefit); personal property taxes;
taxes based on vehicles utilizing parking areas on the Premises; taxes
computed or based on rental income or on the square footage of the Premises
(including without limitation any municipal business tax but excluding
federal, state and municipal net income taxes); environmental surcharges;
excise taxes; gross receipts taxes; water and sewer taxes, levies,
assessments and other charges in the nature of taxes or assessments
(including, but not limited to, assessments for public improvements or
benefit); and all other governmental, quasi-governmental or special district
impositions of any kind and nature whatsoever; regardless of whether any of
the foregoing are now customary or within the contemplation of the parties
hereto and regardless of whether resulting from increased rate and/or
valuation, or whether extraordinary or ordinary, general or special,
unforeseen or foreseen, or similar or dissimilar to any of the foregoing and
which during the Lease Term are laid, levied, assessed or imposed upon
Landlord and/or become a lien upon or chargeable against the Premises under
or by virtue of any present or future laws, statutes, ordinances,
regulations, or other requirements of any governmental, quasi-governmental or
special district authority whatsoever. The term "environmental surcharges"
shall include any and all expenses, taxes, charges or penalties imposed by
the Federal Department of Energy, Federal Environmental Protection Agency,
the Federal Clean Air Act, or any regulations promulgated thereunder, or
imposed by any other local, state or federal governmental agency or entity
now or hereafter vested with the power to impose taxes, assessments or other
types of surcharges as a means of controlling or abating environmental
pollution or the use of energy or any natural resource in regard to the use,
operation or occupancy of the Premises. The term "Taxes" shall include (to
the extent the same are not paid by Tenant pursuant to Paragraphs 7.1 and 7.2
above), without limitation, all taxes, assessments, levies, fees, impositions
or charges levied, imposed, assessed in lieu of or equivalent to any Taxes
set forth in this Paragraph 7.3(a). In the event any such Taxes are payable
by Landlord and it shall not be lawful for Tenant to reimburse Landlord for
such Taxes, then the Rentals payable hereunder shall be increased to net
Landlord the same net Rental after imposition of any such Tax upon Landlord
as would have been payable to Landlord prior to the imposition of any such
Tax.
(b) OPERATING EXPENSES. All Taxes which are levied or assessed
or which become a lien upon the Premises or which become due or accrue during
the Lease Term shall be
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an Operating Expense, and Tenant shall pay as Additional Rent each month
during the Lease Term 1/12th of such Taxes, based on Landlord's estimate
thereof, pursuant to Paragraph 12 below. Taxes during any partial tax fiscal
year(s) within the Lease Term shall be prorated according to the ratio which
the number of days during the Lease Term or of actual occupancy of the
Premises by Tenant, whichever is greater, during such year bears to 365.
8. INSURANCE; INDEMNITY; WAIVER.
8.1 INSURANCE BY LANDLORD.
(a) Landlord shall, during the Lease Term, procure and keep in
force the following insurance, the cost of which shall be an Operating
Expense, payable by Tenant pursuant to Paragraph 12 below:
(i) PROPERTY INSURANCE. "All risk" property
insurance, including, without limitation, coverage for earthquake and flood;
boiler and machinery (if applicable); sprinkler damage; vandalism; malicious
mischief; full coverage plate glass insurance; and demolition, increased cost
of construction and contingent liability from change in building laws on the
Premises, including any improvements or fixtures constructed or installed on
the Premises by Landlord and by Tenant pursuant to Exhibit "C". Such insurance
shall be in the full amount of the replacement cost of the foregoing, with
reasonable deductible amounts, which deductible amounts shall be an Operating
Expense, payable by Tenant pursuant to Paragraph 12. Such insurance shall also
include rental income insurance, insuring that one hundred percent (100%) of
the Rentals (as the same may be adjusted hereunder) will be paid to Landlord
for a period of up to twelve (12) months if the Premises are destroyed or
damaged. Such insurance shall not cover any other leasehold improvements
installed in the Premises by Tenant at its expense, or Tenant's equipment,
trade fixtures inventory, fixtures or personal property located on or in the
Premises;
(ii) LIABILITY INSURANCE. Comprehensive general
liability (lessor's risk) insurance against any and all claims for personal
injury, death or property damage occurring in or about the Premises. Such
insurance shall have a combined single limit of not less than Three Million
Dollars ($3,000,000) per occurrence and Five Million Dollars ($5,000,000)
aggregate; and
8.2 INSURANCE BY TENANT. Tenant shall, during the Lease Term,
at Tenant's sole cost and expense, procure and keep in force the following
insurance:
(a) PERSONAL PROPERTY INSURANCE. "All risk" property
insurance, including, without limitation; boiler and machinery (if
applicable); sprinkler damage; vandalism; malicious mischief; and demolition,
increased cost of construction and contingent liability from changes in
building laws on all leasehold improvements installed in the Premises by
Tenant at its expense other than those constructed pursuant to Exhibit "C" and
on all equipment, trade fixtures, inventory, fixtures and personal property
located on or in the Premises, including improvements or fixtures hereinafter
constructed or installed on the Premises. Such insurance shall be in an
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amount equal to the full replacement cost of the aggregate of the foregoing
and shall provide coverage comparable to the coverage in the standard ISO all
risk form, when such form is supplemented with the coverages required above.
(b) LIABILITY INSURANCE. Commercial general liability
insurance against any and all claims for personal injury, death or property
damage occurring in or about the Premises, or arising out of Tenant's or
Tenant's agents' use or occupancy of the Premises or Tenant's operations on
the Premises. Such insurance shall have a combined single limit of not less
than Three Million Dollars ($3,000,000) per occurrence and Five Million
Dollars ($5,000,000) aggregate. Such insurance shall contain a cross-liability
(severability of interests) clause and an extended ("broad form") liability
endorsement, including blanket contractual coverage. Such liability insurance
shall be primary and not contributing to any insurance available to Landlord,
and Landlord's insurance (if any) shall be in excess thereto. Such insurance
shall specifically insure Tenant's performance of the indemnity, defense and
hold harmless agreements contained in Paragraph 8.4, although Tenant's
obligations pursuant to Paragraph 8.4 shall not be limited to the amount of
any insurance required of or carried by Tenant under this Paragraph 8.2(b).
Tenant shall be responsible for insuring that the amount of insurance
maintained by Tenant is sufficient for Tenant's purposes.
(c) OTHER. Such other insurance as required by law, including,
without limitation, workers' compensation insurance.
(d) FORM OF THE POLICIES. The policies required to be
maintained by Tenant pursuant to Paragraphs 8.2(a), (b), and (c) above shall
be with companies, on forms, reasonably satisfactory to Landlord, shall
include Landlord and the beneficiary or mortgagee of any deed of trust or
mortgage encumbering the Premises as additional insureds, and shall provide
that such parties may, although additional insureds recover for any loss
suffered by Tenant's negligence. Certified copies of policies or certificates
of insurance shall be delivered to Landlord prior to the Commencement Date or
the Early Occupancy Date, if any; a new policy or certificate shall be
delivered to Landlord at least thirty (30) days prior to the expiration date
of the old policy. Tenant shall have the right to provide insurance coverage
which it is obligated to carry pursuant to the terms hereof in a blanket
policy, provided such blanket policy expressly affords coverage to the
Premises and to Tenant as required by this Lease. Tenant shall obtain a
written obligation on the part of Tenant's insurer(s) to notify Landlord and
any beneficiary or mortgagee of a deed of trust or mortgage encumbering the
Premises and/or the real property in writing of any delinquency in premium
payments and at least thirty (30) days prior to any cancellation or
modification of any policy. Tenant's policies shall provide coverage on an
occurrence basis and not on a claims made basis. In no event shall the limits
of any policies maintained by Tenant be considered as limiting the liability
of Tenant under this Lease.
8.3 FAILURE BY TENANT TO OBTAIN INSURANCE. If Tenant does not
take out the insurance required pursuant to Paragraph 8.2 or keep the same in
full force and effect, Landlord may, after notice to Tenant and the failure of
Tenant to obtain the same within ten (10) days of said notice, but shall not
be obligated to, take out the necessary insurance and pay the premium
therefor, and Tenant shall repay to Landlord, as Additional Rent, the amount
so paid promptly
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upon demand. In addition, Landlord may recover from Tenant and Tenant agrees
to pay, as Additional Rent, any and all reasonable expenses (including
attorneys' fees) and damages which Landlord may sustain by reason of the
failure of Tenant to obtain and maintain such insurance, it being expressly
declared that the expenses and damages of Landlord shall not be limited to
the amount of the premiums thereon.
8.4 INDEMNIFICATION Tenant shall indemnify, hold harmless, and
defend Landlord (except for Landlord's or its Agents negligence or willful
misconduct) against all claims, losses, damages, expenses or liabilities for
injury or death to any person or for damage to or loss of use of any property
arising out of any occurrence in, on or about the Premises, to the extent
caused or contributed to by Tenant or Tenant's agents, or arising out of any
occurrence in, upon or at the Premises or on account of the use, condition,
occupational safety or occupancy of the Premises by Tenant or Tenant's agents,
employees, contractors, subcontractors or invitees. Tenant's indemnification,
defense and hold harmless obligations under this Lease shall include and apply
to attorneys' fees, investigation costs, and other costs actually incurred by
Landlord. Tenant shall further indemnify, defend and hold harmless Landlord
from and against any and all claims, losses, damages, liabilities or expenses
arising from any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease. The provisions of
this Paragraph 8.4 shall survive Lease Termination with respect to any damage,
injury, death, breach or default occurring prior to such termination.
8.5 CLAIMS BY TENANT. Landlord shall not be liable to Tenant,
and Tenant waives all claims against Landlord, for injury or death to any
person, damage to any property, or loss of use of any property in the Premises
by and from all causes, including without limitation, any defect in the
Premises and/or any damage or injury resulting from fire, steam, electricity,
gas, water or rain, which may leak or flow from or into any part of the
Premises, or from breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, whether the damage or injury results from conditions arising upon
the Premises or from other sources. Tenant or Tenant's agents shall
immediately notify Landlord in writing of any known defect in the Premises.
The provisions of this Paragraph 8.5 shall not apply to any damage or injury
caused by Landlord's willful misconduct, negligence or breach of this Lease.
8.6 MUTUAL WAIVER OF SUBROGATION. Notwithstanding anything in
this Lease to the contrary, Landlord hereby releases Tenant, and Tenant hereby
releases Landlord, and their respective officers, agents, employees and
servants, from any and all claims or demands of damages, loss, expense or
injury to the Premises, or to the furnishings, fixtures, equipment, inventory
or other property of either Landlord or Tenant in, about or upon the Premises,
which is caused by or results from perils, events or happenings which are the
subject of insurance required to be carried by the respective parties pursuant
to this Paragraph 8 or in force at the time of any such loss, whether due to
the negligence of the other party or its agents and regardless of cause or
origin; provided, however, that such waiver shall be effective only to the
extent permitted by the insurance covering such loss, to the extent such
insurance is not prejudiced thereby, and to the extent insured against.
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9. UTILITIES. Tenant shall pay during the Lease Term and prior to
delinquency all charges for water, gas, light, heat, power, electricity,
telephone or other communication service, janitorial service, trash pick-up,
sewer and all other services supplied to or consumed on the Premises
(collectively the "Services") and all taxes, levies, fees or surcharges
therefor. Tenant shall arrange for Services to be supplied to the Premises and
shall contract for all of the Services in Tenant's name prior to the
Commencement Date. The Commencement Date shall not be delayed by reason of any
failure by Tenant to so contract for Services. In the event that any of the
Services cannot be separately billed or metered to the Premises, or if any of
the Services are not separately metered as of the Commencement Date, the cost
of such Services shall be an Operating Expense and Tenant shall pay such cost
to Landlord, as Additional Rent, as provided in Paragraph 12 below, except
that Tenant's proportionate share of such Services shall be the percentage
obtained by dividing the gross leasable square footage contained in the
Premises by the total gross leasable square footage located in all buildings
utilizing such Services. The lack or shortage of any Services due to any cause
whatsoever shall not affect any obligation of Tenant hereunder, and Tenant
shall faithfully keep and observe all the terms, conditions and covenants of
this Lease and pay all Rentals due hereunder, all without diminution, credit
or deduction.
10. REPAIRS AND MAINTENANCE.
10.1 LANDLORD'S RESPONSIBILITIES.
Subject to the provisions of Paragraph 15 below, Landlord shall maintain in
reasonably good order and repair the structural roof and roof surface,
structural and exterior walls (including painting thereof) and foundations of
the Premises, and the exterior landscaping and parking areas of the Premises,
except for any repairs required because of the wrongful act of Tenant or
Tenant's agents, which repairs shall be made at the expense of Tenant and as
Additional Rent. In addition, Landlord may elect at any time, at its option,
to maintain the heating and air conditioning systems of the Premises. Tenant
shall give prompt written notice to Landlord of any known maintenance work
required to be made by Landlord pursuant to this Paragraph 10.1. The costs of
repairs and maintenance which are the obligation of Landlord hereunder or
which Landlord elects to perform hereunder shall be an Operating Expense and
Tenant shall pay such costs to Landlord as Additional Rent, as provided in
Paragraph 12 below.
To the extent any labor dispute in which Tenant is involved or of which
Tenant is the object interferes with the performance of Landlord's duties
hereunder, Landlord shall be excused from the performance of such duties and
Tenant hereby waives any and all claims against Landlord for damages or losses
in regard to such duties.
10.2 TENANT'S RESPONSIBILITIES. Except as expressly provided
in Paragraph 10.1 above, Tenant shall, at its sole cost, maintain the entire
Premises and every part thereof, including without limitation, windows,
skylights, window frames, plate glass, freight docks, doors and related
hardware, interior walls and partitions, and the electrical, plumbing,
lighting, heating and air conditioning systems (unless Landlord has elected to
keep and maintain the heating and air conditioning systems pursuant to
Paragraph 10.1 above) in good order, condition
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and repair. If Landlord has not elected to keep and maintain the heating and
air conditioning systems, Tenant shall deliver to Landlord, every six (6)
months during the Lease Term, a certificate of maintenance or its equivalent,
signed by a licensed HVAC repair and maintenance contractor and stating that
the heating and air conditioning systems servicing the Premises have been
inspected, serviced and are in good order, condition and repair. Tenant's
failure to deliver said certificate or its equivalent shall be a Default by
Tenant. If Tenant fails to make repairs or perform maintenance work required
of Tenant hereunder within thirty (30) days after notice from Landlord
specifying the need for such repairs or maintenance work, Landlord or
Landlord's agents may, in addition to all other rights and remedies available
hereunder or by law and without waiving any alternative remedies, enter into
the Premises and make such repairs and/or perform such maintenance work. If
Landlord makes such repairs and/or performs such maintenance work, Tenant
shall reimburse Landlord upon demand and as Additional Rent, for the cost of
such repairs and/or maintenance work. Landlord shall have no liability to
Tenant for any damage, inconvenience or interference with the use of the
Premises by Tenant or Tenant's agents as a result of Landlord performing any
such repairs or maintenance. Tenant shall reimburse Landlord, on demand and
as Additional Rent, for the cost of damage to the Premises caused by Tenant
or Tenant's agents. Tenant expressly waives the benefits of any statute now
or hereafter in effect (including without limitation the provisions of
subsection 1 of Section 1932, Section 1941 and Section 1942 of the California
Civil Code and any similar law, statute or ordinance now or hereafter in
effect) which would otherwise afford Tenant the right to make repairs at
Landlord's expense (or to deduct the cost of such repairs from Rentals due
hereunder) or to terminate this Lease because of Landlord's failure to keep
the Premises in good and sanitary order.
11. EXTERIOR AREA.
11.1 IN GENERAL. Subject to the terms and conditions of this
Lease and such rules and regulations as Landlord may from time to time
prescribe, Tenant and Tenant's agents shall have the nonexclusive right to use
during the Lease Term the access roads, sidewalks, parking and landscaped
areas of the Premises. Neither Tenant nor Tenant's agents shall at any time
park or permit the parking of their vehicles in any portion of the Premises
not designated by Landlord as a parking area.
Landlord reserves the right to promulgate such reasonable rules and
regulations relating to the use of all or any portion of the Premises and to
amend such rules and regulations from time to time, with or without advance
notice, as Landlord may deem appropriate. Any amendments to the rules and
regulations shall be effective as to Tenant, and binding on Tenant, upon
delivery of a copy of such rules and regulations to Tenant. Tenant and
Tenant's agents shall observe such rules and regulations and any failure by
Tenant or Tenant's agents to observe and comply with the rules and regulations
shall be a Default by Tenant.
Landlord furthermore reserves the right, after having given Tenant
reasonable notice, to have any vehicles owned by Tenant or Tenant's agents
which are parked in violation of the provisions of this Paragraph 11.1 or in
violation of Landlord's rules and regulations relating to parking, to be towed
away at Tenant's cost.
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12. OPERATING EXPENSES.
12.1 DEFINITION. "Operating Expense" or "Operating Expenses"
as used in this Lease shall mean and include all items identified in other
paragraphs of this Lease as an Operating Expense and the total cost paid or
incurred by Landlord for the operation, maintenance, repair, and management of
the Premises, which costs shall include, without limitation: the cost of
Services and utilities supplied to the Premises (to the extent the same are
not separately charged or metered to Tenant); water; sewage; fuel;
electricity; lighting systems; professional management fee (not to exceed
three percent (3%) of the Premises' Rent); fire protection systems; storm
drainage and sanitary sewer systems; HVAC including air conditioning (to the
extent the heating and air conditioning systems in the Premises are not
maintained by Tenant at Tenant's sole cost and expense); repairing the roof
surface); property and liability insurance covering the Premises and any other
insurance carried by Landlord pursuant to Paragraph 8 above; cleaning,
sweeping, striping, resurfacing of parking and driveway areas; cleaning the
parking area following storms or other severe weather; cleaning and repairing
of sidewalks, curbs, stairways; costs related to irrigation systems; the cost
of complying with Laws, including, without limitation, maintenance,
alterations and repairs required in connection therewith; costs related to
landscape maintenance; and the cost of contesting the validity or
applicability of any governmental enactments which may affect Operating
Expenses. The specific examples of Operating Expenses stated in this Paragraph
12.1 are in no way intended to and shall not limit the costs comprising
Operating Expenses, nor shall such examples be deemed to obligate Landlord to
incur such costs or to provide such services or to take such actions except as
Landlord may be expressly required in other portions of this Lease, or except
as Landlord, in its sole discretion, may elect.
12.2 PAYMENT OF OPERATING EXPENSES BY TENANT. Tenant shall pay
the Operating Expenses to Landlord as Additional Rent and without deduction or
offset. Payment of Operating Expenses by Tenant shall be made by whichever of
the following methods is from time to time designated by Landlord, and
Landlord may change the method of payment at any time. Operating Expenses
actually incurred or paid by Landlord but not theretofore billed to Tenant, as
invoiced by Landlord, shall be payable by Tenant within thirty (30) days after
receipt of Landlord's invoice, but not more often than once each calendar
month. Alternatively, Tenant's payment of Operating Expenses shall be based
upon Landlord's estimate of Operating Expenses and shall be payable in equal
monthly installments in advance on the first day of each calendar month
commencing with the month following receipt of Landlord's estimate (and
subject to Landlord's right to change the method of payment). Within ninety
(90) days after the end of each calendar year (or at Lease Termination)
Landlord shall furnish Tenant a statement showing the actual Operating
Expenses for the period to which Landlord's estimate pertains and shall
concurrently either bill Tenant for the balance due (payable upon demand by
Landlord) or credit Tenant's account for the excess previously paid.
13. ALTERATIONS.
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13.1 IN GENERAL. Tenant shall not make, or permit to be made,
any alterations, changes, enlargements, improvements or additions
(collectively "Alterations") in, on, about or to the Premises, or any part
thereof, including Alterations required pursuant to Paragraph 6.2, without the
prior written consent of Landlord and without acquiring and complying with the
conditions of all permits required for such Alterations by any governmental
authority having jurisdiction thereof. The term "Alterations" as used in this
Paragraph 13 shall also include all heating, lighting, electrical (including
all wiring, conduit, outlets, drops, buss ducts, main and subpanels), air
conditioning, and fixed wall partitioning in the Premises made by Tenant,
regardless of how affixed to the Premises. As a condition to the giving of its
consent, Landlord may impose such requirements as Landlord may reasonably deem
necessary, including without limitation, the manner in which the work is done;
a right of approval of the contractor by whom the work is to be performed; the
requirement that Tenant post a completion bond in an amount and form
satisfactory to Landlord; and the requirement that Tenant reimburse Landlord,
as Additional Rent, for Landlord's actual costs incurred in reviewing any
proposed Alteration, whether or not Landlord's consent is granted. In the
event Landlord consents to the making of any Alterations by Tenant, the same
shall be made by Tenant at Tenant's sole cost and expense, in accordance with
the plans and specifications approved by Landlord. Tenant shall give written
notice to Landlord five (5) days prior to employing any laborer or contractor
to perform services related to, or receiving materials for use upon the
Premises, and prior to the commencement of any work of improvement on the
Premises. Any Alterations to the Premises made by Tenant shall be made in
accordance with applicable Laws and in a first-class workmanlike manner. In
making any such Alterations, Tenant shall, at Tenant's sole cost and expense,
file for and secure and comply with any and all permits or approvals required
by any governmental departments or authorities having jurisdiction thereof and
any utility company having an interest therein. In no event shall Tenant make
any structural changes to the Premises or make any changes to the Premises
which would weaken or impair the structural integrity of the Premises.
13.2 REMOVAL UPON LEASE TERMINATION. At the time Tenant
requests Landlord's consent, Tenant shall request a decision from Landlord in
writing as to whether Landlord will require Tenant, at Tenant's expense, to
remove any such Alterations and restore the Premises to their prior condition
at Lease Termination. In the event Tenant fails to earlier obtain Landlord's
written decision as to whether Tenant will be required to remove any
Alteration, then no less than ninety (90) nor more than one hundred twenty
(120) days prior to the expiration of the Lease Term, Tenant by written notice
to Landlord shall request Landlord to inform Tenant whether or not Landlord
desires to have any Alterations made to the Premises by Tenant removed at
Lease Termination. Following receipt of such notice, Landlord may elect to
have all or a portion of Tenant's Alterations removed from the Premises at
Lease Termination, and Tenant shall, at its sole cost and expense, remove at
Lease Termination such Alterations designated by Landlord for removal and
repair all damage to the Premises arising from such removal. In the event
Tenant fails to so request Landlord's decision or fails to remove any
Alterations designated by Landlord for removal, Landlord may remove any
Alterations made to the Premises by Tenant and repair all damage to the
Premises arising from such removal, and may recover from Tenant all costs and
expenses incurred thereby. Tenant's obligation to pay such costs and expenses
to Landlord shall survive Lease Termination. Unless Landlord elects to have
Tenant remove (or, upon Tenant's failure to obtain Landlord's decision,
Landlord
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removes) any such Alterations, all such Alterations, except for moveable
furniture and trade fixtures of Tenant not affixed to the Premises, shall
become the property of Landlord upon Lease Termination (without any payment
therefor) and remain upon and be surrendered with the Premises at Lease
Termination.
13.3 LANDLORD'S IMPROVEMENTS. All fixtures, improvements or
equipment which are installed, constructed on or attached to the Premises by
Landlord shall be a part of the realty and belong to Landlord.
14. DEFAULT AND REMEDIES.
14.1 EVENTS OF DEFAULT. The term "Default by Tenant" as used
in this Lease shall mean the occurrence of any of the following events:
(a) Tenant's failure to pay when due any Rentals;
(b) Tenant's abandonment of the Premises;
(c) Commencement and continuation for at least thirty (30)
days of any case, action or proceeding by, against or concerning Tenant under
any federal or state bankruptcy, insolvency or other debtor's relief law,
including without limitation, (i) a case under Title 11 of the United States
Code concerning Tenant, whether under Chapter 7, 11, or 13 of such Title or
under any other Chapter, or (ii) a case, action or proceeding seeking Tenant's
financial reorganization or an arrangement with any of Tenant's creditors;
(d) Voluntary or involuntary appointment of a receiver,
trustee, keeper, or other person who takes possession for more than thirty
(30) days of substantially all of Tenant's assets regardless of whether such
appointment is as a result of insolvency or any other cause;
(e) Execution of an assignment for the benefit of creditors of
substantially all assets of Tenant available by law for the satisfaction of
judgment creditors;
(f) Commencement of proceedings for winding up or dissolving
(whether voluntary or involuntary) the entity of Tenant, if Tenant is a
corporation or a partnership;
(g) Levy of a writ of attachment or execution on Tenant's
interest under this Lease, if such writ continues for a period of thirty (30)
days;
(h) Transfer or attempted Transfer of this Lease or the
Premises by Tenant contrary to the provisions of Paragraph 24 below; or
(i) Breach by Tenant of any term, covenant, condition,
warranty, or other provision contained in this Lease or of any other
obligation owing or due to Landlord.
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14.2 REMEDIES. Upon any Default by Tenant, Landlord shall have
the following remedies, in addition to all other rights and remedies provided
by law, to which Landlord may resort cumulatively, or in the alternative:
14.2.1 TERMINATION. Upon any Default by Tenant,
Landlord shall have the right (but not the obligation) to give written notice
to Tenant of such default and terminate this Lease and Tenant's right to
possession of the Premises if (i) such default is in the payment of Rentals
and is not cured within three (3) days after any such notice, or, (ii) with
respect to the defaults referred to in subparagraphs 14.1(b), (e), (f), (h)
and (i), such default is not cured within thirty (30) days after any such
notice (or if a default under subparagraphs 14.1(b) or (i) cannot be
reasonably cured within thirty (30) days, if Tenant does not commence to cure
the default within the thirty (30) day period or does not diligently and in
good faith prosecute the cure to completion), or, (iii) with respect to the
defaults specified in subparagraphs 14.1(c) (d) and (g), such default is not
cured within the respective time periods specified in those subparagraphs.
Upon termination of this Lease and Tenant's right to possession of the
Premises, Landlord shall have the right to recover from Tenant:
(a) The worth at the time of award of the
unpaid Rentals which had been earned at the time of termination;
(b) The worth at the time of award of the
amount by which the Rentals which would have been earned after termination
until the time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided;
(c) The worth at the time of award
(computed by discounting at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent) of the amount by which
the Rentals for the balance of the Lease Term after the time of award exceed
the amount of such rental loss that Tenant proves could be reasonably avoided;
(d) Any other amounts necessary to
compensate Landlord for all detriment proximately caused by the Default by
Tenant or which in the ordinary course of events would likely result,
including without limitation the following:
(i) Expenses in retaking
possession of the Premises;
(ii) Expenses for cleaning,
repairing or restoring the Premises;
(iii) Any unamortized real estate
brokerage commission paid in connection with this Lease;
(iv) Expenses for removing,
transporting, and storing any of Tenant's property left at the Premises
(although Landlord shall have no obligation to remove, transport, or store any
such property);
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(v) Expenses of reletting the
Premises, including without limitation, brokerage commissions allocable to the
remainder of the Lease Term and attorneys' fees;
(vi) Attorneys' fees and court
costs; and
(vii) Costs of carrying the Premises
such as repairs, maintenance, taxes and insurance premiums, utilities and
security precautions (if any).
(c) The "worth at the time of award" of the
amounts referred to in subparagraphs (a) and (b) of this Paragraph 14.2.1 is
computed by allowing interest at an annual rate equal to the greater of: ten
percent (10%); or five percent (5%) plus the rate established by the Federal
Reserve Bank of San Francisco, as of the twenty-fifth (25th) day of the month
immediately preceding the Default by Tenant, on advances to member banks under
Sections 13 and 13(a) of the Federal Reserve Act, as now in effect or
hereafter from time to time amended, not to exceed the maximum rate allowable
by law.
14.2.2 CONTINUANCE OF LEASE. Upon any Default by
Tenant and unless and until Landlord elects to terminate this Lease pursuant
to Paragraph 14.2.1 above, this Lease shall continue in effect after the
Default by Tenant and Landlord may enforce all its rights and remedies under
this Lease, including without limitation, the right to recover payment of
Rentals as they become due. Neither efforts by Landlord to mitigate damages
caused by a Default by Tenant nor the acceptance of any Rentals shall
constitute a waiver by Landlord of any of Landlord's rights or remedies,
including the rights and remedies specified in Paragraph 14.2.1 above.
15. DAMAGE OR DESTRUCTION.
15.1 DEFINITION OF TERMS. For the purposes of this Lease, the
term: (a) "Insured Casualty" means damage to or destruction of the Premises
from a cause required to be or actually insured against, for which the
insurance proceeds are paid or will be made available to Landlord are
sufficient to rebuild or restore the Premises under then-existing building
codes to the condition existing immediately prior to the damage or
destruction; and (b) "Uninsured Casualty" means damage to or destruction of
the Premises from a cause not required to be or actually insured against, or
from a cause requried to be or actually insured against but for which the
insurance proceeds are not paid or will not be made available to Landlord.
15.2 INSURED CASUALTY.
15.2.1 REBUILDING REQUIRED. In the event of an
Insured Casualty where the extent of damage or destruction is less than fifty
percent (50%) of the then full replacement cost of the Premises, Landlord
shall rebuild or restore the Premises to the condition existing immediately
prior to the damage or destruction, provided that there exist no governmental
codes or regulations that would preclude Landlord's ability to so rebuild or
restore.
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15.2.2 LANDLORD'S ELECTION. In the event of an
Insured Casualty where the extent of damage or destruction is equal to or
greater than fifty percent (50%) of the then full replacement cost of the
Premises, Landlord may, at its option and at its sole discretion, rebuild or
restore the Premises to the condition existing immediately prior to the damage
or destruction, or terminate this Lease. Landlord shall notify Tenant in
writing within sixty (60) days after the event of damage or destruction of
Landlord's election to either rebuild or restore the Premises or terminate
this Lease.
15.2.3 CONTINUANCE OF LEASE. If Landlord is
required to rebuild or restore the Premises pursuant to Paragraph 15.2.1 or if
Landlord elects to rebuild or restore the Premises pursuant to Paragraph
15.2.2, this Lease shall remain in effect and Tenant shall have no claim
against Landlord for compensation for inconvenience or loss of business during
any period of repair or restoration.
15.3 UNINSURED CASUALTY.
15.3.1 LANDLORD'S ELECTION. In the event of an
Uninsured Casualty, Landlord may, at its option and at its sole discretion (i)
rebuild or restore the Premises as soon as reasonably possible at Landlord's
expense in which event this Lease shall continue in full force and effect or
(ii) terminate this Lease, in which event Landlord shall give written notice
to Tenant within sixty (60) days after the event of damage or destruction of
Landlord's election to terminate this Lease as of the date of the event of
damage or destruction, and if the damage or destruction.
15.3.2 TENANT'S ABILITY TO CONTINUE LEASE. If
Landlord elects to terminate this Lease and if there exist no governmental
codes or regulations that would preclude Landlord's ability to so repair or
restore, then Tenant may nevertheless cause the Lease to continue in effect by
(i) notifying Landlord in writing within thirty (30) days after Landlord's
notice of termination of Tenant's agreement to pay all costs of rebuilding or
restoring not covered by insurance, and (ii) providing Landlord with
reasonable security for or assurance of such payment. Tenant shall pay to
Landlord in cash no later than thirty (30) days prior to the date of
commencement of construction the reasonable estimated cost of rebuilding or
restoring. In the event Tenant fails to pay such cost to Landlord by the date
specified, Landlord may immediately terminate the Lease and recover from
Tenant all costs incurred by Landlord in preparation for construction. If the
actual cost of rebuilding or restoring exceeds the estimated cost of such
work, Tenant shall pay the difference to Landlord in cash upon notification by
Landlord of the final cost. If the cost of rebuilding or restoring is less
than the estimated cost of such work, Tenant shall be entitled to a refund of
the difference upon completion of the rebuilding or restoring and
determination of final cost.
15.4 TENANT'S ELECTION. Notwithstanding anything to the
contrary contained in this Paragraph 15, Tenant may elect to terminate this
Lease in the event the Premises are damaged or destroyed and, in the
reasonable opinion of Landlord's architect or construction consultants, the
restoration of the Premises cannot be substantially completed within one
hundred eighty (180) days after the event of damage or destruction. Tenant's
election shall be
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made by written notice to Landlord within thirty (30) days after Tenant
receives from Landlord the estimate of the time needed to complete repair or
restoration of the Premises. If Tenant does not deliver said notice within
said thirty (30) day period, Tenant may not later terminate this Lease even
if substantial completion of the rebuilding or restoration occurs subsequent
to said one hundred eighty (180) day period, provided that Landlord is
proceeding with diligence to rebuild or restore the Premises. If Tenant
delivers said notice within said thirty (30) day period, this Lease shall
terminate as of the date of the event of damage or destruction.
15.5 DAMAGE OR DESTRUCTION NEAR END OF LEASE TERM.
Notwithstanding anything to the contrary contained in this Paragraph 15, in
the event the Premises are damaged or destroyed in whole or in part
(regardless of the extent of damage) from any cause during the last twelve
(12) months of the Lease Term and cannot be restored within ninety (90) days
of the occurrence, Landlord may, at Landlord's option, terminate this Lease
as of the date of the event of damage or destruction by giving written notice
to Tenant of Landlord's election to do so within thirty (30) days after the
event of such damage or destruction. For purposes of this Paragraph 15.5, if
Tenant has been granted an option to extend or renew the Lease Term pursuant
to another provision of this Lease, then the damage or destruction shall be
deemed to have occurred during the last twelve (12) months of the Lease Term
if Tenant fails to exercise its option to extend or renew within twenty (20)
days after the event of damage or destruction.
15.6 TERMINATION OF LEASE. If the Lease is terminated
pursuant to this Paragraph 15, the unused balance of the Security Deposit
shall be refunded to Tenant. The current Rent shall be proportionately
reduced during the period following the event of damage or destruction until
the date on which Tenant surrenders the Premises, based upon the extent to
which the damage or destruction interferes with Tenant's business conducted
in the Premises. All other Rentals due hereunder shall continue unaffected
during such period.
15.7 ABATEMENT OF RENTALS. If the Premises are to be rebuilt
or restored pursuant to this Paragraph 15, the then current Rentals shall be
proportionately reduced during the period of repair or restoration, based
upon the extent to which the making of repairs interferes with Tenant's
business conducted in the Premises.
15.8 LIABILITY FOR PERSONAL PROPERTY. In no event shall
Landlord have any liability for, nor shall it be required to repair or
restore, any injury or damage to any Alterations to the Premises made by
Tenant, trade fixtures, equipment, merchandise, furniture, or any other
property installed by Tenant or at the expense of Tenant. If Landlord or
Tenant do not elect to terminate this Lease pursuant to this Paragraph 15,
Tenant shall be obligated to promptly rebuild or restore the Alterations to
the condition existing immediately prior to the damage or destruction in
accordance with the provisions of Paragraph 13.1.
15.9 WAIVER OF CIVIL CODE REMEDIES. Landlord and Tenant
acknowledge that the rights and obligations of the parties upon damage or
destruction of the Premises are as set forth herein; therefore Tenant hereby
expressly waives any rights to terminate this Lease upon damage or
destruction of the Premises, except as specifically provided by this Lease,
including without limitation any rights pursuant to the provisions of
subdivision 2 of Section 1932 and
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subdivision 4 of Section 1933 of the California Civil Code, as amended from
time to time, and the provisions of any similar law hereinafter enacted,
which provisions relate to the termination of the hiring of a thing upon its
substantial damage or destruction.
16. CONDEMNATION.
16.1 DEFINITION OF TERMS. For the purposes of this Lease, the
term: (a) "Taking" means a taking of the Premises or damage related to the
exercise of the power of eminent domain and includes, without limitation, a
voluntary conveyance, in lieu of court proceedings, to any agency, authority,
public utility, person or corporate entity empowered to condemn property; (b)
"Total Taking" means the Taking of the entire Premises or so much of the
Premises as to prevent or substantially impair the use thereof by Tenant for
the uses herein specified; (c) "Partial Taking" means the Taking of only a
portion of the Premises which does not constitute a Total Taking; (d) "Date
of Taking" means the date upon which the title to the Premises or a portion
thereof, passes to and vests in the condemnor or the effective date of any
order for possession if issued prior to the date title vests in the
condemnor; (e) "Award" means the amount of any award made, consideration
paid, or damages ordered as a result of a Taking.
16.2 RIGHTS. The parties agree that in the event of a Taking
all rights between them or in and to an Award shall be as set forth herein.
16.3 TOTAL TAKING. In the event of a Total Taking during the
Lease Term: (a) the rights of Tenant under this Lease and the leasehold
estate of Tenant in and to the Premises shall cease and terminate as of the
Date of Taking; (b) Landlord shall refund to Tenant any prepaid Rent and the
unused balance of the Security Deposit; (c) Tenant shall pay Landlord any
Rentals due Landlord under the Lease, prorated as of the Date of Taking; (d)
Tenant shall receive from the Award those portions of the Award attributable
to trade fixtures of Tenant; (e) the remainder of the Award shall be paid to
and be the property of Landlord.
16.4 PARTIAL TAKING. In the event of a Partial Taking during
the Lease Term: (a) the rights of Tenant under the Lease and the leasehold
estate of Tenant in and to the portion of the Premises taken shall cease and
terminate as of the Date of Taking; (b) from and after the Date of Taking the
Rent shall be an amount equal to the product obtained by multiplying the then
current Rent by the quotient obtained by dividing the fair market value of
the Premises immediately after the Taking by the fair market value of the
Premises immediately prior to the Taking; (c) Tenant shall receive from the
Award the portions of the Award attributable to trade fixtures of Tenant; and
(d) the remainder of the Award shall be paid to and be the property of
Landlord. Each party waives the provisions of California Code of Civil
Procedure Section 1265.130 allowing either party to petition the Superior
Court to terminate this Lease in the event of a Partial Taking.
17. LIENS.
17.1 PREMISES TO BE FREE OF LIENS. Tenant shall pay for all
labor and services performed for, and all materials used by or furnished to
Tenant, Tenant's agents, or any
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contractor employed by Tenant with respect to the Premises. Tenant shall
indemnify, defend and hold Landlord harmless from and keep the Premises free
from any liens, claims, demands, encumbrances, or judgments, including all
costs, liabilities and attorneys' fees with respect thereto, created or
suffered by reason of any labor or services performed for, or materials used
by or furnished to Tenant or Tenant's agents or any contractor employed by
Tenant with respect to the Premises. Landlord shall have the right, at all
times, to post and keep posted on the Premises any notices permitted or
required by law, or which Landlord shall deem proper, for the protection of
Landlord and the Premises , and any other party having an interest therein,
from mechanics' and materialmen's liens, including without limitation a
notice of nonresponsibility. In the event Tenant is required to post an
improvement bond with a public agency in connection with any work performed
by Tenant on or to the Premises, Tenant shall include Landlord as an
additional obligee.
17.2 NOTICE OF LIEN, BOND. Should any claims of lien be filed
against, or any action be commenced affecting, the Premises, Tenant's
interest in the Premises, Tenant shall give Landlord notice of such lien or
action within ten (10) days after Tenant receives notice of the filing of the
lien or the commencement of the action. In the event that Tenant shall not,
within thirty (30) days following the imposition of any such lien, cause such
lien to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but not the obligation, to cause the same to be released by
such means as Landlord shall deem proper, including payment of the claim
giving rise to such lien or posting of a proper bond. All such sums paid by
Landlord and all expenses incurred by Landlord in connection therewith,
including attorneys' fees and costs, shall be payable to Landlord by Tenant
as Additional Rent on demand.
18. LANDLORD'S RIGHT OF ACCESS TO PREMISES. Landlord reserves and
shall have the right and Tenant and Tenant's agents shall permit Landlord and
Landlord's agents to enter the Premises at any reasonable time for the
purpose of (i) inspecting the Premises, (ii) performing Landlord's
maintenance and repair responsibilities set forth herein, (iii) posting
notices of non-responsibility, (iv) placing upon the Premises at any time
"For Sale" signs, (v) placing on the Premises ordinary "For Lease" signs at
any time within ninety (90) days prior to Lease Termination, or at any time
Tenant is in Default hereunder, or at such other times as agreed to by
Landlord and Tenant, (vi) protecting the Premises in the event of an
emergency, and (vii) exhibiting the Premises to prospective purchasers,
lenders or tenants. In the event of an emergency, Landlord shall have the
right to use any and all reasonable means which Landlord may deem proper to
gain access to the Premises. Any entry to the Premises by Landlord or
Landlord's agents in accordance with this Paragraph 18 or any other provision
of this Lease shall not under any circumstances be construed or deemed to be
a forcible or unlawful entry into, or a detainer of the Premises, or an
eviction of Tenant from the Premises or any portion thereof nor give Tenant
the right to abate the Rentals payable under this Lease. Tenant hereby waives
any claims for damages for any injury or inconvenience to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned by Landlord's or Landlord's agents'
entry into the Premises as permitted by this Paragraph 18 or any other
provision of this Lease.
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19. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. Except as
otherwise expressly provided herein, if Tenant shall at any time fail to make
any payment or perform any other act required to be made or performed by
Tenant under this Lease, Landlord may upon twenty (20) days written notice to
Tenant, but shall not be obligated to and without waiving or releasing Tenant
from any obligation under this Lease, make such payment or perform such other
act to the extent that Landlord may deem desirable, and in connection
therewith, pay expenses and employ counsel. All sums so paid by Landlord and
all penalties, interest and costs in connection therewith shall be due and
payable by Tenant as Additional Rent upon demand.
20. LENDER REQUIREMENTS.
20.1 SUBORDINATION. This Lease, at Landlord's option, shall
be subject and subordinate to the lien of any mortgages or deeds of trust
(including all advances thereunder, renewals, replacements, modifications,
supplements, consolidations, and extensions thereof) in any amount(s)
whatsoever now or hereafter placed on or against or affecting the Premises or
Landlord's interest or estate therein, without the necessity of the execution
and delivery of any further instruments on the part of Tenant to effectuate
such subordination. If any mortgagee or beneficiary shall elect to have this
Lease prior to the lien of its mortgage or deed of trust, and shall give
written notice thereof to Tenant, this Lease shall be deemed prior to such
mortgage or deed of trust, whether this Lease is dated prior or subsequent to
the date of such mortgage or deed of trust or the date of the recording
thereof.
20.2 SUBORDINATION AGREEMENTS. Tenant shall execute and
deliver without charge therefor, such further instruments evidencing
subordination of this Lease to the lien of any mortgages or deeds of trust
affecting the Premises as may be required by Landlord within ten (10)
business days following Landlord's request therefor; provided that such
mortgagee or beneficiary under such mortgage or deed of trust agrees in
writing that this Lease shall not be terminated in the event of any
foreclosure if Tenant is not in default under this Lease. Failure of Tenant
to execute such instruments evidencing subordination of this Lease shall
constitute a Default by Tenant hereunder.
20.3 ATTORNMENT. In the event of foreclosure or the exercise
of the power of sale under any mortgage or deed of trust made by Landlord and
covering the Premises, Tenant shall attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under this
Lease, provided such purchaser expressly agrees in writing to be bound by the
terms of the Lease, including, but not limited to, the quiet enjoyment
provisions of Paragraph 39.
20.4 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.
(a) DELIVERY BY TENANT. Tenant shall, within ten (10)
business days following request by Landlord therefor and without charge,
execute and deliver to Landlord any and all documents, estoppel certificates,
and current financial statements of Tenant requested by Landlord in
connection with the sale or financing of the Premises, or requested by any
lender making a loan affecting the Premises and/or real property. Landlord
may require that Tenant in
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any estoppel certificate shall (i) certify that this Lease is unmodified and
in full force and effect (or, if modified, state the nature of such
modification and certify that this Lease, as so modified, is in full force
and effect) and has not been assigned, (ii) certify the date to which Rentals
are paid in advance, if any, (iii) acknowledge that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or specify such defaults if claimed, (iv) evidence the status of this Lease
as may be required either by a lender making a loan to Landlord to be secured
by a deed of trust or mortgage covering the Premises and/or real property or
a purchaser of the Premises from Landlord, (v) warrant that in the event any
beneficiary of any security instrument encumbering the Premises and/or real
property forecloses on the security instrument or sells the Premises pursuant
to any power of sale contained in such security instrument, such beneficiary
shall not be liable for the Security Deposit unless received by such
beneficiary, (vi) certify the date Tenant entered into occupancy of the
Premises and that Tenant is conducting business at the Premises, (vii)
certify that all improvements to be constructed on the Premises by Landlord
have been substantially completed except for punch list items which do not
prevent Tenant from using the Premises for its intended use, and (viii)
certify such other matters relating to the Lease and/or Premises as may be
reasonably requested by a lender making a loan to Landlord or a purchaser of
the Premises from Landlord. Any such estoppel certificate may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises. Any
financial statements of Tenant shall include an opinion of a certified public
accountant (if available) and a balance sheet and profit and loss statement
for the most recent fiscal year, all prepared in accordance with generally
accepted accounting principles consistently applied. All such financial
statements shall be kept confidential.
(b) NONDELIVERY BY TENANT. Tenant's failure to deliver an
estoppel certificate as required pursuant to Paragraph 20.5(a) above shall be
conclusive upon Tenant that (i) this Lease is in full force and effect,
without modification except as may be represented by Landlord and has not
been assigned, (ii) there are now no uncured defaults in Landlord's
performance, (iii) no Rentals have been paid in advance except those that are
set forth in this Lease, (iv) no beneficiary of any security instrument
encumbering the Premises shall be liable for the Security Deposit in the
event of a foreclosure or sale under such security instrument unless received
by such beneficiary, (v) the improvements to be constructed on the Premises
by Landlord have been substantially completed except for punch list items
which do not prevent Tenant from using the Premises for its intended use, and
(vi) Tenant has entered into occupancy of the Premises on such date as may be
represented by Landlord and is open and conducting business at the Premises.
Tenant's failure to deliver any financial statements, estoppel certificates
or other documents as required pursuant to Paragraph 20.5(a) above shall be a
Default by Tenant.
21. HOLDING OVER. This Lease shall terminate without further
notice at the expiration of the Lease Term. It is the desire of Landlord
either to enter into a new lease with Tenant for the Premises prior to the
expiration of the Lease Term, or to have Tenant vacate the Premises pursuant
to Paragraph 35 below. Therefore, any holding over by Tenant after Lease
Termination shall not constitute a renewal or extension of the Lease Term,
nor give Tenant any rights in or to the Premises except as expressly provided
in this Lease. Any holding over after Lease Termination with the consent of
Landlord shall be construed to be a tenancy from month to month, at one
hundred fifty percent (150%) of the monthly Rent for the month preceding
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Lease Termination in addition to all Additional Rent payable hereunder, and
shall otherwise be on the terms and conditions herein specified insofar as
applicable. If Tenant remains in possession of the Premises after Lease
Termination without Landlord's consent Tenant shall indemnify, defend and
hold Landlord harmless from and against any loss, damage, expense, claim or
liability resulting from Tenant's failure to surrender the Premises,
including without limitation, any claims made by any succeeding tenant based
on delay in the availability of the Premises.
22. NOTICES. Any notice required or desired to be given under
this Lease shall be in writing, and all notices shall be given by personal
delivery or mailing. All notices personally given on Tenant may be delivered
to any corporate officer of Tenant if Tenant is a corporation, or on any one
signatory party if more than one party signs this Lease on behalf of Tenant;
any notice so given shall be binding upon all signatory parties as if served
upon each such party personally. Any notice given pursuant to this Paragraph
22 shall be deemed to have been given when personally delivered, or if
mailed, when seventy-two (72) hours have elapsed from the time when such
notice was deposited in the United States mail, certified or registered mail
and postage prepaid, addressed to the party at the last address given for
purposes of notice pursuant to the provisions of this Paragraph 22. At the
date of execution of this Lease, the addresses of Landlord and Tenant are set
forth in Paragraph 1.11 above.
23. ATTORNEYS' FEES. In the event either party hereto shall bring
any action or legal proceeding for damages for an alleged breach of any
provision of this Lease, to recover Rentals, to enforce an indemnity defense
or hold harmless obligation, to terminate the tenancy of the Premises, or to
enforce, protect, interpret, or establish any term, condition, or covenant of
this Lease or right or remedy of either party, the prevailing party shall be
entitled to recover, as a part of such action or proceeding, reasonable
attorneys' fees and court costs, including attorneys' fees and costs for
appeal, as may be fixed by the court or jury.
24. ASSIGNMENT, SUBLETTING AND HYPOTHECATION.
24.1 IN GENERAL. Tenant shall not voluntarily sell, assign or
transfer all or any part of Tenant's interest in this Lease or in the
Premises or any part thereof, sublease all or any part of the Premises, or
permit all or any part of the Premises to be used by any person or entity
other than Tenant or Tenant's employees, except as specifically provided in
this Paragraph 24.
24.2 VOLUNTARY ASSIGNMENT AND SUBLETTING.
(a) NOTICE TO LANDLORD. Tenant shall, by written notice,
advise Landlord of Tenant's desire on a stated date (which date shall not be
less than twenty (20) days nor more than ninety (90) days after the date of
Tenant's notice) to assign this Lease or to sublet all or any part of the
Premises for any part of the Lease Term. Tenant's notice shall state the
name, legal composition and address of the proposed assignee or subtenant,
and Tenant shall provide the following information to Landlord with said
notice: a true and complete copy of the proposed assignment agreement or
sublease; a financial statement of the proposed assignee or subtenant
prepared in accordance with generally accepted accounting principles within
one year prior to
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the proposed effective date of the assignment or sublease; the nature of the
proposed assignee's or subtenant's business to be carried on in the Premises;
the payments to be made or other consideration to be given on account of the
assignment or sublease; a current financial statement of Tenant; and such
other pertinent information as may be reasonably requested by Landlord, all
in sufficient detail to enable Landlord to evaluate the proposed assignment
or sublease and the prospective assignee or subtenant. Tenant's notice shall
not be deemed to have been served or given until such time as Tenant has
provided Landlord with all information reasonably requested by Landlord
pursuant to this Paragraph 24.2. Tenant shall immediately notify Landlord of
any modification to the proposed terms of such assignment or sublease. Tenant
may withdraw its notice at any time.
(b) LANDLORD'S CONSENT. Within twenty (20) days after receipt
of Tenant's notice, Landlord shall not unreasonably withhold its consent to
the proposed assignment or subletting, on the terms and conditions specified
in said notice. Without otherwise limiting the criteria upon which Landlord
may withhold its consent to any proposed assignment or sublease, if Landlord
withholds its consent where Tenant is in Default at the time of the giving of
Tenant's notice or at any time thereafter, or where the net worth of the
proposed assignee or subtenant (according to generally accepted accounting
principles) is less than the net worth of Tenant at the time this Lease is
executed, such withholding of consent shall be presumptively reasonable.
Seventy-five percent (75%) of any rent in excess of the Rentals to be paid
under this Lease (prorated in the event of a sublease of less than the entire
Premises), shall be paid directly to Landlord, as Additional Rent, at the
time and place specified in this Lease. For the purposes of this Paragraph
24, the term "rent" shall include any consideration of any kind received, or
to be received, by Tenant from an assignee or subtenant, if such sums are
related to Tenant's interest in this Lease or in the Premises, including, but
not limited to key money, bonus money, and payments (in excess of the fair
market value thereof) for Tenant's assets, fixtures, trade fixtures,
inventory, accounts, goodwill, equipment, furniture, general intangibles, and
any capital stock or other equity ownership interest of Tenant. Any
assignment or subletting without Landlord's consent shall be voidable at
Landlord's option, and shall constitute a Default by Tenant. Landlord's
consent to any one assignment or sublease shall not constitute a waiver of
the provisions of this Paragraph 24 as to any subsequent assignment or
sublease nor a consent to any subsequent assignment or sublease; further,
Landlord's consent to an assignment or sublease shall not release Tenant from
Tenant's obligations under this Lease, and Tenant shall remain jointly and
severally liable with the assignee or subtenant.
(c) ASSUMPTION OF OBLIGATIONS. In the event Landlord consents
to any assignment, such consent shall be conditioned upon the assignee
expressly assuming and agreeing to be bound by each of Tenant's covenants,
agreements and obligations contained in this Lease, pursuant to a written
assignment and assumption agreement in a form approved by Landlord.
Landlord's consent to any assignment or sublease shall be evidenced by
Landlord's signature on said assignment and assumption agreement or on said
sublease or by a separate written consent. In the event Landlord consents to
a proposed assignment or sublease, such assignment or sublease shall be valid
and the assignee or subtenant shall have the right to take possession of the
Premises only if an executed original of the assignment or sublease is
delivered to Landlord, and such document contains the same terms and
conditions as stated in
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Tenant's notice to Landlord given pursuant to Paragraph 24.2(a) above, except
for any such modifications to which Landlord has consented in writing.
24.3 COLLECTION OF RENT. Tenant hereby irrevocably gives to
and confers upon Landlord, as security for Tenant's obligations under this
Lease, the right, power and authority to collect all rents from any assignee
or subtenant of all or any part of the Premises as permitted by this
Paragraph 24, or otherwise, and Landlord, as assignee of Tenant, or a
receiver for Tenant appointed on Landlord's application, may collect such
rent and apply it toward Tenant's obligations under this Lease; provided,
however, that so long as no Default by Tenant exists or except as provided by
the provisions of Paragraph 24.2(b) above, Tenant shall have the right to
collect such rent. During the period of any Default by Tenant, Landlord may
at any time without notice in Landlord's own name sue for or otherwise
collect such rent, including rent past due and unpaid, and apply the same,
less costs and expenses of operation and collection, including reasonable
attorneys' fees, toward Tenant's obligations under this Lease. Landlord's
collection of such rents shall not constitute an acceptance by Landlord of
attornment by such subtenants; in the event of a Default by Tenant, Landlord
shall have all rights provided by this Lease and by law, and Landlord may,
upon re-entry and taking possession of the Premises, eject all parties in
possession or eject some and not others, or eject none, as Landlord shall
determine in Landlord's sole discretion.
24.4 CORPORATIONS AND PARTNERSHIPS. If Tenant is a
partnership, any withdrawal or substitution (whether voluntary, involuntary,
or by operation of law and whether occurring at one time or over a period of
time) of any partner(s) owning fifty percent (50%) or more (cumulatively) of
the partnership, any assignment(s) of fifty percent (50%) or more
(cumulatively) of any interest in the capital or profits of the partnership,
or the dissolution of the partnership shall be deemed an assignment of this
Lease requiring the prior written consent of Landlord. If Tenant is a
corporation, any dissolution, merger, consolidation or other reorganization
of Tenant, any sale or transfer (or cumulative sales or transfers) of the
capital stock of Tenant in excess of fifty percent (50%), or any sale (or
cumulative sales) of all of the assets of Tenant shall be deemed an
assignment of this Lease requiring the prior written consent of Landlord. Any
such withdrawal or substitution of partners or assignment of any interest in
or dissolution of a partnership tenant, and any such sale of stock or assets
of a corporate tenant without the prior written consent of Landlord shall be
a Default by Tenant hereunder. The foregoing notwithstanding, the sale or
transfer of any or all of the capital stock of a corporation, the capital
stock of which is now or hereafter becomes publicly traded, shall not be
deemed an assignment of this Lease.
24.5 REASONABLE PROVISIONS. Tenant expressly agrees that the
provisions of this Paragraph 24 are not unreasonable standards or conditions
for purposes of Section 1951.4(b)(2) of the California Civil Code, as amended
from time to time, under bankruptcy laws, or for any other purpose.
24.6 ATTORNEY'S FEES. Tenant shall pay, as Additional Rent,
Landlord's actual and reasonable attorneys' fees for reviewing,
investigating, processing and/or documenting any requested assignment or
sublease, whether or not Landlord's consent is granted.
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24.7 INVOLUNTARY TRANSFER. No interest of Tenant in this
Lease shall be assignable, involuntarily or by operation of law, including,
without limitation, the transfer of this Lease by testacy or intestacy. Each
of the following acts shall be considered an involuntary assignment:
(a) If Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or a proceeding under any bankruptcy
law is instituted in which Tenant is the bankrupt; or, if Tenant is a
partnership or consists of more than one person or entity, if any partner of
the partnership or other person or entity is or becomes bankrupt or
insolvent, or makes an assignment for the benefit of creditors;
(b) Levy of a writ of attachment or execution on this Lease;
(c) Appointment of a receiver with authority to take
possession of the Premises in any proceeding or action to which Tenant is a
party; or
(d) Foreclosure of any lien affecting Tenant's interest in
the Premises, which lien was not consented to by Landlord pursuant to
Paragraph 24.9. An involuntary assignment shall constitute a Default by
Tenant and Landlord shall have the right to terminate this Lease, in which
case this Lease shall not be treated as an asset of Tenant. In the event the
Lease is not terminated, the provisions of Paragraph 24.2(c) regarding rents
paid by an assignee or subtenant and Paragraph 24.4 shall apply. If a writ of
attachment or execution is levied on this Lease, or if any involuntary
proceeding in bankruptcy is brought against Tenant or a receiver is
appointed, Tenant shall have sixty (60) days in which to cause the attachment
or execution to be removed, the involuntary proceeding dismissed, or the
receiver removed.
24.8 HYPOTHECATION. Tenant shall not hypothecate, mortgage or
encumber Tenant's interest in this Lease or in the Premises or otherwise use
this Lease as a security device in any manner without the consent of
Landlord, which consent Landlord may withhold in its sole and absolute
discretion. Consent by Landlord to any such hypothecation or creation of a
lien or mortgage shall not constitute consent to an assignment or other
transfer of this Lease following foreclosure of any permitted lien or
mortgage.
24.9 BINDING ON SUCCESSORS. The provisions of this Paragraph
24 expressly apply to all heirs, successors, sublessees, assignees and
transferees of Tenant.
25. SUCCESSORS. Subject to the provisions of Paragraph 24 above
and Paragraph 30.2(a) below, the covenants, conditions, and agreements
contained in this Lease shall be binding on the parties hereto and on their
respective heirs, successors and assigns.
26. LANDLORD DEFAULT; MORTGAGE PROTECTION. Landlord shall not be
in default under this Lease unless Tenant shall have given Landlord written
notice of the breach and, within thirty (30) days after notice, Landlord has
not cured the breach or, if the breach is such that it cannot reasonably be
cured under the circumstances within thirty (30) days, has not commenced
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and thereafter diligently prosecuted the cure to completion. Any money
judgment obtained by Tenant based upon Landlord's breach of this Lease shall
be satisfied only out of the proceeds of the sale or disposition of
Landlord's interest in the Premises (whether by Landlord or by execution of
judgment). In the event of any default on the part of Landlord under this
Lease, Tenant shall give notice by registered or certified mail to any
beneficiary of a deed of trust or any mortgagee of a mortgage affecting the
Premises whose address shall have been furnished to Tenant, and shall offer
such beneficiary or mortgagee a reasonable opportunity to cure the default,
including time to obtain possession of the Premises by receivership if such
should prove necessary to effect a cure.
27. EXHIBITS. All exhibits attached to this Lease shall be deemed
to be incorporated herein by the individual reference to each such exhibit,
and all such exhibits shall be deemed to be a part of this Lease as though
set forth in full in the body of the Lease.
28. SURRENDER OF LEASE NOT MERGER. The voluntary or other
surrender of this Lease by Tenant, or a mutual cancellation thereof, shall
not work a merger and shall, at the option of Landlord, terminate all or any
existing subleases or subtenants, or may, at the option of Landlord, operate
as an assignment to Landlord of any or all such subleases or subtenants.
29. WAIVER. The waiver by either party of any breach of any term,
covenant or condition herein contained (or the acceptance by either party of
any performance after the time the same shall become due) shall not be deemed
to be a waiver of such term, covenant or condition or any subsequent breach
thereof or of any other term, covenant or condition herein contained, unless
otherwise expressly agreed to in writing. The acceptance by Landlord of any
sum less than that which is required to be paid by Tenant shall be deemed to
have been received only on account of the obligation for which it is paid (or
for which it is allocated by Landlord, in Landlord's absolute discretion, if
Tenant does not designate the obligation as to which the payment should be
credited), and shall not be deemed an accord and satisfaction notwithstanding
any provisions to the contrary written on any check or contained in any
letter of transmittal. The acceptance by Landlord of any sum tendered by a
purported assignee or transferee of Tenant shall not be deemed a consent by
Landlord to any assignment or transfer of Tenant's interest herein. No custom
or practice which may arise between the parties hereto in the administration
of the terms of this Lease shall be construed as a waiver or diminution of
either party's right to demand performance in strict accordance with the
terms of this Lease.
30. GENERAL.
30.1 CAPTIONS AND HEADINGS. The captions and paragraph
headings used in this Lease are for convenience of reference only. They shall
not be construed to limit or extend the meaning of any part of this Lease, and
shall not be deemed relevant in resolving any question of interpretation or
construction of any paragraph of this Lease.
30.2 DEFINITIONS.
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(a) LANDLORD. The term Landlord as used in this Lease, so
far as the covenants or obligations on the part of Landlord are concerned,
shall be limited to mean and include only the owner at the time in question
of the fee title to the Premises. In the event of any transfer(s) of such
interest, the Landlord herein named (and in case of any subsequent transfers
or conveyances, the then grantor) shall have no further liability under this
Lease to Tenant except as to matters of liability which have accrued and are
unsatisfied as of the date of such transfer, it being intended that the
covenants and obligations contained in this Lease on the part of Landlord
shall be binding on Landlord and its successors and assigns only during and
in respect of their respective periods of ownership of the fee; provided that
any funds in the possession of Landlord or the then grantor and as to which
Tenant has an interest, less any deductions permitted by law or this Lease,
shall be turned over to the grantee. The covenants and obligations contained
in this Lease on the part of Landlord shall, subject to the provisions of
this Paragraph 30.2(a), be binding upon each Landlord and such Landlord's
heirs, personal representatives, successors and assigns only during its
respective period of ownership. Except as provided in this Paragraph 30.2(a),
this Lease shall not be affected by any transfer of Landlord's interest in
the Premises, and Tenant shall attorn to any transferee of Landlord provided
that all of Landlord's obligations hereunder are assumed in writing by such
transferee.
(b) AGENTS. For purposes of this Lease and without otherwise
affecting the definition of the word "agent" or the meaning of an "agency",
the term "agents" shall be deemed to include the agents, employees, officers,
directors, servants, invitees, contractors, successors, representatives
subcontractors, guests, customers, suppliers, partners, affiliated companies,
and any other person or entity related in any way to the respective party,
Tenant or Landlord.
(c) INTERPRETATION OF TERMS. The words "Landlord" and
"Tenant" as used herein shall include the plural as well as the singular.
Words in the neuter gender include the masculine and feminine and words in
the masculine or feminine gender include the neuter.
30.3 COPIES. Any executed copy of this Lease shall be deemed
original for all purposes.
30.4 TIME OF ESSENCE. Time is of the essence as to each and
every provision in this Lease requiring performance within a specified time,
except as to the conditions relating to the delivery of possession of the
Premises to Tenant.
30.5 SEVERABILITY. In case any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had not been
contained herein.
30.6 GOVERNING LAW. This Lease shall be construed and
enforced in accordance with the laws of the State of California.
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30.7 JOINT AND SEVERAL LIABILITY. If Tenant is more than one
person or entity, each such person or entity shall be jointly and severally
liable for the obligations of Tenant hereunder. If Tenant is a husband and
wife, the obligations hereunder shall extend to their sole and separate
property as well as community property.
30.8 CONSTRUCTION OF LEASE PROVISIONS. Although printed
provisions of this Lease were prepared by Landlord, this Lease shall not be
construed either for or against Tenant or Landlord, but shall be construed in
accordance with the general tenor of the language to reach a fair and
equitable result.
30.9 TENANT'S FINANCIAL STATEMENTS. Tenant hereby warrants
that all financial statements delivered by Tenant to Landlord are true,
correct, and complete, and prepared in accordance with generally accepted
accounting principles. Tenant acknowledges and agrees that Landlord is
relying on such financial statements in accepting this Lease, and that a
breach of Tenant's warranty as to such financial statements shall constitute
a Default by Tenant.
31. SIGNS. Tenant shall not place or permit to be placed any sign
or decoration on the exterior of the Premises or that would be visible from
the exterior of the Premises, without the prior written consent of Landlord,
which consent may be withheld in Landlord's reasonable discretion. In no
event shall any such sign revolve, rotate, move or create the illusion of
revolving, rotating or moving. Tenant, upon written notice by Landlord, shall
immediately remove any of Tenant's signs or decorations that are visible from
the exterior of the Premises or that Tenant has placed or permitted to be
placed on the exterior of the Premises without the prior written consent of
Landlord. If Tenant fails to so remove such sign or decoration within thirty
(30) days after Landlord's written notice, Landlord may enter the Premises
and remove such sign or decoration and Tenant shall pay Landlord, as
Additional Rent upon demand, the cost of such removal. All signs placed on
the Premises by Tenant shall comply with all recorded documents affecting the
Premises, including but not limited to any Declaration of Conditions,
Covenants and Restrictions: the sign criteria attached hereto as Exhibit "E",
if applicable (as the same may be amended from time to time); and applicable
statutes, ordinances, rules and regulations of governmental agencies having
jurisdiction thereof. At Landlord's option, Tenant shall at Lease Termination
remove any sign which it has placed on the Premises, and shall, at its sole
cost, repair any damage caused by the installation or removal of such sign.
32. LANDLORD NOT A TRUSTEE. Landlord shall not be deemed to be a
trustee of any funds paid to Landlord by Tenant (or held by Landlord for
Tenant) pursuant to this Lease, including without limitation the Security
Deposit. Landlord shall not be required to keep any such funds separate from
Landlord's general funds. Any funds held by Landlord pursuant to this Lease
shall not bear interest.
33. INTEREST. Any payment due from Tenant to Landlord, except for
Rent received by Landlord within thirty (30) days after the same is due,
shall bear interest from the date due until paid, at an annual rate equal to
the greater of: ten percent (10%); or five percent (5%) plus the rate
established by the Federal Reserve Bank of San Francisco, as of the
twenty-fifth (25th) day of the month immediately preceding the due date, on
advances to member banks under Sections
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13 and 13(a) of the Federal Reserve Act, as now in effect or hereafter from
time to time amended. In addition, Tenant shall pay all costs and attorneys'
fees incurred by Landlord in the collection of such amounts.
34. SURRENDER OF PREMISES. On the last day of the Lease Term or
upon the sooner termination of this Lease, Tenant shall, to the reasonable
satisfaction of Landlord, surrender the Premises to Landlord in good
condition (reasonable wear and tear excepted) with all originally painted
interior walls washed, or re-painted if marked or damaged and other interior
walls cleaned and repaired or replaced, all carpets cleaned and in good
condition, the air conditioning, ventilating and heating equipment inspected,
serviced and repaired by a reputable and licensed service firm (unless
Landlord has elected to maintain heating and air conditioning systems
pursuant to Paragraph 10.1 above), and all floors cleaned and waxed. Tenant
shall remove all of Tenant's personal property and trade fixtures from the
Premises, and all property not so removed shall be deemed abandoned by
Tenant. Furthermore, Tenant shall immediately repair all damage to the
Premises caused by any such removal. If the Premises are not so surrendered
at Lease Termination, Tenant shall indemnify, defend and hold Landlord
harmless from and against any loss, damage, expense, claim or liability
resulting from delay by Tenant in so surrendering the Premises including,
without limitation, any claims made by any succeeding tenant or losses to
Landlord due to lost opportunities to lease to succeeding tenants.
35. NO PARTNERSHIP OR JOINT VENTURE. Nothing in this Lease shall
be construed as creating a partnership or joint venture between Landlord,
Tenant, or any other party.
36. ENTIRE AGREEMENT. Any agreements, warranties, or
representations not expressly contained herein shall in no way bind either
Landlord or Tenant, and Landlord and Tenant expressly waive all claims for
damages by reason of any statement, representation, warranty, promise or
agreement, if any, not contained in this Lease. This Lease supersedes and
cancels any and all previous negotiations, arrangements, brochures,
agreements and understandings, whether written or oral, between Landlord and
its agents and Tenant and its agents with respect to the Premises, or this
Lease. This Lease, including the Addendum of even date, constitutes the
entire agreement between the parties hereto and no addition to, or
modification of, any term or provision of this Lease shall be effective until
and unless set forth in a written instrument signed by both Landlord and
Tenant.
37. SUBMISSION OF LEASE. Submission of this instrument for
Tenant's examination or execution does not constitute a reservation of space
nor an option to lease. This instrument shall not be effective until executed
by both Landlord and Tenant. Execution of this Lease by Tenant shall
constitute an offer by Tenant to lease the Premises, which offer shall be
deemed accepted by Landlord when this Lease is executed by Landlord and
delivered to Tenant.
38. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
that so long as Tenant is not in Default under this Lease, Tenant shall and
may peaceably and quietly have, hold and enjoy the Premises for the Lease
Term, subject, however, to the terms of this Lease and of any mortgages or
deeds of trust affecting the Premises and/or the real property, and the
rights reserved by Landlord hereunder. Any purchaser upon any foreclosure or
exercise of the
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power of sale under any mortgage or deed of trust made by Landlord and
covering the Premises to whom Tenant attorns pursuant to Paragraph 20.4 above
shall be bound by the terms of this Paragraph 39.
39. AUTHORITY The undersigned parties hereby warrant that they
have proper authority and are empowered to execute this Lease on behalf of
the Landlord and Tenant, respectively. If Tenant is a corporation (or
partnership), Tenant represents that each individual executing this Lease on
behalf of said corporation (or partnership) is duly authorized to execute and
deliver this Lease on behalf of said corporation in accordance with a duly
adopted resolution of the Board of Directors of said corporation or in
accordance with the by-laws of said corporation (or on behalf of said
partnership in accordance with the partnership agreement of such
partnership), and that this Lease is binding upon said corporation (or
partnership) in accordance with its terms. If Tenant is a corporation, Tenant
shall upon execution of this Lease, deliver to Landlord a certified copy of
the resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease. In the event Tenant should fail to
deliver such resolution to Landlord upon execution of this Lease, Landlord
shall not be deemed to have waived its right to require delivery of such
resolution, and at any time during the Lease Term Landlord may request Tenant
to deliver the same, and Tenant agrees it shall thereafter promptly deliver
such resolution to Landlord. If Tenant is a corporation, Tenant warrants that:
(a) Tenant is a valid and existing corporation;
(b) Tenant is qualified to do business in California; and
(c) The signers of this Lease are properly authorized to
execute this Lease.
40. OPTIONS TO EXTEND LEASE TERM.
40.1 GRANT OF OPTION. Landlord hereby grants to Tenant two
(2) options (collectively the "Options", and individually the "First Option"
and the "Second Option") to extend the initial Term of the Lease ("Initial
Term") for an additional five (5) years each (collectively the "Option
Terms", and individually the "First Option Term" and the "Second Option
Term") upon and subject to the terms and conditions set forth in this Lease.
Tenant shall have no right to extend the Initial Term except as provided
herein. The First Option shall be exercised, if at all, by Tenant's delivery
of written notice of exercise to Landlord no later than six (6) months nor
earlier than twelve (12) months prior to the expiration date of the Initial
Term. The Second Option shall be effective only if Tenant has exercised the
First Option. The Second Option shall be exercised, if at all, by Tenant's
delivery of written notice of exercise to Landlord no later than six (6)
months nor earlier than twelve (12) month prior to the expiration of the
First Option Term. The Rent to be paid during each Option Term shall be the
Prevailing Market Rental, as hereinafter defined. As used herein, the term
"Prevailing Market Rental" shall mean the rental and all other monetary
payments and escalations that Landlord could obtain from a third party tenant
which might desire to lease the Premises for the relevant Option Term, taking
into account the age of the Premises, the size of the Premises, the type and
quality of tenant improvements, the location and floor levels of the
Premises, the quality of construction of the
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<PAGE>
Premises, the services provided under the terms of the Lease, the rental and
brokers commissions then being paid for the renewal of leases of space
comparable to the Premises in the City of Sunnyvale and all other factors
that would be relevant to a third party in determining the rental such party
would be willing to pay to lease the Premises for the relevant Option Term;
provided, however, in no event shall the Prevailing Market Rental be less
than the Rent payable by Tenant to Landlord at the expiration of the Initial
Term or First Option Term, as applicable. If Tenant is in Default under any
of the terms, covenants, or conditions of this Lease either at the time
Tenant exercises the relevant Option or at any time thereafter prior to the
commencement date of the relevant Option Term (the "First Option Commencement
Date" or "Second Option Commencement Date", as applicable), then in each
case, Tenant's exercise of the relevant Option shall be of no force and
effect and Tenant shall have no rights hereunder to extend the Initial Term
or First Option Term, as applicable. The rights granted pursuant to this
Article 41 are personal to Career Central, Inc. and are not assignable to any
other person except in conjunction with an assignment made pursuant to
Paragraph 12 of the Addendum.
40.2 DETERMINATION OF PREVAILING MARKET RENTAL. On or
before five (5) days after Tenant provides Landlord with notice of Tenant's
exercise of the relevant Option, Landlord and Tenant shall commence
negotiations to agree upon the Prevailing Market Rental applicable thereto.
If Landlord and Tenant are unable to reach agreement on the Prevailing Market
Rental within ten (10) days after the date negotiations commence, then the
Prevailing Market Rental shall be determined as follows:
(a) If Landlord and Tenant are unable to agree on the
Prevailing Market Rental within said ten (10) day period, then, within
fifteen (15) days thereafter, Landlord and Tenant shall each simultaneously
submit to the other in a sealed envelope its good faith estimate of the
Prevailing Market Rental. If the higher of such estimates is not more than
one hundred five percent (105%) of the lower of such estimates, then the
Prevailing Market Rental shall be the average of the two estimates; provided,
however, in no event shall the Prevailing Market Rental be less than the Rent
payable by Tenant to Landlord at the expiration of the Initial Term or First
Option Term, as applicable.
(b) If the matter is not resolved by the exchange of
estimates as provided in subparagraph (a) above, then either Landlord or
Tenant may, by written notice to the other on or before five (5) days after
the exchange of such estimates, require that the disagreement be resolved by
arbitration. Within seven (7) days after such notice, the parties shall
select as an arbitrator a mutually acceptable MAI appraiser with experience
in real estate activities, including at least ten (10) years' experience in
appraising office space in the County of Santa Clara, California. If the
parties cannot agree on an appraiser, then, within a second period of seven
(7) days, each party shall select an independent MAI appraiser meeting the
aforementioned criteria and, within a third period of seven (7) days, the two
appointed appraisers shall select a third appraiser meeting the
aforementioned criteria. If one party shall fail to make such appointment
within said second seven (7) day period, then the appraiser chosen by the
other party shall be the sole arbitrator.
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<PAGE>
41. RIGHT TO NEGOTIATE.
41.1 GRANT OF RIGHT. Landlord currently owns the real
property and 59,885 square foot building located at 432 Lakeside Drive,
Sunnyvale, CA (the "Lakeside Building"). The Lakeside Building is currently
leased by Landlord to Amdahl Corporation which lease is scheduled to
terminate on September 30, 2002, subject to two (2) five (5) year options to
renew. If at any time during the term of this lease and provided that no
Event of Default by Tenant then exists, the Lakeside Building becomes or will
become available for lease, Landlord will notify Tenant in writing
("Landlord's Lease Notice"), and Tenant shall have the one-time right to
negotiate a lease of Lakeside Building on terms acceptable to Landlord and
Tenant in their respective absolute discretion. The right granted pursuant to
this Article 42 is personal to Career Central, Inc. and is not assignable to
any other person except in conjunction with an assignment made pursuant to
Paragraph 12 of the Addendum and shall not be binding on any
successor-in-interest of Landlord as to the Lakeside Building. If Landlord
and Tenant have not executed a lease on or before thirty (30) days following
Landlord's Lease Notice, then neither party shall have any further
obligations hereunder, and Landlord may negotiate with and accept offers from
third parties for the lease of all or a portion of the Lakeside Building on
such terms and conditions as Landlord may determine.
41.2 COUNTERPARTS. This Lease may be executed in multiple
counterparts, and any executed counterpart shall be deemed an original for
all purposes.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease effective as
of the date set forth below.
LANDLORD: TENANT:
OAKMEAD INVESTMENTS, a California CAREER CENTRAL CORPORATION, a
general partnership California corporation
By: /s/ Terry Rose By: /s/ Jeffrey Hyman
------------------------------ ---------------------------------
Title: Partner Title: CEO
--------------------------- ------------------------------
DATE: By: /s/ Sanford Fitch
---------------------------- ---------------------------------
Title: CFO
------------------------------
DATE 3/22/00
--------------------------------
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<PAGE>
EXHIBITS
<TABLE>
<S> <C> <C>
A. Site Plan Paragraph 1.4 (Premises [building and exterior] shown
cross-hatched and outlined in red pursuant
to Paragraph 2.1)
B. Legal Description Paragraph 2.1
C. Improvement Agreement Paragraph 2.2
</TABLE>
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<PAGE>
EXHIBIT "A"
SITE PLAN
[To be Attached]
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<PAGE>
EXHIBIT "B"
LEGAL DESCRIPTION
[To be Attached]
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<PAGE>
EXHIBIT "C"
IMPROVEMENT AGREEMENT
This Improvement Agreement supplements the Net Lease Agreement (the
"Lease") dated this 22nd day of March, 2000, executed concurrently herewith by
and between Landlord and Tenant, covering certain premises described in the
Lease (the "Premises"). All terms not defined herein shall have the same meaning
as set forth in the Lease.
42. PLANS AND DRAWINGS FOR PREMISES
42.1 SPACE PLANS
Tenant shall, within ten (10) days of the Commencement Date,
cause its architect ("Tenant's Architect") to furnish for Landlord's approval
preliminary space plans sufficient to convey the architectural design of the
Premises (including special uses of the Premises to be specified by Tenant),
including, preliminary partition layout and reflective ceiling plans for
Tenant's leasehold improvements ("Space Plans"). If Landlord shall disapprove of
any part of the Space Plans, Landlord shall, within five (5) business days after
receipt thereof, advise Tenant in writing of Landlord's reasonable objections
thereto. Landlord and Tenant shall thereafter negotiate in good faith to revise
the Space Plans to remove Landlord's objections. After Landlord and Tenant have
reached such agreement, Tenant shall furnish to Landlord for review and approval
a revision of the Space Plans incorporating the revisions agreed to by Landlord
and Tenant. Landlord and Tenant shall each indicate their approval of the Space
Plans by initialing the same. Tenant shall pay all costs of preparation of the
Space Plans and other fees charged by Tenant's Architect directly to Tenant's
Architect.
42.2 WORKING DRAWINGS
Tenant's architect shall prepare from the approved Space Plans
complete architectural plans, drawings and specifications and complete
engineered mechanical, structural and electrical Working Drawings for (i) all of
the Premises showing the demising plan, finish schedule of building standard
items (i.e. carpeting and other floor coverings), and Tenant's design work
desired by Tenant therefor, and (ii) any internal or external communications or
special utility facilities which will require conduits or other improvements
(collectively "Final Working Drawings and Specifications"; the work shown
thereon being called the "Tenant's Work"), all in such form and in such detail
as may be reasonably required by Landlord. The Final Working Drawings and
Specifications shall be prepared by Tenant's architect and engineer and the
engineering work on the mechanical and electrical plans shall be performed by
Tenant's engineers. Tenant's architect and engineer shall furnish all services
necessary for the preparation of the Final Working Drawings and Specifications
and for securing approval by Landlord and for securing such approvals as, by
reason of the nature of the Tenant's Work, shall be required from any
governmental authority having jurisdiction or compliance deemed necessary by
Landlord including without limitation ACM (asbestos containing material),
hazardous wastes or materials, OSHA, CAL-OSHA, life-safety, sprinklers and the
like. Landlord shall reasonably approve or
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<PAGE>
disapprove of the Final Working Drawings and Specifications within five (5)
business days after receipt thereof. If Landlord shall disapprove of any part
of the Final Working Drawings and Specifications, Landlord shall advise
Tenant of such disapproval, and the reasons therefor within said five (5)
business day period, and Landlord and Tenant shall thereafter negotiate in
good faith to remove Landlord's reasonable objections. Tenant shall then
submit to Landlord for Landlord's approval, a redesign of the Final Working
Drawings and Specifications incorporating the revisions agreed to by the
parties, which Landlord shall approve or disapprove in accordance with the
foregoing procedure. Final Working Drawings and Specifications shall comply
with all conditions set forth in Paragraph 1.3 below. Unless otherwise
specified in the Final Working Drawings and Specifications, Tenant shall use
building standard materials as determined by Landlord.
42.3 REQUIREMENTS OF FINAL WORKING DRAWINGS AND SPECIFICATIONS
The Final Working Drawings and Specifications shall: (i) be
subject to Landlord's reasonable approval; (ii) comply with all applicable laws
and ordinances, and the rules and regulations of all governmental authorities
having jurisdiction; (iii) comply with all ACM, hazardous waste, American with
Disabilities Act, OSHA, CAL-OSHA, life-safety, and sprinkler rules, regulations,
ordinances or laws; (iv) comply with all applicable insurance regulations for
the Building; (v) include locations and complete and exact dimensions, and (vi)
identify the improvements to be removed by Tenant upon termination of the Lease.
43. PAYMENT FOR WORK
43.1 Tenant shall provide the Tenant's Work pursuant to the mutually
approved Final Working Drawings and Specifications prepared by the Tenant's
Architect. The ownership and removal of Tenant's Work shall be determined as
provided in Section 9.3 of the Lease. Any and all improvements, compliance or
the like to any common areas, including without limitation, handicapping
requirements, Americans with Disabilities Act, ACM work, OSHA, CAL-OSHA,
life-safety, hazardous material work and corridors required as a result of the
work shown by the Final Working Drawings and Specifications or Tenant's specific
use of the Premises shall be paid by Tenant.
43.2 At such time as Landlord and Tenant have approved the Final
Working Drawings and Specifications, Tenant shall request a bid or bids for the
installation of the Tenant's Work from a contractor or contractors reasonably
acceptable to Landlord selected by Tenant. Tenant will accept the bid as
determined by Tenant. The bid from the contractor selected by Tenant shall be
used for purposes of preparing the Work Cost Estimates pursuant to Subparagraph
2.3 hereof. Tenant shall use reasonable efforts to obtain from Tenant's
contractor a one (1) year warranty against defects or repairs required for the
Tenant's Work.
43.3 Prior to the commencement of any Tenant's Work, Tenant shall
submit to Landlord, for Landlord's review, a written estimate of Work Cost as
hereinafter defined on all Tenant's Work which written estimate shall be based
on the Final Working Drawings and Specifications.
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<PAGE>
44. CONSTRUCTION
44.1 Following the Early Occupancy Date and Landlord's receipt of the
Work Cost Statement, Tenant's contractor shall commence and diligently proceed
with the construction of all of the Tenant's Work, all at Tenant's sole cost and
expense, subject to delays beyond the reasonable control of Tenant or its
contractor or contractors. Tenant shall use its good faith effort to meet such
schedule as the same may be modified or amended.
45. WORK COST
"Work Cost" means: (i) governmental agency plan check, permit and other
fees; (ii) sales and other taxes; (iii) Title 24 fees; (iv) inspection costs;
(v) the actual costs and charges for material and labor, contractor's profit and
general overhead incurred by Tenant for the Tenant's Work; (vi) costs to comply
with all applicable laws, statutes, building codes and regulations relating to
Tenant's specific use of the Premises or the Tenant's Work (vii) all other costs
to be expended by Tenant in the construction of the Tenant's Work, (viii) cost
of fixtures and equipment installed in the Premises as part of the Tenant's
Work, and (x) costs of Tenant's construction manager. All Work Cost shall be
paid by Tenant on a timely basis.
46. TIMELINE.
Landlord and Tenant acknowledge the following tentative schedule as may
be amended by mutual agreement for completion of the Final Plans and
Specifications and construction of the Tenant's Work:
From the Effective Date of Lease:
<TABLE>
<S> <C>
30 days Preliminary Space Plans
60 days Preliminary Working Drawings
90 days Final Working Drawings and Permits
270 days Completion of one-half of Tenant's Work
540 days Completion of balance of Tenant's Work
</TABLE>
47. INDEMNITY
For all Tenant's Work which Tenant constructs or installs or causes
to be constructed or installed in the Premises, Tenant shall and shall cause,
Tenant's Contractor and subcontractors, agents, employees and representatives
or each of them agree to save, indemnify and hold harmless Landlord against
any and all liability, claims, mechanics liens, judgments, or demands,
including demands arising from injuries to or death of persons (Tenant's
employees, employees of Tenant's Contractor(s) and employees of all
Subcontractors and Sub-subcontractors of Tenant's Contractor included) and
damage to property, or any other loss, loss of rent, damage, or expense,
arising directly or indirectly out of the obligations herein undertaken or
out of the operations conducted by Tenant and/or its Contractor(s),
Subcontractors or Sub-subcontractors, and will make good to and reimburse
Landlord for any expenditures, including actual attorneys' fees, which
Landlord may
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<PAGE>
incur by reason of such matters and, if requested by Owner will defend any
such suits at the sole cost and expense of Tenant; provided, however, that
the foregoing indemnity shall not apply to any liability or damages to the
extent caused by the negligence, willful misconduct of or breach of this
Lease by Landlord.
48. INSURANCE
Tenant shall, at its sole expense, be responsible for the securing of
insurance by the Tenant's Contractor(s) and for the maintenance of same by the
Tenant's Contractor(s) until completion and final acceptance of the work.
Certificates of Insurance affording evidence of same shall be obtained from the
Tenant's Contractor(s) by the Tenant and delivered to the Landlord prior to the
commencement of any work by the Tenant's Contractor. The required insurance
coverage is as follows:
48.1 Worker's Compensation and Employers' Liability Insurance including
coverage under the U.S. Longshoremen's and Harborworkers' Act and affording 30
days written notice of cancellation to Contractor. The Employers' Liability
minimum limits required are as follows:
<TABLE>
<S> <C>
Bodily Injury by accident $100,000 each accident
-------
Bodily Injury by disease $500,000 policy limit
-------
Bodily Injury by disease $100,000 each employee
-------
</TABLE>
48.2. General Liability Insurance on an Occurrence basis for an amount
of $5,000,000 for each occurrence and including the following coverage:
a) Premises and Operations coverage with X, C and U exclusions
deleted, if applicable.
b) Owners and Contractors Protective coverage.
c) Products and Completed Operations coverage.
d) Blanket Contractual coverage, including both oral and
written contracts.
e) Personal Injury coverage.
f) Broad Form Property Damage coverage, including completed
operations.
g) An endorsement naming Landlord and Landlord's Mortgagee as
additional insureds.
h) An endorsement affording 30 days written notice to
Contractor in event of cancellation or material reduction in
coverage.
i) An endorsement providing that such insurance as is afforded
under policy of Tenant's Contractor(s) is primary insurance as
respects the Owner and that any
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<PAGE>
other insurance maintained by Owner is excess and
noncontributing with the insurance required hereunder.
No endorsement limiting or excluding a required coverage is permitted.
CLAIMS-MADE COVERAGE IS NOT ACCEPTABLE.
48.3 Business Auto Liability Insurance for an amount of $2,000,000
combined single limit for bodily injury and/or property damage liability
including:
a) Owned Autos,
b) Hired or Borrowed Autos,
c) Nonowned Autos, and
d) An endorsement affording 30 days written notice of
cancellation to Landlord in event of cancellation or material
reduction in coverage.
A certificate and endorsements affording evidence of the above requirements must
be delivered to Landlord before Tenant's Contractor performs any work at or
prepares or delivers materials to the site of construction.
Tenant shall require its Contractor(s) to require its subcontractors to provide
insurance where Tenant's Contractor(s) would be required to carry insurance
under this insurance section and to be responsible for obtaining the appropriate
certificates or other evidence of insurance.
Tenant's Contractor(s) shall maintain all of the foregoing insurance coverage in
force until the work under this agreement is fully completed and accepted except
as to 2c, (Products and Completed Operation Coverage), which is to be maintained
for one (1) year following completion of the Tenant's Work and acceptance by
Landlord and Tenant.
All insurance, except Workers' Compensation, maintained by Tenant's Contractor
and its subcontractors shall preclude subrogation claims by the insurer against
anyone insured thereunder. The requirements for the foregoing insurance shall
not derogate from the provisions for indemnification of Landlord by Tenant under
the "indemnity" paragraph of this agreement.
If the Tenant fails to secure and maintain the required insurance from Tenant(s)
Contractors, the Landlord shall have the right (without any obligation to do so,
however) to secure same in the name and for the account of the Tenant's
Contractor(s) in which event the Tenant shall pay the cost thereof and shall
furnish upon demand, all information that may be required in connection
therewith. Further, such failure to secure and maintain the required insurance
shall constitute a default under the Lease and Landlord shall be entitled to
immediately have all tenant improvement work cease.
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<PAGE>
49. MISCELLANEOUS
(a) Tenant and Tenant's contractors shall abide by all safety and
construction rules and regulations which Landlord may reasonably establish in
performing the Tenant's Work. Entry by Tenant's contractors shall be deemed to
be under all the terms, covenants, provisions and conditions of said Lease
except the covenant to pay rent and additional rent. All Tenant's materials,
work, installations and decorations of any nature brought upon or installed in
the Premises shall be at Tenant's risk, and neither Landlord nor any party
acting on Landlord's behalf shall be responsible for any damage thereto or loss
or destruction thereof.
(b) Tenant shall be liable for any extra expenses incurred by reason of
faulty work done by Tenant or its contractors, or by reason of delays caused by
such work, or by reason of cleanup which fails to comply with Landlord's rules
and regulations.
(c) Tenant's contractors shall not post any signs other than those
required by law in connection with the construction on any part of the Project
or Premises.
50. INCORPORATION.
This Work Letter Agreement is hereby incorporated into this Lease
executed between Landlord and Tenant concurrently herewith.
TENANT:
CAREER CENTRAL CORPORATION
a California corporation
By: /s/ Jeffrey Hyman
--------------------------
Its: CEO
-------------------------
By: /s/ Sanford Fitch
--------------------------
Its: CFO
-------------------------
LANDLORD:
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<PAGE>
OAKMEAD INVESTMENT,
a California general partnership
By: /s/ Terry Rose
---------------------------
Its: Partner
---------------------------
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<PAGE>
FIRST ADDENDUM TO LEASE
THIS FIRST ADDENDUM TO LEASE (this "Addendum") is made by and between
OAKMEAD INVESTMENTS, a California general partnership ("Landlord"), and CAREER
CENTRAL, INC., a California corporation ("Tenant"), to be a part of that certain
Net Lease Agreement of even date herewith between Landlord and Tenant (the
"Lease") concerning the approximately 66,000 rentable square foot building (the
"Building") located at 1273 E. Arques Avenue, Sunnyvale, California (the
"Premises"). All terms with initial capital letters used herein as defined terms
shall have the meanings ascribed to them in the Lease unless specifically
defined herein. Landlord and Tenant agree that, notwithstanding anything to the
contrary in the Lease, the Lease is hereby modified and supplemented as follows:
1. CONDITION. Landlord warrants and represents that, as of the
Commencement Date, (i) the Premises will be in good and clean operating
condition and repair, (ii) the electrical, mechanical, HVAC, plumbing, sewer
and other systems serving the Premises and the Building will be in good
operating condition and repair, and (iii) the roof of the Building will be in
good condition and water tight. Landlord shall, promptly after receipt of
notice from Tenant, remedy any non-compliance with such warranty at
Landlord's sole cost and expense.
2. RULES AND REGULATIONS. Tenant shall not be required to comply
with any rule or regulation of Landlord unless the same does not unreasonably
interfere with Tenant's use of, access to, or parking at the Premises, and
does not materially increase the obligations or decrease the rights of Tenant
under the Lease.
3. HAZARDOUS MATERIALS. To the actual knowledge of Landlord, (a) no
Hazardous Material is present in the Building or the Premises or the soil,
surface water or groundwater thereof, (b) no underground storage tanks are
present on the Premises, and (c) no action, proceeding or claim is pending or
threatened regarding the Building or the Premises concerning any Hazardous
Material or pursuant to any environmental Law. Under no circumstance shall
Tenant be liable for any losses, costs, claims, liabilities or damages of any
type and nature arising out of or in connection with any Hazardous Material
present at any time in, on or about the Building, the Premises, or the soil,
air, improvements, groundwater or surface water thereof, or the violation of
any environmental law, rules, regulation, code or ordinance ("Law"), except
to the extent that any of the foregoing actually results from the release or
emission of Hazardous Material by Tenant or Tenant's agents, employees,
invitees, contractors and/or subcontractors in violation of applicable
environmental Laws.
4. TAXES. "Taxes" shall not include and Tenant shall not be required
to pay any tax or assessment expense or any increase therein (i) levied on
Landlord's rental income, unless such tax or assessment expense is imposed in
lieu of real property taxes; (ii) in excess of the amount which would be
payable if such tax or assessment expense were paid in installments over the
longest possible term; (iii) imposed on land and improvements other than the
Project; or (iv) attributable to Landlord's net income, inheritance, gift,
transfer, estate or state taxes. Tenant shall not be required to pay any
Taxes more than thirty (30) days prior to delinquency.
5. INDEMNITY. Landlord shall not be released or indemnified from any
losses, costs, claims, liabilities, or damages arising from the negligence or
willful misconduct of Landlord or its Agents or any breach of Landlord's
obligations or representations under the Lease.
<PAGE>
6. REPAIRS AND MAINTENANCE. Landlord shall perform and construct, and
Tenant shall have no responsibility to perform or construct, any repair,
maintenance or improvements (a) necessitated by the acts or omissions of
Landlord or its Agents, employees, contractors or invitees, (b) occasioned by
fire, acts of God or other casualty or by the exercise of the power of
eminent domain, (c) for which Landlord has a right of reimbursement from
others, (d) which could be treated as a "capital expenditure" under generally
accepted accounting principles, (e) to the heating, ventilating, air
conditioning, electrical, water, sewer, and plumbing systems serving the
Premises or the Building, and (f) to any portion of the Building or the
Premises outside of the interior walls of the Premises. Tenant shall,
however, pay for its share of the repairs described in clauses (d), (e) and
(f) to the extent such costs are properly included as Operating Expenses. In
performing all repair and maintenance, Landlord shall use its best efforts to
minimize any disruption to Tenant.
7. OPERATING EXPENSES. "Operating Expenses" shall not include and
Tenant shall in no event have any obligation to perform or to pay directly,
or to reimburse Landlord for, all or any portion of the following repairs,
maintenance, improvements, replacements, premiums, claims, losses, fees,
charges, costs and expenses (collectively, "Costs"): (a) Costs occasioned by
the act, omission or violation of any Law by Landlord, or its Agents,
employees or contractors; (b) Costs occasioned by fire, acts of God, or other
casualties or by the exercise of the power of eminent domain; (c) Costs
incurred in connection with the violation by Landlord of the terms and
conditions of any lease or other agreement; (d) insurance costs for coverage
not customarily paid by tenants of similar projects in the vicinity of the
Premises, costs of earthquake insurance (unless Landlord is required to carry
earthquake insurance by an institutional lender holding a first mortgage or
deed of trust encumbering the Premises, in which case the commercially
reasonable premium for such insurance shall be an Operating Expense, provided
that such lender is generally requiring that all of its borrowers then carry
earthquake insurance on the lender's collateral in the San Francisco Bay
Area), flood or pollution insurance, insurance deductibles in excess of
$10,000, and co-insurance payments; (e) Costs incurred in connection with the
presence of any Hazardous Material, except to the extent caused by the
release of the Hazardous Material in question by Tenant, or its agents,
employees, invitees, contractors or subcontractors; (f) Costs in the nature
of depreciation, amortization or other expense reserves; (g) Costs to repair,
replace, restore or maintain the structural portions of the Building
(including structural roofs) unless such Costs are incurred due to the
negligence or willful misconduct of Tenant; (h) compensation for any employee
of Landlord or any compensation retained by Landlord or its affiliates for
management and administration of the Premises in excess of the reasonable
management fee which would be charged by an unaffiliated professional
management service for operation of comparable projects in the vicinity; and
(i) Costs which could properly be capitalized under generally accepted
accounting principals, except to the extent amortized over the useful life of
the capital item in question. Tenant shall have the right to audit Operating
Expenses and Taxes from time to time. If the results of such audit disclose
that Tenant has overpaid Operating Expenses or Taxes by more than five
percent (5%) of the accurate amount of Operating Expenses and Taxes payable
by Tenant, then Landlord shall pay the cost of such audit.
8. ALTERATIONS. Tenant may construct non-structural alterations,
additions and improvements ("Alterations") in the Premises without Landlord's
prior approval, if the cost of any such project does not exceed Twenty-Five
Thousand Dollars ($25,000). Landlord shall not have the right to require that
Tenant provide any payment or performance bonds for any Alterations unless
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<PAGE>
the cost of any such project exceeds One Hundred Thousand Dollars ($100,000).
Alterations and Tenant's trade fixtures, furniture, equipment and other
personal property installed in the Premises ("Tenant's Property") shall at
all times be and remain Tenant's property. Except for Alterations which
cannot be removed without structural injury to the Premises, at any time
Tenant may remove Tenant's Property from the Premises, provided that Tenant
repairs all damage caused by such removal. Landlord shall have no right to
require Tenant to remove any Alterations unless it notifies Tenant at the
time it consents to such Alteration that it shall require such Alteration to
be removed. Landlord shall have no security interest or lien on any item of
Tenant's Property. Within ten (10) business days following Tenant's request,
Landlord shall execute documents reasonably acceptable to Tenant to evidence
Landlord's waiver of any right, title, lien or interest in Tenant's Property
and giving any lenders holding a security interest or lien on Tenant's
Property reasonable rights of access to the Premises to remove such Tenant's
Property, provided that such lenders repair any damage caused by such removal.
9. DAMAGE; CONDEMNATION. Landlord shall not have the right to
terminate the Lease and shall repair and restore the Premises if the damage
to the Premises is relatively minor (e.g., repair or restoration would cost
less than ten percent (10%) of the replacement cost of the Premises).
Whenever Rent is to be abated under the Lease, all Rent and Additional Rent
shall be equitably abated based upon the extent to which Tenant's use of the
Premises is diminished. Upon any Taking, Tenant shall have the right
separately to claim recovery for Tenant's reasonable costs of relocation.
10. RIGHT OF ACCESS. Landlord shall not exercise any rights of access
to the Premises, including under Section 18 of the Lease, if such exercise
would unreasonably interfere with Tenant's use of, access to, or parking at
the Premises or materially increase the obligations or decrease the rights of
Tenant under the Lease. Landlord shall use its best efforts to minimize any
disruption to Tenant and shall comply with Tenant's reasonable security
measures.
11. SUBORDINATION. The subordination of Tenant's rights and interest
under the Lease to any mortgage or deed of trust shall be contingent upon
Tenant's having received from any such mortgagee or beneficiary of any deed
of trust a written recognition agreement in a commercially reasonable form
providing that Tenant's rights and interest shall not be disturbed in the
event of any foreclosure of any such mortgage or deed of trust. Prior to the
Commencement Date, Landlord shall use reasonable efforts to deliver to Tenant
such a written recognition agreement from any mortgagee or beneficiary of any
deed of trust currently encumbering the Premises.
12. ASSIGNMENT AND SUBLETTING.
(a) Tenant may, without Landlord's prior written consent, without
giving rise to any right of Landlord to terminate the Lease as to any of the
Premises, and without payment of any amount to Landlord, sublet the Premises
or assign the Lease to (a) a subsidiary, affiliate, division or corporation
controlling, controlled by or under common control with Tenant, (b) a
successor corporation related to Tenant by merger, consolidation,
nonbankruptcy reorganization, or government action, or (c) a purchaser of
substantially all of Tenant's assets located in the Premises. Neither the
sale or transfer of Tenant's capital stock, including, without limitation, a
transfer in connection with the merger, consolidation or nonbankruptcy
reorganization of Tenant and any sale through any private or public offering,
nor the pledge of or grant of a security interest in any of the Tenant's
capital stock, nor the reincorporation of Tenant, shall be deemed an
assignment, subletting or other transfer of the Lease or the Premises. Tenant
may also, subject to Landlord's consent
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(which shall not be unreasonably withheld or delayed), but without giving
rise to any right of Landlord to terminate the Lease as to any of the
Premises and without payment of any amount to Landlord, sublet up to
forty-five percent (45%) of the Premises to a single subtenant for a term not
longer than twenty-one (21) months from the Commencement Date.
(b) Rent received by Tenant from any assignee or subtenant (other
than an assignee or subtenant pursuant to transactions described in paragraph
12 (a) above) shall be determined by deducting from the gross amounts thereof
all brokerage commissions and other marketing expenses paid or payable by
Tenant in connection with such assignment or sublease and all costs of
alterations and improvements to the Premises in connection with such sublease
or assignment.
13. SURRENDER. Tenant's obligations with respect to the surrender of
the Premises shall be fulfilled if Tenant surrenders possession of the
Premises in the condition existing at the Commencement Date (plus the
improvements constructed by Tenant pursuant to EXHIBIT "C" to the Lease),
excepting ordinary wear and tear, acts of God, casualties, condemnation,
Hazardous Materials (other than those released by Tenant), and Alterations or
other interior improvements which Tenant is not required to remove at the
termination of the Lease. Under no circumstance shall Tenant be required to
remove any of Tenant's improvements constructed at the Premises pursuant to
such EXHIBIT "C".
14. OPTIONS TO EXTEND. Prevailing Market Rental shall be determined by
taking into account Tenant's obligations to pay Operating Expenses and Taxes
as provided in the Lease. If the Prevailing Market Rental is to be determined
by arbitration, then, if only one appraiser is selected, that appraiser shall
notify the parties in simple letter form of its determination of the
Prevailing Market Rental within fifteen (15) business days following his/her
selection, which appraisal shall be conclusive and binding on the parties as
the Prevailing Market Rental. If multiple appraisers are selected, the
appraisers shall meet not later than fifteen (15) business days following the
selection of the last appraiser. At such meeting, the appraisers shall
attempt to determine the Prevailing Market Rental as of the termination date
of the Lease by agreement of at least two (2) of the appraisers. If two (2)
or more of the appraisers agree on the Prevailing Market Rental at the
initial meeting, such agreement shall be determinative and binding upon the
parties and the agreeing appraisers shall, in simple letter form executed by
the agreeing appraisers, forthwith notify both Landlord and Tenant of the
amount set by such agreement. If multiple appraisers are selected and two (2)
appraisers are unable to agree on the Prevailing Market Rental, then all
appraisers shall submit to Landlord and Tenant an independent appraisal of
the Prevailing Market Rental within twenty (20) business days following
appointment of the final appraiser. The parties shall then determine the
Prevailing Market Rental by averaging the appraisals, provided that any high
or low appraisal, differing from the middle appraisal by more than ten
percent (10%) of the middle appraisal, shall be disregarded.
15. TENANT WORK.
(a) Landlord shall cooperate reasonably with Tenant in providing
Tenant, Tenant's Architect, and Agents reasonable access to the Premises and
to Landlord's records regarding the construction of the Premises to
facilitate Tenant's preparation of Space Plans and Final Plans for Tenant's
Work. Landlord shall not unreasonably object to Tenant's Space Plans. If,
however, Landlord and Tenant are unable to agree upon the Space Plan within
twenty (20) days after the Commencement Date, then Tenant shall have the
right to terminate the Lease, whereupon
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Landlord shall refund to Tenant the security deposit under the Lease and all
Rentals previously paid by Tenant under the Lease to the extent allocable to
periods after the date of such termination.
(b) Promptly after the approval of the Space Plan, Tenant shall
cause proposed final plans ("Final Plans") and a work cost estimate ("Work
Cost Estimate") to be prepared based upon the preliminary Space Plan. Tenant
shall deliver to Landlord copies of the Final Plans and the Work Cost
Estimate promptly after completion. Within ten (10) days after receipt
thereof, Landlord shall either approve the Final Plans or deliver to Tenant
specific written changes required by Landlord to such plans; provided,
however, that Landlord shall not withhold its approval of such plans
unreasonably and shall not in any event withhold such approval if such
proposed Final Plans conform to the preliminary Space Plan. Landlord shall
not unreasonably withhold, condition or delay Landlord's approval of Tenant's
contractor or of any changes in the approved Final Plans requested by Tenant.
(c) Tenant shall have no responsibility for the following costs
associated with Tenant's Work: (i) costs incurred to remove Hazardous
Materials present at the Premises or the Building as of the Commencement
Date; (ii) costs recoverable by Landlord on account of warranties or
insurance; and (iii) construction management or other general overhead costs
incurred by Landlord.
16. APPROVALS. Whenever the Lease requires an approval, consent,
designation, determination, selection or judgment by either Landlord or
Tenant, such approval, consent, designation, determination, selection or
judgment and any conditions imposed thereby shall be reasonable and shall not
be unreasonably withheld or delayed and, in exercising any right or remedy
hereunder, each party shall at all times act reasonably and in good faith.
17. REASONABLE EXPENDITURES. Any expenditure by a party permitted or
required under the Lease, for which such party is entitled to demand and does
demand reimbursement from the other party, shall be limited to the fair market
value of the goods and services involved, shall be reasonably incurred, and
shall be substantiated by documentary evidence available for inspection and
review by the other party or its representative during normal business hours.
18. MEMORANDUM OF LEASE. Upon Tenant's request, Landlord shall execute,
acknowledge and deliver to Tenant a memorandum of the Lease which may be
recorded by Tenant in the Official Records of Santa Clara County, California.
Upon the expiration of the term of the Lease, Tenant shall, upon Landlord's
request, execute, acknowledge and deliver to Landlord a quitclaim deed regarding
the Premises.
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IN WITNESS WHEREOF, the parties have executed this Addendum.
LANDLORD: TENANT:
OAKMEAD INVESTMENTS, CAREER CENTRAL, INC.,
a California general partnership a California corporation
By: /s/ Terry Rose By: /s/ Jeffrey Hyman
----------------------------- ----------------------------
Name: Terry Rose Name: Jeffrey Hyman
--------------------------- --------------------------
Title: Partner Title: CEO
--------------------------- --------------------------
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OFFICE SERVICE AGREEMENT
This Agreement is made this 22ND day of DECEMBER 1999, by and between EOG
42ND STREET INC., d/b/a VANTAS OFFICEING SOLUTIONS WORLDWIDE ("Center")
having offices known and numbered as SUITE 1700 (the "Facility") in the
building located at 380 LEXINGTON AVENUE, NEW YORK, NEW YORK 10168 (the
"Building") and CAREER CENTRAL CORPORATION. ("Client") a corporation, with an
address of 3500 WEST BAYSHORE RD., PALO ALTO, CA 94303 for a term of 12
months, commencing on the 1ST DAY OF JANUARY 2000 at 9 a.m. (the
"Commencement Date") and ending on the 31ST DAY OF DECEMBER 2000 at 5 p.m.
(the "Initial Term") unless renewed in accordance with Paragraph 3.
In consideration of the foregoing, the parties for themselves, their
heirs, legal representatives, successors and assigns, agree as follows:
1. CENTER'S OBLIGATIONS.
a. Subject to terms and conditions of this Agreement, Center hereby agrees
to provide Client for the Term (as defined below in Paragraph 3): (a)
the exclusive use of Furnished Private Office(s) number(s) 91.92
located in the Facility (the "Premises"); and (b) non-exclusive use of
the following services:
- Furnished, Decorated Reception Room with Professional Receptionist
- Personalized Telephone Answering During Office Hours
- 24 hour Voicemail
- 8 hours of Conference Room per month subject to prior scheduling and
use by other Clients
- Corporate Identity on Lobby Directory where Available
- Receipt of Mail and Packages
- Complete Kitchen Facilities with Coffee Service
- Utilities and Maintenance
- HVAC During Normal Business Hours
- Janitorial Services
- 8 hours per month courtesy use of other VANTAS affiliated
facilities. Locations subject to current affiliation and
availability.
b. If, for any reason, Center cannot deliver possession of the Premises to
Client on the Commencement Date, this Agreement will remain in full
force and effect, however, there will be an abatement of the Monthly
Office Charge for the period between the Commencement Date and the date
that the Premises are delivered to Client.
2. USE.
The Premises will be used by Client solely for a BUSINESS OFFICE and such
other normally incident uses and for no other purpose, in strict accordance
with the Operation Standards, with are annexed hereto as Schedule A. Client
will not offer at the Premises any services which Center provides to its
Clients, including, but not limited to those services described in Paragraph
1. Client will not make or permit to be made any use of the Premises,
Facility or Building which would violate any of the terms of this Agreemnt or
which, directly or indirectly, is forbidden by law, rule or regulation, which
may be dangerous to life, limb or property or which could in any way impair,
interfere or tend to impair or interfere with the high quality character,
reputation or appearance of the Building or the Facility or with any services
performed by Center for Client or for others. The foregoing provisions will
also apply to Client's Users (as defined in Paragraph 9).
3. RENEWAL.
Upon expiration of the Initial Term and on any subsequent renewal term (each,
a "Renewal Term" and together with the Initial Term, the "Term") of this
Agreement, the Agreement automatically will be extended for the same period
of time as the Initial Term and upon the same terms and conditions as herein
contained except for the amount of the Monthly Office Charge (as defined in
Paragraph 4) then in effect, which will each be increased by seven percent
(7%), unless either party notifies the other in writing within the period
hereinafter specified that the Agreement will not be extended. If Client has
less than three offices, such notice will be given at least sixty (60) days
prior to the expiration of the Initial Term or the Renewal Term, as the case
may be. If Client has three or more offices, such notice will be given at
least ninety (90) days prior to the expiration of the Initial Term or the
Renewal Term, as the case may be.
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4. MONTHLY OFFICE CHARGE.
a. For and during the Term of this Agreement, Client will pay to Center,
on or before the first day of each month after the Commencement Date,
the sum of $4,100 as a Monthly Office Charge (subject to increase in
accordance with Paragraph 3 above) for the Premises. If any payment of
Monthly Office Charge or other charge due under this Agreement is not
received within five (5) calendar days after its due date, the Client
will also pay, in addition to Monthly Office Charge, a late payment
charge which will be an amount equal to ten percent (10%) of any amount
owed to Center or fifty dollars ($50.00) whichever is greater. The
financial terms of this Agreement are strictly confidential and Client
agrees not to knowingly or willfully divulge this information to any
other Client or potential Client of Center.
b. The Monthly Office Charge payable during the Term of this Agreement is
subject to increase following notification of any increase in the rent,
operating expenses or taxes which the Center might receive under the
Main Lease (as defined in Paragraph 20), including any increase in
respect of past periods under the Term. Center will promptly notify
Client in writing of any such increase, and will bill Client for its
pro rata share thereof.
c. The Monthly Office Charge is based on the value of the use of the
Premises and services to be used by 4 person(s) only. If more than
said number of person(s) regularly use the Premises or services, the
Monthly Office Charge will be increased in an amount equal to One
Hundred Fifty Dollars ($150) for each such additional person.
d. If a Client check is returned for any reason, Client will pay an
additional charge of One Hundred Dollars ($100.00) per returned check
and, for the purpose of considering default and/or late charges, it
will be as if the payment represented by the returned check had never
been made.
5. REFUNDABLE RETAINER.
a. Client will deposit with Center $8,200.00, in good or certified funds,
as a non-interest bearing refundable retainer. Center may use the
refundable retainer to cure any default of Client under this Agreement,
to restore the Premises, including any and all furniture, fixtures and
equipment, provided by Center to its original condition and
configuration, reasonable wear and tear excepted, to pay for repairs to
any damage to the Premises, Facility and/or Building, caused by Client
or Client's guests, or to pay any Monthly Office Charge or other
charges that Client owes Center at or prior to the expiration of the
Term of this Agreement.
b. The refundable retainer (less any sums used by Center in accordance
with the terms and conditions of this Agreement) will be returned
within sixty (60) days after the termination of any services rendered
or expiration of the Term. Client may not direct or request that the
refundable retainer be applied in lieu of the final payment(s) of
Monthly Office Charge or service charges under this Agreement.
c. In the event that Center applies any of the refundable retainer
deposited pursuant to this Agreement, Center will have the right to
charge the Client, and Client will pay, in addition to any Monthly
Office Charge, such sums are as necessary to cause the refundable
retainer to be returned to its entire original amount.
6. SERVICES.
a. Provided Client is not in default of this Agreement, Center will make
available certain services to Client as more particularly described in
Paragraph 1. Charges for such services will be included as part of the
Monthly Office Charge.
b. Client shall pay a monthly amount equal to $120.00 in respect of the
monthly service package (the "Monthly Service Package"). Payment of
such amount will be on the same terms and conditions as those governing
the payment of the Monthly Office Charge. The Monthly Service Package
will entitle the Client to receive upon request and aggregate of four
hours per month of clerical and/or word processing services from the
center.
c. In addition to the Monthly Service Package, upon request, Center will
make available to Client additional services as Center may make generally
available, the charges for which will be established as per Center's
then scheduled rates as determined by Center. Payment for these
services will be subject to the same terms and conditions as those
governing the payment of the Monthly Office Charge. Center will have
no obligation to provide such services if Client is in default of this
Agreement or if the anticipated charges exceed the amount of the
refundable retainer. When providing services to Client that involve
third parties, Center will have the right to require Client to pay, or
to reimburse Center for, the fees and expenses of such third party in
advance.
7. TELEPHONE SERVICES.
a. Provided Client is not in default of this Agreement, Center will make
available to Client a telecommunications package, the charges for which
will be established as per Center's then scheduled rates as determined
by Center. Payment for these services will be subject to the same
terms and conditions as those governing the payment of the Monthly
Office Charge. All telephone numbers used by Client will remain at all
times the property of Center and Client will acquire no rights in the
components of the telecommunications package whatsoever.
b. Client hereby agrees to indemnify, hold harmless and to reimburse Center
for all charges associated with (1) any toll fraud traceable to
telecommunications services provided by Center to Client including, but
not limited to, unauthorized use of calling cards or telephone lines,
and (2) any advertising costs of Client involving the telephone number
assigned to it, including, without limitation, yellow pages advertising
(it being understood that Center is under no obligation to procure such
advertising and that any such advertising by Client is subject to the
Operations Standards).
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c. It is expressly acknowledged and agreed that Center will be the sole and
exclusive provider of telecommunication services to Client. Client
hereby agrees and covenants that it will not sue any other telephone
service or telephone carrier to provide it service in the Premises.
d. Center shall not be liable for any interruption or error in the
performance of its services to Client under this Paragraph "7." Client
waives any recourse against Center arising from the provision of such
services, including, without limitation, any claim of business
interruption or for any indirect, incidental, special, consequential or
punitive damages, except for claims arising out of willful misconduct
by Center.
8. LIMITATION OF LIABILITY/INSURANCE.
a. Client will indemnify and hold harmless Center from and against any
loss, damage, injury, liability or expense to or of person or property
occasioned by or resulting from any willful misconduct or grossly
negligent act on the part of Client or Client's Users. Center will not
be liable to Client or to any other person on account of loss, damage
or theft to any business or personal property of Client. Center will
not be liable for any loss, damage, injury, liability or expense to or
of person or property except as may result from Center's willful
misconduct or grossly negligent acts. Center will indemnify and hold
harmless Client from and against any loss, damage, injury, liability
or expense to or of person or property occasioned by or resulting from
any willful misconduct or grossly negligent act on the part of the
Center, its agents, employees, or invitees, or persons permitted on the
Premises by Center.
b. Center will not be liable for any claim of business interruption or for
any indirect, incidental, special, consequential exemplary or punitive
damages arising out of any failure to furnish any service or facility,
any error or omission with respect thereto, or any delay or
interruption of same. Neither Center nor any of its agents, employees,
officers or directors will be deemed to be making any representations or
warranties, whether express or implied, as to the ability of any
systems, including, without limitation, computer and electronic based
equipment, relating to the Building, Facility or Premises or to any
services to be provided hereunder to process date fields relating to
the year 2000 nor will any of them be liable for the failure of such
systems to process such date fields. Center's liability under this
Agreement will in no event exceed the amount paid by the Client for the
services for which the claim arose. The parties agree to the
allocation of risk contained herein.
c. Client will, prior to the Commencement Date of this Agreement provide
Center with a certificate of insurance evidencing General/Public
Liability coverage with liability limits of not less than One Million
Dollars ($1,000,000.00) per occurrence for Bodily Injury and/or
Property Damage Liability and One Hundred Thousand Dollars
($100,000.00) per occurrence for Fire/Legal Liability. Said insurance
coverage will remain in force during the Term of this Agreement. VANTAS
International Incorporated and EOG 42ND STREET INC. d/b/a VANTAS
OFFICING SOLUTIONS WORLDWIDE will be named as an additional named
insured on each of these policies. Client's failure to provide or
maintain such insurance will not reduce or otherwise alter Client's
liability or responsibility to pay any judgment rendered against Client
for any liability or damages. All insurance required to be maintained
by Client include a waiver of subrogation in favor of Center and the
landlord under the Main Lease. Center will not have any obligation to
maintain insurance for Client's benefit.
d. The provisions of this Paragraph 8 will survive the expiration or
earlier termination of the term of this Agreement.
9. OPERATING STANDARDS.
The Operating Standards attached to this Agreement as Schedule A, are hereby
made an integral part of this Agreement. Client, its employees, agents,
guests, invitees, visitors and/or any other persons caused to be present in
and around the Premises by the Client ("Client's Users") will perform and
abide by the Operating Standards then in effect.
10. EMPLOYMENT OF CENTER'S EMPLOYEES.
Client agrees that it will not, during the Term of this Agreement and for a
period of one year thereafter, directly or indirectly, employ or offer to
employ any person who is or has been an employee of Center without prior
consent from Center. If Client hires either an employee of Center or any
person who has been an employee of Center within six months prior to the time
such person is hired by Client, Client will be liable to Center for
liquidated damages equal to six months wages of the employee, at the rate
last paid that employee by Center. The provisions of this paragraph will
survive the Term of this Agreement.
11. ACCESS.
Center and its agents will have the right of access to the Premises at any
time for the purpose of (i) making any repairs, alterations and/or
inspections which it deems necessary in its sole discretion for the
preservation, safety or improvements of the Premises, or (ii) to show the
Premises to prospective Clients, without in any way being deemed or held to
have committed an eviction (constructive or otherwise) of or trespass against
Client.
12. RELOCATION.
Client agrees that the Center may, in its sole discretion, relocate the
Client from its present Premises to a like or similar office space within the
same Facility upon ten (10) days notice to the Client. In the event that the
Center requires the Client to relocate, the Center will bear the reasonable
moving costs of any such relocation. All of terms and conditions of this
Agreement, other than the designation of the Premises provided herein, will
remain unaffected and in full force and effect.
[illegible] Initials [illegible] Initials
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13. ASSIGNMENT AND SUBLETTING.
No assignment or subletting of the Premises, this Agreement or any part
thereof will be made by Client without Center's prior written consent, which
consent may be withheld in Center's sole discretion. Center may assign its
rights and its obligations under Agreement in whole or in part without
Client's consent.
14. TERMINATION.
a. On expiration or earlier termination of the Term, Client will, without
demand, promptly surrender and deliver the Premises, including any
furniture, fixtures and equipment provided by Center, to Center in its
original condition and configuration, reasonable wear and tear excepted.
If Client fails to so surrender and deliver the Premises, Client agrees to
pay Center, as liquidated damages, a sum equal to twice the Monthly Office
Charge for each month or portion thereof that the Client retains
possession of the Premises.
b. If Client vacates the Premises and leaves behind any property, whatsoever,
such property will be deemed abandoned by Client and may be disposed of by
Center at Client's expense and without liability to Center.
c. In the event the Premises, the Facility or the Building is damaged,
destroyed or taken by eminent domain either party may terminate this
Agreement without liability on (30) days written notice to the other party.
d. Upon early termination of the Main Lease, this Agreement will terminate
without liability to any party unless the Landlord under such Main Lease
elects to have this Agreement assigned to such Landlord or another entity as
provided in such Main Lease.
15. DEFAULT AND REMEDIES.
a. Client will be deemed to be in default of this Agreement if Client fails
to fulfill any of its terms, conditions, covenants or provisions of this
Agreement, including but not limited to (1) PAYMENT OF MONTHLY OFFICE CHARGE
AND/OR ANY OTHER CHARGES HEREUNDER WITHIN TEN DAYS OF THE DATE SUCH CHARGES
BECOME DUE; OR THE ABANDONMENT AND/OR VACATUR OF THE PREMISES BY THE CLIENT
PRIOR TO EXPIRATION OF THE TERM, OR (2) IF CLIENT BECOMES INSOLVENT, MAKES AN
ASSIGNMENT FOR THE BENEFIT OF CREDITORS OR FILES A VOLUNTARY PETITION, OR HAS
AN INVOLUNTARY PETITION FILED AGAINST IT, UNDER ANY BANKRUPTCY OR INSOLVENCY
LAW.
b. In case of such default, the Center may, at its sole discretion, terminate
this Agreement upon five days notice to the Client. Upon the expiration
the five day period, Client will vacate the Premises. Should Client fail
to vacate the Premises, the Center may:
i. re-enter and property therefrom; and
ii. disconnect any telephone lines installed for the benefit of Client; and
iii. cease supplying Client with the services described in Paragraph 1
hereof.
If Client defaults and Center takes any of the foregoing action, or
changes the locks, removes Client's property, or otherwise denies access to
Client, Center will not be liable for any damages to the Client.
c. IN ADDITION TO THE FOREGOING, Center may elect to accelerate all of
Client's obligations hereunder, including without limitation, Monthly
Office Charge and other monthly recurring charges, for all or part of the
term. Center is under no obligation, implied or otherwise, to mitigate its
damage(s) under a default by Client.
d. Should Center be unable to enter into another office service agreement
relating to the Premises, or should Center enter into another office
service agreement relating to the Premises for less than the Monthly
Office Charge which Client is obligated to pay under this Agreement,
Client will pay the amount of such deficiency, plus the expenses of
entering into such other service agreement relating to the Premises,
immediately in one lump sum, to Center upon demand and/or at Center's
option as such obligations accrue hereunder.
e. In connection with any default by Client under this Agreement, if Center
incurs attorney's fees and/or costs of collection or of ensuring
performance, Client will pay all such sums with interest, and such sums
will be deemed to be owned by Client in addition to the Monthly Office
Charge hereunder, and if the Term has expired at the time of incurring
such sums, such sums will be recoverable by Center as damages.
16. MAIL & TELEPHONE FORWARDING.
Upon expiration of the Term, Center will, unless otherwise instructed by
Client in writing no later than 30 days prior to the expiration of the Term,
forward mail to Client at its new address and give out Client's new telephone
number via a voice mail message for a period of three months at the rate of
One Hundred and Fifty Dollars ($150.00) per month, which sums will be
deducted from any amounts deposited with the Center from the refundable
retainer deposited hereunder or will otherwise be paid to the Center in
advance. Unless the Client pays the Charge set forth herein to the Center in
advance, Center will have no obligation to provide the services set forth
herein. Except as expressly provided herein, Center will have no obligation
to notify any person or entity of Client's new telephone number and address.
17. NOTICES.
Any notice under this Agreement will be in writing and will be either
delivered by hand, first class mail or by overnight courier to the party at
the address set forth below. Center hereby designates its address as:
EOG 42ND STREET INC., d/b/a VANTAS
OFFICING SOLUTIONS WORLDWIDE
380 LEXINGTON AVENUE,
SUITE 1700
New York 10168
212-551-1000
Attn: Management
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Client hereby designates its address (which address must be an address within
the United States), as
CAREER CENTRAL CORPORATION
3500 WEST BAYSHORE RD.
PALO ALTO, CA 94303
Attn: Keith D. Taylor, CFO
If such mail is properly addressed and mailed as above, it will be deemed
notice for all purposes, given when sent or delivered, even if returned as
undelivered.
18. SEVERABILITY.
The invalidity of any one or more of the sections, subsections, sentences,
clauses or words contained in this Agreement or the application thereof to
any particular set of circumstances, will not affect the validity of the
remaining portions of this Agreement or of their valid application to any
other set of circumstances. Regardless of whether or not either party has
elected to consult with legal counsel in reviewing this Agreement, it is the
intent of the parties that in no event will the terms, conditions or
provisions of this Agreement be construed against either party as the drafter
of this Agreement.
19. EXECUTION BY CLIENT.
The party or parties executing this Agreement on behalf of the Client
warrant(s) and represent(s): (i) that such executing party (or parties) has
(or have) complete and full authority to execute this Agreement on behalf of
Client; and (ii) that Client will fully perform its obligations hereunder.
20. MISCELLANEOUS.
a. Failure of the Center to insist upon the strict performance of any term
or condition of this Agreement or to exercise any right or remedy
available for a breach thereof, or acceptance of full or partial payment
during the continuance of any such breach, will not constitute a waiver
of any such breach or any such term or condition. No term or condition
of this Agreement required to be performed by Client and no breach
thereof, will be waived, altered or modified, except by a written
instrument executed by Center.
b. Time is of the essence as to the performance by Client of all covenants,
terms and provisions of this Agreement.
c. This Agreement embodies the entire understanding between the parties
relative to its subject matter, and will not be modified, changed or
altered in any respect except in writing signed by all parties.
d. This Agreement may be executed in two or more counterparts, each of which
will be deemed to be an original, but all of which together will
constitute one and the same instrument.
e. This Agreement is subject and subordinate to the Building lease governing
the Facility, under which Center is bound as tenant (the "Main Lease") and
the provisions of the Main Lease, other than as to the payment of Monthly
Office Charge or other monies, are incorporated into this Agreement as if
completely herein rewritten. Client will comply with and be bound by all
provisions of the Main Lease except that the payment of Monthly Office
Charge will be governed by the provisions of this Agreement, and Client
will indemnify and hold Center harmless from and against any claim or
liability under the Main Lease arising from Client's breach of the Main
Lease or this Agreement.
IN WITNESS WHEREOF, Center and Client have executed this Agreement as of the
date first above written.
CENTER/EOG 42ND STREET INC. D/B/A VANTAS
OFFICING SOLUTIONS WORLDWIDE
By: /s/ Kathleen A. Emam
-----------------------------------
Kathleen A. Emam, General Manager
CLIENT: CAREER CENTRAL CORPORATION
(IF A CORPORATION)
By: /s/ Kieth Taylor
----------------------------------
Name: Kieth Taylor
--------------------------------
Title: CFO
--------------------------------
[Corporate Seal]
CLIENT:
(IF AN INDIVIDUAL OR PARTNERSHIP)
By:
-----------------------------------
By:
-----------------------------------
5
<PAGE>
SCHEDULE A OPERATING STANDARDS
1. Clients and their guests will conduct themselves in a businesslike
manner; proper attire will be worn at all times; and the noise level
will be kept to a level so as not to interfere with or annoy other
Clients.
2. Client will not provide or offer to provide any services to Center's
customers if such services are available from Center.
3. Client will not prop open any corridor doors, exit doors or doors
connecting corridors during or after business hours.
4. Clients using public areas may only do so with the consent of the Center,
and those areas must be kept neat and attractive at all times.
5. Client will not conduct any activity within the Premises, Facility or
Building which in the sole judgment of the Center will create excessive
traffic or is inappropriate to a shared office environment.
6. Client may not conduct business in the corridors or any other areas except
in its designated offices or conference rooms without the written consent
of Center.
7. All corridors, halls, elevators and stairways will not be obstructed by
Client or used for any purpose other than normal egress and ingress.
8. No advertisement, identifying signs or other notices will be inscribed,
painted or affixed on any part of the corridors, doors, windows or public
areas.
9. Without Center's prior written consent, Client is not permitted to place
"mass market", direct mail or advertising (i.e. newspaper, classified
advertisements, yellow pages, billboards) using Center's assigned
telephone number or take any such action that would generate an excessive
number of incoming calls.
10. Client will not solicit clients of Center or their employees in the
Building without first obtaining Center's prior written consent.
11. Immediately following Client's use of conference room space and/or
audio/visual equipment, Client will clean up and return the space and
equipment to the state and condition it was in prior to Client's use. If
not, Center may charge Client for any other expenses required to restore
the conference space and/or equipment to its original condition.
12. Center must be notified in writing if Client desires to utilize the
conference room or other common areas of the Facility during evening
or weekend hours. Center may deny the Client access if the desired
usage is inappropriate and may disrupt normal operations.
13. Client will not, without Center's prior written consent, store or operate
any computer (except a desktop/laptop computer or fax machine) or any
other large business machines, copier and postage equipment, heating
equipment, stove, speaker phones, radios, stereo equipment or other
mechanical amplification equipment, refrigerator or coffee equipment, or
conduct a mechanical business, do any cooking, or use or allow to be used
on the Premises oil, burning fluids, gasoline, kerosene for heating,
warming or lighting. No article deemed extra hazardous on account of fire
or any explosives will be brought into said Premises or Facility. No
offensive gases, odors on liquids will be permitted.
14. Client will bring no animals into the Premises or Facility except for
those assisting disabled individuals.
15. Client will not remove furniture fixtures or decorative material from
offices or common areas without the prior written consent of Center.
16. Client will not make any additional copies of any Center issued keys. All
keys and security cards are the property of Center and must be returned
upon request or by the close of the business on the expiration or sooner
termination of the Agreement term. Any lost or unreturned keys or cards
will incur a Twenty Five Dollar ($25.00) per item charge and the cost to
re-key the office.
17. Client will not smoke nor allow smoking in any area of the Facility,
including the Premises, and will comply with all governmental regulations
and ordinances concerning smoking.
18. Client will not allow more than three visitors in the reception lobby of the
Premises at any one time.
19. Client's parking rights (if any) are defined by the Main Lease. Landlord
reserves the right to modify parking arrangements if required to do so by
Building management.
20. Any alterations to the Premises requested by Client, including affixing
anything to the walls of the Premises, will be done only (i) with the
written permission of Center, which permission may be withheld by the
Center for any reason whatsoever, and (ii) by an agent of the Center's
choosing at the Client's sole cost and expense.
6
<PAGE>
21. Any equipment desired to be used and or installed by the Client, other
than those machines ordinarily used for regular office purposes (I.E.
personal computers, personal printers, calculators, adding machines, etc.)
will be subject to the Centers prior written consent to any such use or
installation.
22. Client will cooperate and be courteous with all other occupants of the
Facility and Center's staff and personnel.
23. Upon request, Client will use a chair mat.
24. Center reserves the right, without prior notice, to modify any of the
foregoing and to make such other reasonable rules and regulations as in
its sole discretion may from time to time be needed for the safety, care,
appropriate operation and cleanliness of the Facility.
7
<PAGE>
[FLOOR PLAN]
<PAGE>
<TABLE>
<CAPTION>
<S><C>
INVOICE
TENANT: CAREER CENTRAL CORPORATION
LANDLORD: VANTAS OFFICING SOLUTIONS WORLDWIDE
TERM: 12 MONTHS
MOVE IN DATE: JANUARY 1, 2000
MOVE OUT DATE: DECEMBER 31, 2000
OFFICE SUITE NO.(S): 91,92 # OF PEOPLE: 5
CONFERENCE ROOM USAGE ALLOWANCE: UP TO 8 HOURS PER MONTH
FIXED MONTHLY OFFICE RENTAL: $4,100.00
FIXED MONTHLY FURNITURE RENTAL: N/A
FIXED MONTHLY PHONE (3)/FAX (1) CHARGE: $ 435.00
FIXED MONTHLY ADD'L PEOPLE CHARGE: N/A
REFUNDABLE SECURITY DEPOSIT: DUE AT SIGNING: $8,400.00
DUE AT LEASE SIGNING:
JANUARY 2000 RENT: $4,100.00
1ST MONTH'S PHONE (3) / FAX (1) CHARGE: $ 435.00
TELEPHONE/FAX INSTALLATION CHARGE (3): $ 600.00
T-1 INTERNET ACCESS INSTALLATION (3): $ 525.00
T-1 CABLING: $ 600.00
1ST MONTHS INTERNET ACCESS CHARGE: $ 450.00 (INCLUDES USAGE)
ONE TIME BELL ATLANTIC LISTING CHARGE: $ 35.90
BELL ATLANTIC MONTHLY CHARGE: $ 2.01
SECURITY DEPOSIT: - $8,200.00
NYS SALES TAX: $ 215.33
</TABLE>
TOTAL FIRST MONTH'S RENTAL AND CHARGES AND DEPOSIT............$15,163.24
NOTE: PLEASE BE SURE TO WRITE A SEPARATE CHECK FOR ALL DEPOSITS PAYABLE
TO EOG 42ND STREET, INC.
<PAGE>
SEVERANCE AGREEMENT
- --------------------------------------------------------------------------------
This agreement is between Career Central, Inc. located at 3500 West Bayshore,
Palo Alto, CA 94303 (Company) and Heather Martin Maier (Employee). Whereas
Career Central has extended an offer of employment to Heather Martin Maier for
the position of VP of Marketing, this agreement defines the terms should the
parties choose to terminate the employer/employee relationship.
In the event the Company chooses to terminate the employment relationship
WITHOUT CAUSE, the Employee shall be granted the following consideration:
a) The Company shall pay the Employee six months of base salary compensation in
a lump sum payment within two weeks of notification of termination.
b) Any scheduled bonuses due in the period from the notice of termination to six
months hence shall be determined and amounts included in the lump sum payment
made within two weeks of termination. The Company and the employee will use
their best efforts to determine the amount of the bonuses due.
In the event the Company terminates the employment relationship WITH CAUSE, the
Employee shall be granted no consideration other than that afforded by
California State Law.
For the purposes of this agreement, the term "cause" is defined as theft, fraud,
commission of a felony or extended unexplained absence.
The Parties agree to resolve any dispute on compensation by binding arbitration.
/s/ Jeffrey Hyman 6/29 98 /s/ Heather Martin Maier 6/29/98
- ------------------------------------ -----------------------------------
Jeffrey Hyman, Chairman Date Heather Martin Maier Date
Career Central, Inc.
<PAGE>
February 29, 2000
Mr. Sanford Fitch
52 Flood Circle
Atherton, CA 94027
Dear Sandy:
It is with great pleasure that I offer you a position with Career Central
(the "Company") as its Chief Financial Officer (C.F.O)
Needless to say, the role of C.F.O. is critical to the success of the
organization.
Position
Chief Financial Officer, reporting to the Chief Executive Officer.
As Chief Financial Officer, you will be fully responsible for leading all
financial and administrative operations of the Company. In addition, I know
you'll contribute to the overall company business strategy with Heather, Lun,
and myself as part of the executive team. Responsibilities will include, but
are not necessarily limited to, the following:
External financing and IFO
Investor relations
Serve as primary point of contact with investment banks and research analysts
Mergers and acquisitions
Recruiting, motivating, and developing a finance staff
Accounting, control, financial planning, and compliance functions
Internal procedures and controls
Management information systems
Legal, contracts and negotiations
Treasury and cash management
Facilities management
Human Resources processes
Building a finance infrastructure
Reporting, including Board of Directors packages
Compensation
Your compensation package consists of three parts: Base salary, Short-term
incentive program, and Long-term incentive (stock options).
Base salary:
The company will provide a starting annual salary of $200,000.00, equivalent
to $7,692.31 gross per pay period. There are 26 pay periods per year,
approximately every two weeks.
Short-term incentive:
<PAGE>
To further reward you for performance, you will be eligible to receive a
bonus tied to MBOs. We will mutually agree upon these MBOs within the first
30 days of your employment. Bonus will be paid quarterly and at plan, will
equal 10% of base compensation ($20,000.00)
Long-term incentive:
Upon becoming a full-time employee, it will be recommended at the first
meeting of the Company's Board of Directors following your start date, that
the Company grant you an option to purchase 288,000 shares of the Company's
Common Stock at a price per share, as determined by the Company's Board of
Directors (the "Option Grant"). Currently, this represents approximately 1.8%
of the total shares outstanding.
The Option Grant shall be subject to the terms and conditions of the
Company's Stock Option Plan and Stock Option Agreement, except with these
vesting requirements: Subject to the approval of the Company's Board of
Directors, your Option Grant will vest over a period of 44 months as follows:
12/44 after the first year (12 months); 1/44 monthly thereafter for an
additional 32 months.
Pending research with our auditors, the company will allow early exercise of
these options (to be held in escrow), assuming there are no material adverse
effects on peeling or our financing strategies.
If there should be a Change of Control, and within six months after the
Change of Control either the Company terminates your employment Without Cause
or you resign your employment for Good Reason, then the Company will provide
you with the following: 1) a lump sum payment equal to six months of your
Base Salary; and 2) two (2) years acceleration of your stock vesting, under
your outstanding stock options.
Good reason for resignation of your employment will exist if you resign your
employment within sixty (60) days of any of the following events as long as
these events occur within six (6) months after a Change of Control: 1) any
reduction in your Base Salary; 2) any material reduction in your overall
benefits; 3) any material reduction in your job duties which reduce your
overall level of responsibility; or 4) any requirement that you relocate your
office to a location more than thirty five (35) miles from its location at
the time. A resignation for any other reason or under any other circumstances
shall be a resignation Without Good Reason.
For purposes of this Agreement, the term "Change of Control" shall mean the
occurrence of any of the following two events:
(a) Any "person" (as such term is used in Sections+ 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") is or
becomes the "beneficial owner" (as defined in Rule+ 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing forty
percent (40%) or more of the total voting power represented by the Company's
then outstanding voting securities; provided, however, that a Change in
Control shall be deemed to occur in the event any one individual becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing thirty
percent (30%) or more of the voting power represented by the Company's then
outstanding voting securities; or
(b) 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
<PAGE>
seventy percent (70%) 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 all or substantially all the Company's
assets; or
If the Company should terminate your employment other than for "Cause" you
will be entitled to: (1) continuation of your base salary, less applicable
deductions, for six (6) months to be paid in accordance with normal payroll
practices ("Severance Payments"); and (ii) six (6) months acceleration of
your outstanding stock options, as if you had remained in services to the
Company for six additional months as measured from the termination date of
your employment. If the termination takes place prior to September 15, 2000,
we will vest six (6) months of your stock options.
For all purposes under this Agreement, "Cause" shall mean (i)+ failure by You
to substantially perform your duties hereunder, (ii)+ an act by You which
constitutes gross misconduct and which is injurious to the Company, (iii)+ a
breach by You of a provision of this Agreement, or (iv)+ a violation of a
federal or state law or regulation applicable to the business of the Company.
If any payment or benefit Executive would receive under this Agreement, when
combined with any other payment or benefit Executive receives pursuant to the
termination of Executive's employment with the Company ("Payment"), would (i)
constitute a "parachute" payment within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this
sentence, be subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"), then such Payment shall be either (x) the full amount of
such Payment or (y) such lesser amount as would result in no portion of the
Payment being subject to the Excise Tax, whichever of the foregoing amounts,
taking into account the applicable federal, state and local employment
taxes, income taxes, and the Excise Tax results in Executive's receipt, on an
after-tax basis, of the greater amount of the Payment notwithstanding that
all or some portion of the Payment may be subject to the Excise Tax.
Provided you submit valid receipts, the Company will reimburse you for
reasonable home office and travel expenses.
In addition to the compensation described above, as an employee, you are also
eligible to receive certain employee benefits including, medical, dental and
vision coverage, life insurance, disability issuance, 401(k) and other
value-added benefits. These benefits begin on your date of hire.
Additionally, you will accrue three weeks of paid time off (PTO) each year.
On your first day, you will be provided with the appropriate information
regarding all of the benefit choices and you will have the option to select
the benefits that most fit your individual and family needs. you should note
that the Company may modify salary and benefits from time to time as it deems
necessary.
The Company is excited about your joining and looks forward to a beneficial
and fruitful relationship. Nevertheless, you should be aware that your
employment is for no specified period and constitutes at-will employment. As
a result, you are free to resign at any time, for any reason or for no
reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause, and with or without
notice. The only person that has the authority to change this status is the
Chief Executive Officer and this change must be in writing.
<PAGE>
In joining Career Central, you will be required to sign a Confidentiality
Agreement and Arbitration Agreement. Our Confidentiality Agreement requires
that you not reveal confidential information during & after employment with
Career Central Corporation.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below. If you accept this offer, we anticipate
your start date will be no later than Monday March 6, 2000. This letter,
along with any agreements relating to proprietary rights between you and the
Company, set forth the terms of your employment with the Company and
supercede any prior representations or agreements, whether written or oral.
This letter, including, but not limited to, its at-will employment provision,
may not be modified or amended except by a written agreement signed by the
Chief Executive Officer of the Company. This offer of employment will
terminate if it is not accepted, signed, and returned by 9pm PST on Tuesday
February 29, 2000.
Sandy, I trust you will find this plan to be a sign of our respect for your
experience and our estimation of your professional contribution.
Best regards,
Jeffrey Hyman
President and Chief Executive Officer
Signed and agreed to on this:
29th day of February 2000
Sandy Fitch
/s/ Sandy Fitch
<PAGE>
EXHIBIT 23.1
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 17, 2000, except for paragraph 4 of Note 1, as
to which the date is April , 2000, in the Registration Statement (Form S-1
No. 333- ) and the related Prospectus of Cruel World, Inc. dated on or about
April 7, 2000.
San Francisco, California
April , 2000
The foregoing consent is in the form that will be signed upon completion of
the reincorporation described in paragraph 4 of Note 1 to the financial
statements.
San Francisco, California /s/ ERNST & YOUNG
LLP
April 7, 2000
