<PAGE>
As filed with the Securities and Exchange Commission on May 11, 2000.
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PHASE2MEDIA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7319 13-4052390
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
420 Lexington Avenue
New York, NY 10170
(212) 883-4700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Richard E. Glassberg
Chief Executive Officer
420 Lexington Avenue
New York, NY 10170
(212) 883-4700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
with copies to:
<TABLE>
<S> <C>
Steven I. Suzzan, Esq. Joseph E. Mullaney III, Esq.
Fulbright & Jaworski L.L.P. Mintz, Levin, Cohn, Ferris,
666 Fifth Avenue Glovsky and Popeo, P.C.
New York, New York 10103 One Financial Center
(212) 318-3000 Boston, MA 02111
Facsimile: (212) 752-5958 (617) 542-6000
Facsimile: (617) 542-2241
</TABLE>
Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed maximum
Title of each class of securities to be Aggregate offering Amount of
registered price (1) registration fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Common stock, $0.001 par value per
share................................... $57,500,000 $15,180
</TABLE>
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- --------------------------------------------------------------------------------
(1) Estimated solely for purpose of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
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, or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 11, 2000
[PHASE2MEDIA LOGO]
Shares
Common Stock
Phase2Media, Inc. is offering shares of its common stock. This is our
initial public offering and no public market currently exists for our shares.
We have applied for approval for quotation of our common stock on the Nasdaq
National Market under the symbol "PTWO." We anticipate that the initial public
offering price will be between $ and $ per share.
--------------
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 Phase2Media......................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Phase2Media has granted the underwriters a 30-day option to purchase an
additional shares of common stock to cover over-allotments.
--------------
Robertson Stephens
Chase H&Q
Thomas Weisel Partners LLC
DLJdirect Inc.
The date of this Prospectus is , 2000
<PAGE>
Description of Inside Cover Fold-Out Artwork
Upper left corner contains the Phase2Media logo.
Upper center of left side of fold-out contains text "Experienced Online Sales
and Marketing Professionals."
Center of left side of fold-out contains the text "Phase2Media Sales Process:"
below which lie horizontal numbered boxes describing the sales process.
Box 1 contains title "Identify Branded Web Sites" followed by text:
"Branded Web sites are identified on the basis of name recognition, visitor
traffic, consumer demographics, content, market position and management
team."
Box 2 contains title "Establish Exclusive Relationship" followed by text:
"Phase2Media enters into exclusive one to three year agreements with
branded Web publishers to sell advertising inventory on their Web sites."
Box 3 contains title "Marketing" followed by text:
"Phase2Media conducts comprehensive demographic site research and develops
custom marketing materials that identify the unique selling points of each
Web publisher site."
Box 4 contains title "Ad Sales" followed by text:
"Our experienced professionals identify potential advertisers and develop
advertising campaigns that match advertiser objectives with Web site
characteristics."
Box 5 contains title "Ad Operations" followed by text:
"Our experienced professionals use third-party ad serving and tracking
technology to execute, manage and optimize campaigns."
Box 6 contains title "Customer Service" followed by text:
"Our customer service professionals use our ad management system to respond
to the needs of our clients and to monitor overall client satisfaction."
Main title on right side of fold-out contains text "Phase2Media represents over
60 branded Web sites."
Right side of fold-out contains vertical alignment of the following Web client
screen shots:
. AmericanGreetings.com
. Britannica.com
. Elle.com
. FreeLotto.com
. MaximOnline.com
. Prodigy.net
. Sothebys.com
. Sydney 2000 Olympic Games
<PAGE>
The bottom of the right side of fold-out contains the Phase2Media logo followed
by the text "Phase2Media has sold advertisements to numerous companies,
including:" and lists the following names:
. Ameritech
. AT&T
. Ford
. Gateway
. General Motors
. IBM
. Johnson & Johnson
. Maybelline
. Macy*s
. Neiman Marcus
. Sears
. Visa
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be
required to deliver a prospectus. This is in addition to the dealer's
obligation to deliver a prospectus when acting as an underwriter and with
respect to their unsold allotments or subscriptions.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 27
Management............................................................... 37
Transactions with Management and Related Parties......................... 46
Principal Stockholders................................................... 49
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 57
Legal Matters............................................................ 60
Experts.................................................................. 60
Where You Can Find More Information...................................... 60
Index to Financial Statements............................................ F-1
</TABLE>
----------------
"Phase2Media" and our logo are our registered trademarks. Other trademarks,
tradenames and service marks referred to in this prospectus are the property of
their respective owners.
3
<PAGE>
SUMMARY
The information below is only a summary of more detailed information included
in other sections of this prospectus. The other information is important, so
please read this entire prospectus carefully.
Our Company
Phase2Media is a leading Internet advertising sales and marketing
organization that sells advertising inventory on the Web sites of branded Web
publishers. We provide a comprehensive sales solution to Web publishers which
includes the sale of ad inventory, as well as a full complement of strategic,
marketing and consulting services. Our exclusive sales relationships with
branded Web sites enable us to offer their most desirable advertising space to
advertisers.
We identify branded Web publishers on the basis of a number of criteria,
including name recognition, high visitor traffic, desirable consumer
demographics, compelling content, a visible market position and an experienced
management team. We currently have agreements to sell the ad inventory of over
60 branded sites, including Prodigy Communications and all of Hachette
Filipacchi's online properties, such as Elle, George and Road&Track. Branded
Web sites typically generate significantly higher advertising rates than
industry averages. We enhance the unique capabilities of these Web sites with
our experienced sales organization of over 70 professionals to maximize the
value of their ad inventory. We work closely with our clients to understand
their core audience and develop marketing materials that highlight attractive
advertising and sponsorship opportunities to advertisers.
Our Market Opportunity
The Internet has created an advertising medium capable of offering levels of
targeting and measurement not possible with traditional media. As branded Web
publishers attempt to maximize revenue from their advertising inventory they
must decide whether to bear the costs of building an in-house ad sales force or
to outsource those functions. These Web publishers also face the challenges of
maintaining their brand value, managing their ad inventory, accessing the most
appropriate ad serving and tracking technologies and realizing value from user
information. Advertisers that seek to enhance the effectiveness of their
campaigns are challenged by the complexities of this new medium, by a lack of
strategic online expertise and by the inefficiencies of current online campaign
refinement tools. These obstacles to branded Web publishers and Web advertisers
present a compelling opportunity for providers of online advertising services.
Our Solution
We address the needs of both Web publishers and advertisers by focusing on
the sale of the advertising inventory of branded Web sites to advertisers
seeking to target a particular audience. Our solution offers Web publishers
access to an experienced sales organization with expertise in both online and
traditional media. Our team of professionals develops customized advertising
and marketing strategies that emphasize brand name and specific user
demographics.
4
<PAGE>
We give advertisers the strategic sales advice they need to help them reach
their desired audience through strategic online ad placement. We develop
integrated advertising solutions such as sponsorships that allow advertisers to
place their advertisements in a more relevant and targeted context. Our
professional staff collects and analyzes data on campaign effectiveness and
recommends refinements in ad placement.
Our Strategy
Our objective is to become the premier sales and marketing organization
selling the advertising inventory of branded Web publishers. The following are
the key elements of our strategy to achieve this objective:
. expand our branded client base;
. grow our sales and marketing organization;
. further develop our direct marketing business; and
. expand our international operations.
Corporate Information
We were incorporated in Delaware on March 30, 1999 and changed our name to
Phase2Media, Inc. on December 14, 1999. Our principal executive offices are
located at 420 Lexington Avenue, New York, New York 10170 and our telephone
number at that address is (212) 883-4700. Our Web site is located at
www.phase2media.com. Information contained on our Web site is not part of this
prospectus.
5
<PAGE>
The Offering
Common stock offered by Phase2Media... shares
Common stock to be outstanding after this offering..
shares
Use of proceeds....................... We intend to use the net proceeds
from this offering to expand our
sales force and for general
corporate purposes, including
working capital. See "Use of
Proceeds."
Proposed Nasdaq National Market PTWO
Symbol................................
This information is based on the number of shares outstanding at March 31,
2000. This information excludes:
. 11,741,391 shares subject to options outstanding at a weighted average
exercise price of $0.52 per share;
. 4,287,609 shares available for future grant or issuance under our stock
option plans;
. 995,000 shares subject to warrants to purchase our common stock at a
weighted average exercise price of $1.77 per share; and
. up to 450,000 shares subject to warrants to purchase our common stock,
which warrants may be issued if either revenue or operating targets are
achieved. The exercise price of these warrants will be equal to 85% of
the fair market value of our common stock on the date the warrants are
issued.
--------------------
Except as otherwise stated, all information in this prospectus assumes:
. the conversion of all shares of our class A common stock, series A
preferred stock, series B preferred stock, series C preferred stock and
series D preferred stock into an aggregate of shares of common
stock immediately prior to the completion of this offering, assuming an
initial public offering price of $ per share; and
. no exercise of the underwriters' over-allotment option.
6
<PAGE>
Summary Financial Data
(in thousands, except per share data)
The following summary financial information is derived from and should be
read together with our financial statements and the related notes included
elsewhere in this prospectus. Please also read "Use of Proceeds,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Period from March
30, 1999
(inception) to Three Months Ended
December 31, 1999 March 31, 2000
----------------- ------------------
<S> <C> <C>
Operating Data:
System revenue............................ $ 9,576 $11,730
Statement of Operations Data:
Revenue................................... $ 4,452 $ 5,253
Gross profit.............................. 2,344 3,344
Loss from operations...................... (5,841) (3,486)
Net loss applicable to common
stockholders............................. (6,136) (3,676)
Basic and diluted net loss per share
applicable to common stockholders........ $ (0.58) $ (0.54)
Shares used in calculating basic and
diluted net loss per share applicable to
common stockholders...................... 10,587 6,862
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................... $17,693 $ $
Working capital................................. 18,466
Total assets.................................... 35,324
Redeemable convertible preferred stock.......... 2,090
Total stockholders' equity...................... 18,713
</TABLE>
The pro forma balance sheet data summarized above reflect the conversion of
all our outstanding shares of preferred stock into common stock. The pro forma
as adjusted balance sheet data reflect the conversion of all of our outstanding
shares of preferred stock into common stock and the application of the
estimated net proceeds from the sale of the shares of common stock offered
by us at an assumed initial public offering price of $ per share after
deducting the underwriting discounts and commissions and the estimated offering
expenses payable by us.
System revenue represents the full value of gross billings for ads sold under
either commission-based contracts or service fee-based contracts and related
consulting revenue. Although system revenue is not recognized under generally
accepted accounting principles, we believe that system revenue is a standard
measure of advertising volume for the Internet advertising industry that
enables a meaningful comparison of activity from period to period and from one
company to another.
7
<PAGE>
RISK FACTORS
Investing in our common stock involves risks and uncertainties. You should
carefully consider the following risk factors in addition to the other
information in this prospectus before you decide to buy our common stock. If
any of the following risks actually occur, our business, financial condition or
results of operations may suffer. In these circumstances, the trading price of
our common stock could decline and you could lose all or part of your
investment.
Risks Related to Our Business
Our limited operating history makes it difficult for you to evaluate our
business and our prospects for success.
We began our business in March 1999 and therefore have only a limited
operating history upon which you can evaluate our business. Our prospects for
success must be considered in light of the risks, uncertainties and
difficulties frequently encountered by early-stage companies in the rapidly
evolving Internet advertising market. These risks include our ability to:
. maintain and increase our client base;
. maintain and develop new relationships with advertisers and ad agencies;
. continue to attract and retain qualified professionals;
. anticipate and respond to competitive developments and new market
entrants;
. manage and expand our operations; and
. raise additional capital.
If we are unable to address these risks, we may be unable to compete
effectively and our stock price may decline.
We have a history of losses and anticipate substantial losses in the future.
We incurred net losses of approximately $5.8 million in 1999 and $3.3 million
in the first quarter of 2000. Although we have experienced growth in revenue in
recent periods, this growth may not be sustained and is not necessarily
indicative of our future revenue. We have not achieved profitability and, given
our planned operating and capital expenditures, we expect to continue to incur
significant operating losses for the foreseeable future. We anticipate that our
operating expenses will increase substantially in the foreseeable future as we
expand sales and marketing operations, customer service capabilities and
international operations. Even if we do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or annual basis. If
our revenue grows more slowly than we anticipate, or if our operating expenses
exceed our expectations and cannot be adjusted quickly, our revenue and income
would be materially and adversely affected.
Our quarterly operating results may fluctuate significantly, which may make it
difficult to forecast our future performance and may adversely affect our stock
price.
Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control.
These factors include:
. the loss of Web publisher clients;
. the loss of advertisers on our clients' Web sites;
. price reductions resulting from competitive conditions;
8
<PAGE>
. a reduction in fees paid by advertisers;
. variations in the demand for Internet ad space;
. seasonality in the demand for advertising;
. variations in the levels of capital or operating expenditures and other
costs relating to the expansion of our operations; and
. general economic conditions.
In light of these factors, we believe that period to period comparisons of
our results of operations may not be meaningful. As a result, you should not
rely on past periods as indicative of future performance. In future periods,
significant fluctuations in our results of operations could result in
volatility in our stock price. In future periods, our results of operations may
fall below the expectations of securities analysts and investors, which could
adversely affect the price of our common stock.
We derive a substantial portion of our revenue from a limited number of Web
publishers, and the loss of even one of these relationships could harm our
business.
Sales of the advertising inventory of our largest client, FreeLotto.com,
accounted for 47.2% of our revenue and 76.3% of our system revenue in 1999 and
53.5% of our revenue and 80.3% of our system revenue in the first quarter of
2000. It is anticipated that FreeLotto will continue to represent a material
portion of our revenue for the foreseeable future. Because a key part of our
strategy is to target a select group of branded Web sites, we expect that a
limited number of clients will continue to account for a significant portion of
our revenue for the foreseeable future. As a result, if we lose even one major
client, our revenue would be adversely affected. In addition, we cannot assure
you that clients that have accounted for significant revenue in past periods
will continue to generate revenue in any future period.
If we lose our key executives or fail to recruit and retain experienced sales
professionals, our business will be harmed.
Our continued growth and success will depend in large part on the continued
leadership of Richard E. Glassberg, our chief executive officer, as well as
other members of our senior management team. These executives are instrumental
to the management and growth of our business. The loss of any of these
executives could disrupt our growth, result in lost revenue or an increase in
our net loss. Our success will also depend on our ability to attract and retain
experienced sales professionals. Competition for these professionals is
intense, and we may not be able to recruit or retain the caliber of staff
required to carry out essential functions at the pace necessary to sustain and
grow our business.
Our business will suffer if we are unable to successfully implement our
business strategy, which is unproven.
We generate revenue by selling the advertising inventory of a select number
of branded Web sites, many of which are not profitable. The profit potential of
our business strategy is unproven. We cannot assure you that our solutions
addressed to branded Web sites will achieve and maintain sufficient market
acceptance. Even if Internet advertising gains broad acceptance, Web sites may
choose to sell and manage advertising themselves and not engage independent
companies such as ours. If the proportion of Web sites that rely on their in-
house ad sales forces increases, our ability to generate ad sales revenue will
be diminished.
9
<PAGE>
Our future success will depend upon the success of the Internet as an
advertising medium, which remains uncertain.
We derive substantially all of our revenue from selling the advertising
inventory of Web publishers. Therefore, our future success will depend on the
increased acceptance and use of the Internet as an advertising medium. For a
number of reasons, advertisers and advertising agencies may be reluctant or
slow to advertise on the Web. For example, (1) the Web has not existed long
enough as an advertising medium to demonstrate its effectiveness relative to
traditional media such as television, radio, cable and print, (2) advertisers
and advertising agencies that have invested substantial resources in, and
understand, traditional methods of advertising may be reluctant to reallocate
their media buying resources, (3) the widespread adoption of technologies that
permit Web users to block advertisements could inhibit the growth of the Web as
an advertising medium and (4) negative press reports or public perception of
unsolicited e-mail or other advertisements, or government regulation relating
to unsolicited e-mail or other advertisements, could keep advertisers and
advertising agencies from advertising on the Web. If the market for Web
advertising fails to develop or develops more slowly than we expect, then our
business and financial results would be harmed.
Electronic commerce Web sites are significant online advertisers and,
consequently, our future sales will depend substantially upon the widespread
acceptance of the Internet as an effective medium of commerce. A number of
factors outside of our control could prevent this acceptance, including the
following:
. the necessary network infrastructure for substantial growth in usage of
the Internet may not develop adequately;
. insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and
. negative publicity and consumer concern surrounding the security of
transactions could impede the growth of electronic commerce.
If electronic commerce does not grow or grows slower than we expect, our
ability to generate revenue could suffer.
We face intense competition, and if we are unable to compete successfully, we
will lose market share and our business will suffer.
The online advertising market is extremely competitive. Our competitors
include:
. third-party Internet advertising networks;
. large Internet media companies, Internet search engine companies and
Internet service providers;
. providers of advertising inventory management products and related
services; and
. in-house sales forces of Web publishers.
Third-party Internet advertising networks include CMGI, DoubleClick and 24/7
Media. Large Internet media companies, search engine companies and Internet
service providers that we compete with include America Online, CNN, Excite,
Infoseek and Yahoo!. Providers of advertising inventory management products and
related services include Accipiter, AdForce, DoubleClick and Engage
Technologies. We also compete with the in-house sales forces of some of our
clients. We also compete with television, radio, cable and print for a share of
the overall advertising budgets of advertisers.
10
<PAGE>
Many of our existing competitors, as well as a number of prospective
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources than we
can to the development, promotion and sale of their services. These competitors
may also undertake more far-reaching marketing campaigns, adopt more aggressive
pricing policies and make more attractive offers to existing and potential
employees, strategic partners, advertisers and Web sites. Our competitors may
offer services that achieve greater market acceptance than our services. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the ability of their products or services to address the needs of prospective
advertisers and Web sites. We may not be able to compete successfully, and
competitive pressures may harm our business.
Failure to manage our growth could reduce our revenue or result in additional
operating losses.
We have experienced rapid growth and expansion and expect this trend to
continue. This growth has placed and is expected to continue to place a
significant strain on our infrastructure, management, internal controls and
financial systems. We may not be able to effectively manage our present growth
or any future expansion. To support our growth, many of our key managerial and
sales positions have been recently filled with new employees who have not been
fully integrated into our business. Inadequate integration and training of our
employees may result in underutilization of our workforce and may increase
expenses.
We may not be able to obtain sufficient funds to grow our business on an
acceptable basis, if at all.
We currently believe the net proceeds from this offering, together with our
current cash and our anticipated operating income, will be sufficient to fund
our planned working capital and capital expenditure requirements for at least
the next 12 months. However, due to our limited operating history and the
nature of our industry, our future capital needs are difficult to predict.
Therefore, we may require additional capital sooner than we expect to support
our future operations or the planned expansion of our business. We may not be
able to obtain additional funding, if required, in amounts or on terms
acceptable to us. Raising funds by issuing equity securities or convertible
debt securities will dilute the percentage ownership of stockholders, and any
new securities we may issue may have rights senior to the rights of our common
stock. If we are unable to raise additional capital or additional capital is
not available, our growth could be impeded.
We will be subject to risks associated with international expansion.
Our strategy of expanding our international business will expose us to
additional risks. We expect to incur significant costs for our international
operations as we add staff and facilities to serve foreign markets. These
costs, together with the costs of the overhead needed to comply with legal and
regulatory requirements that differ from those in the United States, may
increase our operating losses. Foreign operations are particularly difficult to
staff and manage. In addition, our international operations will be subject to
disruption from political and economic instability in the countries in which
they may be located, which may interrupt our ability to conduct business and
impose additional costs upon us.
Because we rely on the ad delivery, targeting and tracking technologies of
third parties, we may be unable to respond quickly and effectively to
technological change.
Online advertising markets are characterized by rapidly changing
technologies, evolving industry standards, frequent new product and service
introductions and changing customer demands. We license all of our ad delivery,
targeting and tracking technologies from third parties.
11
<PAGE>
Our future success will depend on our ability to continue to license these
technologies, and to license new technologies as they become available, from
third parties on terms that are acceptable to us. Our failure to license or
otherwise obtain access to these technologies could adversely affect our
business and financial results.
We may be required to expend significant resources defending claims if third
parties allege that we are liable for the advertising content that we post on
our clients' Web sites.
Third parties may allege that we are liable for the advertising content that
we post on our clients' Web sites if the music, artwork, text or other content
involved violates the copyright, trademark or other intellectual property
rights of third parties or if the content is obscene or defamatory. Any claims
or counterclaims, even if without merit, could be time-consuming, result in
costly litigation and divert management's attention.
Risks Related to the Internet Industry
Privacy concerns may lead to restrictions on Internet advertising.
Potential governmental and consumer reactions to concerns about privacy and
the Internet pose risks to our business. Many Web sites, including those
maintained by our clients, collect personal data through registrations and
surveys and use that data to build profiles for advertising. There is
substantial public debate over the collection and use of Internet user
information. Some United States legislators have introduced bills that would
regulate the collection and use of personal data from Internet users. The
European Union has adopted a directive addressing data privacy that may result
in limitations on the collection and use of this private information. Many
proposals focus on requiring the consent of the Internet user before collecting
the user's information. While currently the more common practice is to give
users the option to prohibit the use of their personal data for profiling uses,
it may become the standard practice to require users to approve the use of
personal data. If an online user must approve the use of personal information,
rather than not prohibit it, the number of users about whom information can be
collected and to whom targeted ads can be delivered may decrease. This may
limit the effectiveness of our sales and marketing efforts and adversely affect
our financial condition and results of operations.
Government regulation and legal uncertainties of doing business on the Internet
could significantly increase our costs and expenses and impair the
proliferation of the Internet.
Laws and regulations that apply to Internet communication, commerce and
advertising are becoming more prevalent. These laws and regulations could
significantly increase the costs we incur in using the Internet to conduct our
business. These laws and regulations could also impair the proliferation of the
Internet as a medium for communication, commerce and advertising. Recently, the
U.S. Congress enacted Internet legislation regarding children's privacy,
copyright and taxation. A number of other laws and regulations may be adopted
that regulate the use of the Internet, including pricing, acceptable content,
taxation, use of the telecommunications infrastructure and quality of products
and services. The laws governing the Internet remain largely unsettled, even in
areas where there has been some legislative action. It may take years to
determine whether and how existing laws, including those governing intellectual
property, libel and taxation apply to the Internet and Internet advertising. In
addition, the growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet. As a result of these uncertainties, the growth of
the Internet may be impaired. In addition, we may incur unanticipated,
significant costs and expenses. If the growth of the Internet is impaired or if
we incur unanticipated costs and expenses, our financial results and condition
would be impaired.
12
<PAGE>
If we are unable to safeguard the security and privacy of our information, our
results of operations may suffer.
Our technical infrastructure is potentially vulnerable to physical or
electronic computer break-ins and similar disruptive problems. Weaknesses or
vulnerabilities in the Internet, a user's personal computer or in our services
could compromise the confidential nature of information transmitted over the
Internet. These factors could require us to devote significant financial and
managerial resources to protect against future breaches and alleviate or
mitigate problems caused by security breaches. Security breaches could result
in financial loss, litigation and other liabilities, any of which could cause
our results of operations to suffer.
Failure of the Web infrastructure to support the growth of the electronic
marketplace could limit the growth of our business.
The Internet may not in the future be a viable commercial marketplace because
of inadequate development of the necessary infrastructure, slow development of
complementary products, including high-speed modems, delays in the development
or adoption of new standards and protocols required to handle increased levels
of Internet activity or increased government regulation. To the extent that the
Internet continues to experience significant growth in the number of users and
the level of use, we cannot assure you that the Internet infrastructure will
continue to be able to support the demands placed on it by its users. If the
necessary infrastructure or complementary products are not developed, our
business may not grow and would likely suffer.
We may be vulnerable to computer viruses and other disruptive problems caused
by unauthorized or illegal access that could adversely affect the quality of
our services and require us to expend significant resources.
Our networks and the third party systems upon which we rely may be vulnerable
to viruses and other disruptive problems caused by unauthorized or illegal
access, which could require us to expend significant capital or other resources
to protect against and prevent security breaches causing accidental or
intentional interruptions. In addition, eliminating computer viruses and
alleviating other disruptive problems may require interruptions, delays or
cessation of service to our members, which could reduce the benefits of our
services to our Web publisher customers and advertisers. A party who is able to
circumvent security measures could cause interruptions in our operations.
Internet service providers and other online service providers have in the past
experienced, and in the future are likely to experience, interruptions in
service as a result of the accidental or intentional actions of Internet users,
current and former employees or others. We cannot assure you that measures
implemented by us or by our third party providers will not be circumvented in
the future.
We run the risk of system failure.
The continuing and uninterrupted performance of our computer system is
critical to our success. Advertisers and Web publishers may become dissatisfied
by any system failure that interrupts our ability to provide our services to
them. Sustained or repeated system failures would reduce significantly the
attractiveness of our services to our customers. Our operations depend on our
ability to protect our computer system against damage from fire, power loss,
water damage, telecommunications failures, vandalism and other malicious acts,
and similar unexpected adverse events. In addition, interruptions in our
services could result from the failure of our telecommunications providers to
provide the necessary data communications capacity in the time frame required.
13
<PAGE>
Risks Related to this Offering
We will have broad discretion in the use of the net proceeds of this offering.
We cannot specify with certainty the particular uses for most of the net
proceeds to be received upon the completion of this offering. Our management
will have broad discretion in the application of the net proceeds of this
offering, and we cannot assure you that our management will use the proceeds in
a manner that benefits our company. The net proceeds of this offering will be
used for working capital and for general corporate purposes, including capital
expenditures and potential future acquisitions.
No public market for our common stock currently exists and an active trading
market may not develop or be sustained following this offering.
Prior to this offering, there has been no public market for our common stock.
We cannot assure you an active trading market for our common stock will develop
or be sustained following this offering. Further, we cannot be certain that the
market price of our common stock will not decline below the initial public
offering price. The initial public offering price will be determined by
negotiation between us and the underwriters based upon several factors and may
not be indicative of future market prices for our common stock.
Our stock price may be highly volatile and could drop unexpectedly,
particularly because we are an Internet-related company.
The market price for the common stock of Internet-related companies often
reach levels that bear no relationship to the operating results of these
companies. These market prices are generally not sustainable and could vary
widely. The market price of our common stock is likely to be highly volatile,
as the market for Internet-related companies, in particular, has been highly
volatile. Our common stock may experience a significant decline at any time. We
cannot assure you that our common stock will trade at the same levels as other
Internet-related stocks or that Internet-related stocks in general will sustain
their current market prices.
Following a significant decline in the market price of a company's
securities, securities class action litigation has often been instituted. If
this were to happen to us, even if the claims had no merit, litigation would be
expensive and would divert management's attention from the operation of our
business.
Our principal stockholders, executive officers and directors will have
substantial control over all matters requiring stockholder approval, including
a change of control that you might otherwise approve.
Our executive officers and directors and entities affiliated with them will,
in the aggregate, beneficially own approximately % of our common stock
following this offering. In particular, entities affiliated with three of our
non-employee directors will collectively own approximately % of our
outstanding common stock. Richard E. Glassberg, the chairman of our board of
directors and our chief executive officer, will own approximately % of our
outstanding common stock. All of these stockholders acting together will have
the ability to exert substantial influence over all matters requiring approval
by our stockholders. These matters include the election and removal of
directors and any merger, consolidation or sale of all or substantially all of
our assets. In addition, they may dictate the management of our business and
affairs. Such a concentration of ownership could have the effect of delaying,
deferring or preventing a change in control, or impeding a merger or
consolidation, takeover or other business combination.
14
<PAGE>
Substantial sales of our common stock, or the perception by the market that
such sales are likely to occur, could cause our stock price to decline.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market following this offering, or if the market perceives that they are
likely to sell, then the market price of our common stock could fall.
Restrictions under the securities laws and lock-up agreements limit the number
of shares of common stock available for sale in the public market. The holders
of substantially all shares of common stock, warrants and options exercisable
into shares of common stock have agreed not to sell any of these securities for
180 days after the effective date of the offering without the prior written
consent of FleetBoston Robertson Stephens Inc. However, FleetBoston Robertson
Stephens Inc. may, in its sole discretion, release all or any portion of the
securities subject to these lock-up agreements at any time and from time to
time.
We intend to file a registration statement to register all shares of common
stock under our stock option plans shortly following this offering. After this
registration statement is effective and upon expiration or release of
applicable lock-up restrictions, shares issued upon exercise of stock options
will be eligible for resale in the public market without further restriction.
In addition, the holders of 48,993,695 shares of our common stock and warrants
to purchase an additional 760,000 shares of our common stock hold registration
rights. After the expiration or release of applicable lock-up restrictions, we
will be obligated, subject to specified conditions, to use our best efforts to
register these shares for resale. See "Description of Capital Stock--
Registration Rights."
You will suffer immediate and substantial dilution in the book value of your
investment.
The initial public offering price per share in this offering will
significantly exceed our net tangible book value per share. If we were to
liquidate immediately after the offering, investors purchasing shares in this
offering would receive a per share amount of tangible assets net of liabilities
that would be less than the initial public offering price per share. Investors
purchasing shares in this offering will suffer dilution of $ per share from
their investment.
We intend to adopt antitakeover provisions that could make the sale of
Phase2Media more difficult.
Our certificate of incorporation and bylaws will contain provisions, such as
undesignated preferred stock, which could make it more difficult for a third
party to acquire us without the consent of our board of directors. In addition,
our board of directors intends to adopt amendments to our certificate of
incorporation and bylaws, which will provide for a staggered board, advance
notice of stockholder proposals and restrictions on the persons that may call
special stockholder meetings. These provisions may delay or prevent a change of
control of Phase2Media even if this change of control would benefit our
stockholders.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. In addition, in this
prospectus, the words "believe," "may," "will," "estimate," "continue,"
"anticipate," "intend," "expect" and similar expressions, as they relate to
Phase2Media, our business or our management, are intended to identify forward-
looking statements. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting the financial condition of our business. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-
looking statements.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock offered by us, at an assumed initial public offering price of $
per share, and after deducting underwriting discounts and commissions and the
estimated offering expenses payable by us, will be approximately $ , or
$ if the underwriters' over-allotment option is exercised in full.
The principal purposes of this offering are to raise additional capital, to
create a public market for our common stock and to facilitate our future access
to the capital markets. We intend to use the net proceeds of this offering to
expand our sales force and for general corporate purposes, including working
capital. Our management will retain broad discretion in the allocation of the
net proceeds of this offering.
Pending these uses, we intend to invest the net proceeds in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently anticipate that we will retain any future earnings for the
development and operation of our business. Therefore, we do not anticipate
paying cash dividends on our common stock in the foreseeable future. Any future
dividends will be at the discretion of our board of directors.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at March 31, 2000:
. on an actual basis;
. on a pro forma basis to reflect the conversion of all outstanding shares
of our class A common stock, series A preferred stock (the difference
between the fair market value of common stock issued upon the conversion
of series A preferred stock and its carrying value will be accounted for
as a dividend), series B preferred stock, series C preferred stock and
series D preferred stock into shares of common stock; and
. on a pro forma as adjusted basis to reflect the preceding pro forma
adjustments and our sale of shares of common stock in this
offering at an assumed initial public offering price of $ per share
and the application of the estimated net proceeds, after deducting
underwriting discounts and commissions and the estimated offering
expenses payable by us.
The table should be read in conjunction with our financial statements and the
related notes, which are included elsewhere in this prospectus, as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
March 31, 2000
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- ------- -----------
(in thousands)
<S> <C> <C> <C>
Series A redeemable convertible preferred stock,
$.001 par value, 150,000 shares designated,
9,000 shares issued and outstanding actual; no
shares designated, issued and outstanding pro
forma and pro forma as adjusted................ $ 2,090 $ $
Stockholders' equity:
Preferred stock, $.001 par value: 50,000,000
shares authorized actual, pro forma and pro
forma as adjusted:
Series B convertible preferred stock,
23,000,000 shares designated, 22,910,000
shares issued and outstanding actual; no
shares designated, issued and outstanding pro
forma and pro forma as adjusted.............. 8,572
Series C convertible preferred stock,
9,908,000 shares designated, 9,908,000 shares
issued and outstanding actual; no shares
designated, issued and outstanding pro forma
and pro forma as adjusted.................... 3,900
Series D convertible preferred stock,
11,363,195 shares designated, 11,363,195
shares issued and outstanding actual; no
shares designated, issued and outstanding pro
forma and pro forma as adjusted.............. 17,375
Class A common stock, $.001 par value,
40,000,000 shares authorized, 3,000,000 shares
issued and outstanding actual; no shares
authorized, issued and outstanding pro forma
and pro forma as adjusted...................... 3
Common stock, $.001 par value, 100,000,000
shares authorized, 1,812,500 shares issued and
outstanding actual; shares authorized
pro forma and pro forma as adjusted,
shares issued and outstanding pro forma,
shares issued and outstanding pro forma as
adjusted....................................... 2
Additional paid-in capital...................... 14,801
Deferred compensation........................... (16,129)
Accumulated other comprehensive income.......... 1
-------- ------- ----
Accumulated deficit............................. (9,812)
Total stockholders' equity.................... 18,713
-------- ------- ----
Total capitalization.......................... $ 20,803 $ $
======== ======= ====
</TABLE>
18
<PAGE>
DILUTION
Our pro forma net tangible book value at March 31, 2000 was approximately
$ , or $ per share of common stock. Pro forma net tangible book
value per share is equal to the amount of our tangible net assets less total
liabilities, divided by the total number of shares of common stock outstanding
on an as converted basis. After giving effect to our sale of the shares of
common stock offered by this prospectus at an assumed initial public offering
price of $ per share and the application of the estimated net proceeds from
this offering, our pro forma as adjusted net tangible book value at March 31,
2000 would have been approximately $ million, or $ per share of common
stock. This amount represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate
dilution in net tangible book value of $ per share to new investors in the
common stock in this offering. 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 at March 31, 2000..... $
Pro forma increase attributable to new investors..................
----
Pro forma as adjusted net tangible book value per share after this
offering...........................................................
----
Pro forma dilution per share to new investors....................... $
====
</TABLE>
The following table summarizes, on a pro forma basis at March 31, 2000, the
total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors.
<TABLE>
<CAPTION>
Shares Average
Purchased Total Consideration Price
-------------- --------------------- Per
Number Percent Amount Percent Share
------ ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New investors....................
--- ----- --------- ----------
Total.......................... 100.0% $ 100.0%
=== ===== ========= ==========
</TABLE>
The tables and calculations above assume no exercise of outstanding options
and exclude outstanding warrants. At March 31, 2000, there were 11,741,391
shares of common stock reserved for issuance upon exercise of outstanding
options with a weighted average exercise price of $0.52 per share and 995,000
shares of common stock reserved for issuance upon exercise of outstanding
warrants with a weighted average exercise price of $1.77 per share.
19
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus. The selected statement of operations data for the
period from our inception on March 30, 1999 to December 31, 1999 and the
selected balance sheet data at December 31, 1999 are derived from our financial
statements which have been audited by Ernst & Young LLP, independent auditors,
whose report is included elsewhere in this prospectus. The statement of
operations data for the three months ended March 31, 2000 and the balance sheet
data at March 31, 2000 are unaudited and, in our opinion, include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the information. The historical results presented below
are not necessarily indicative of our results for any future period.
<TABLE>
<CAPTION>
Period from March
30, 1999
(inception) to Three Months Ended
December 31, 1999 March 31, 2000
----------------- ------------------
<S> <C> <C>
Operating Data:
System revenue (1)........................ $ 9,576 $11,730
======= =======
Statement of Operations Data:
Revenue................................... $ 4,452 $ 5,253
Cost of revenue........................... 2,108 1,909
------- -------
Gross profit.............................. 2,344 3,344
Operating expenses:
Sales and marketing..................... 4,339 3,463
Product development..................... 702 307
General and administrative.............. 2,978 2,418
Non-cash compensation................... 87 560
Depreciation and amortization........... 79 82
------- -------
Total operating expenses............... 8,185 6,830
------- -------
Loss from operations...................... (5,841) (3,486)
Other income.............................. 7 169
------- -------
Net loss.................................. (5,834) (3,317)
Preferred stock dividends and accretion... (302) (359)
------- -------
Net loss applicable to common
stockholders............................. $(6,136) $(3,676)
======= =======
Basic and diluted net loss per share
applicable to common stockholders........ $ (0.58) $ (0.54)
======= =======
Shares used in calculating basic and
diluted net loss per share applicable to
common stockholders...................... 10,587 6,862
======= =======
<CAPTION>
December 31, 1999 March 31, 2000
----------------- ------------------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.............................. $ 4,903 $17,693
Working capital........................... 4,423 18,466
Total assets.............................. 13,668 35,324
Redeemable convertible preferred stock.... 1,731 2,090
Total stockholders' equity................ 3,411 18,713
</TABLE>
- --------
(1) System revenue represents the full value of gross billings for ads sold
under either commission-based contracts or service fee-based contracts and
related consulting revenue. Although system revenue is not recognized under
generally accepted accounting principles, we believe that system revenue is
a standard measure of advertising volume for the Internet advertising
industry that enables a meaningful comparison of activity from period to
period and from one company to another.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations together with our financial statements and the notes to
those statements included elsewhere in this prospectus. This discussion
contains forward-looking statements based on our current expectations,
assumptions, estimates and projections about Phase2Media and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements, as more fully described in "Risk Factors" and elsewhere in this
prospectus.
Overview
Phase2Media is a leading Internet advertising sales and marketing
organization that sells advertising inventory on the Web sites of branded Web
publishers. We provide a comprehensive sales solution to Web publishers which
includes the sale of ad inventory, as well as a full complement of strategic,
marketing and consulting services. Our exclusive sales relationships with
branded Web sites enable us to offer their most desirable advertising space to
advertisers.
We were incorporated in Delaware in March 1999 as CKG Media.com, Inc. and
changed our name to Phase2Media, Inc. in December 1999. In April 1999, we
issued 8,250,000 shares of common stock to the CKG Media.com, Inc. Stock Trust
in exchange for $430,000 and certain assets valued at $4,000. We first
recognized revenue in August 1999.
We generally enter into service fee-based contracts with our clients under
which we usually obtain the exclusive right to purchase their Web site ad
inventory and resell it to advertisers. These contracts have terms ranging from
one to three years. Ad sales revenue is recognized in the period in which the
advertisement is served on our clients' Web sites. We are responsible for
billing advertisers for payment, and we bear the risk of non-payment by the
advertisers. The cost of purchasing ad space from Web publishers and third-
party ad serving is included in cost of revenue.
We have entered into commission-based contracts with FreeLotto and Prodigy,
whereby we receive a commission for the sale of their ad inventory. Revenue
from these contracts reflects only the amount of the commission earned without
any associated cost of revenue. We recognize commissions in the period in which
an advertisement is served on the Web site. In addition, under the FreeLotto
contract, we are responsible for billing advertisers for payment, but we do not
bear the risk of non-payment. We may enter into additional commission-based
contracts.
System revenue represents the full value of gross billings for ads sold under
either service fee-based or commission-based contracts and related consulting
revenue. Although system revenue is not recognized under generally accepted
accounting principles, we believe that system revenue is a standard measure of
advertising volume for the Internet advertising industry that enables a
meaningful comparison of activity from period to period and from one company to
another.
We currently generate substantially all of our revenue from ad sales. Ads are
generally sold on either a (1) sponsorship basis, which are generally priced
based on the length of time the sponsorship runs, (2) "CPM" basis, which is the
cost to display an ad to 1,000 viewers or (3) "cost per action" basis, which is
priced based on the amount of user response to an ad. To date, we have
generated a limited amount of revenue from consulting services.
21
<PAGE>
During the period from our inception on March 30, 1999 to December 31, 1999,
and the three months ended March 31, 2000, sales of ad inventory on FreeLotto
accounted for approximately 76.3% and 80.3% of system revenue and 47.2% and
53.5% of revenue, respectively. Our contract with FreeLotto runs through
October 2001, subject to early termination by FreeLotto if we do not sell a
guaranteed minimum level of inventory or by either party if the other party
experiences a change in ownership or control of more than 20%.
We have incurred significant losses from operations since our inception. We
incurred losses of $5.8 million during the period from March 30, 1999 to
December 31, 1999 and $3.6 million during the three months ended March 31,
2000. We expect that we will incur significant expenses and operating losses in
the future associated with our planned domestic and international expansion,
including hiring additional personnel. This will involve the expenditure of
significant funds and continued operating losses for the foreseeable future.
In connection with the grant of stock options to employees through March 31,
2000, we recorded total deferred compensation of approximately $16.8 million as
a reduction to stockholders' equity. This deferred compensation represents the
difference between the estimated fair value of our common stock for financial
reporting purposes and the exercise price of these options at the date of
grant. We are amortizing this amount over the related vesting period of the
applicable options, which is generally three years, resulting in an expense of
approximately $87,000 during the period from March 30, 1999 to December 31,
1999 and $560,000 during the three months ended March 31, 2000. Amortization of
deferred stock compensation for stock options granted as of March 31, 2000 is
approximately $4.2 million for the remainder of the year ended December 31,
2000 and $5.6 million, $5.5 million and $827,000 for the years ended December
31, 2001, 2002 and 2003, respectively.
Results of Operations
Three months ended March 31, 2000
System revenue. System revenue represents the full value of gross billings
for ads sold under either service fee-based or commission-based contracts and
related consulting revenue. System revenue for the three months ended March 31,
2000 was $11.7 million.
Revenue. Revenue consists of revenue generated from ad sales and the
performance of consulting services. Revenue for the three months ended March
31, 2000 was $5.3 million. Ad sales revenue is affected by changes in the
number of our clients and the number of ads served.
Cost of revenue. Cost of revenue consists of the purchase of advertising
inventory for service fee-based contracts, the costs of ad serving for service
fee-based and commission-based contracts, and the costs associated with
consulting services provided. Cost of revenue during the three months ended
March 31, 2000 was $1.9 million, or approximately 36.3% of revenue.
Sales and marketing. Sales and marketing expenses include salaries,
commissions, travel, advertising and marketing materials expenses. Sales and
marketing expenses during the three months ended March 31, 2000 were $3.5
million, or approximately 65.9% of revenue. We expect our sales and marketing
expenses to increase in absolute dollars as we continue to promote our
advertising solutions and hire additional sales personnel in the United States
and other countries.
Product development. Product development expenses include personnel and other
related costs incurred to further develop our ad serving capabilities and ad
management system. Product development expenses during the three months ended
March 31, 2000 were $307,000, or approximately 5.8% of revenue. We expect our
product development expenses to increase in absolute dollars as these
initiatives are critical to our strategy of providing excellent client service.
22
<PAGE>
General and administrative. General and administrative expenses include
personnel and related costs, such as accounting and finance, human resources,
facilities, legal and information systems. General and administrative expenses
during the three months ended March 31, 2000 were $2.4 million, or
approximately 46.0% of revenue. We expect that our general and administrative
expenses will continue to increase in absolute dollars as we hire additional
personnel, expand our facilities and incur costs associated with being a public
company.
Depreciation and amortization. Depreciation and amortization expenses
represent depreciation and amortization of our fixed assets. Depreciation and
amortization expenses for the three months ended March 31, 2000 were $82,000,
or approximately 1.6% of revenue. We intend to increase capital expenditures in
absolute dollars to continue to expand our systems and facilities, which will
result in increased depreciation and amortization expenses associated with
these expenditures.
Income taxes. No provision for federal or state income taxes was recorded for
the three months ended March 31, 2000 because we incurred a net loss. As of
March 31, 2000, we had approximately $8.2 million of federal net operating loss
carryforwards, which expire in 2019 and 2020. Due to the uncertainty regarding
the ultimate utilization of the net operating loss carryforwards, we have not
recorded any benefit for the losses and a valuation allowance has been recorded
for the entire amount of the deferred tax asset. In addition, changes in our
share ownership, including as a result of this offering, will restrict our
ability to utilize our net operating loss carryforwards.
Period from our inception on March 30, 1999 to December 31, 1999
System revenue. System revenue for the period from March 30, 1999 to December
31, 1999 was $9.6 million.
Revenue. Revenue for the period from March 30, 1999 to December 31, 1999 was
$4.5 million.
Cost of revenue. Cost of revenue during the period from March 30, 1999 to
December 31, 1999 was $2.1 million, or approximately 47.3% of revenue.
Sales and marketing. Sales and marketing expenses during the period from
March 30, 1999 to December 31, 1999 were $4.3 million, or approximately 97.5%
of revenue.
Product development. Product development expenses during the period from
March 30, 1999 to December 31, 1999 were $702,000, or approximately 15.8% of
revenue.
General and administrative. General and administrative expenses during the
period from March 30, 1999 to December 31, 1999 were $3.0 million, or
approximately 66.9% of revenue.
Depreciation and amortization. Depreciation and amortization expenses during
the period from March 30, 1999 to December 31, 1999 were $79,000, or
approximately 1.8% of revenue.
Income taxes. No provision for federal or state income taxes was recorded for
the period from March 30, 1999 to December 31, 1999 because we incurred a net
loss.
23
<PAGE>
Quarterly Results of Operations
The following table shows our unaudited quarterly statement of operations
data for 1999 and the first quarter of 2000. We derived this data from
unaudited financial statements, and, in the opinion of our management, they
include all adjustments, which consist only of normal recurring adjustments,
necessary to present fairly the financial results for the periods. The results
of operations for any quarter are not necessarily indicative of the results of
operations for any future period.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------
March 30, 1999 Dec.
(inception) Sept. 31, March 31,
to June 30, 1999 30, 1999 1999 2000
---------------- -------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Operating Data:
System revenue.................... $ 112 $ 1,706 $ 7,758 $11,730
======== ======== ======= =======
Statement of Operations Data:
Revenue........................... $ 44 $ 830 $ 3,578 $ 5,253
Cost of revenue................... 20 387 1,701 1,909
-------- -------- ------- -------
Gross profit...................... 24 443 1,877 3,344
Operating expenses:
Sales and marketing.............. 674 1,072 2,593 3,463
Product development.............. 200 148 354 307
General and administrative....... 727 722 1,529 2,418
Non-cash compensation............ -- -- 87 560
Depreciation and amortization.... 4 29 46 82
-------- -------- ------- -------
Total operating expenses....... 1,605 1,971 4,609 6,830
-------- -------- ------- -------
Loss from operations.............. (1,581) (1,528) (2,732) (3,486)
Other income (expense)............ (7) (6) 20 169
-------- -------- ------- -------
Net loss.......................... $ (1,588) $ (1,534) $(2,712) $(3,317)
======== ======== ======= =======
</TABLE>
We believe that our revenue will be subject to seasonal fluctuations as a
result of general patterns of retail advertising and marketing and consumer
purchasing, which are typically higher during the fourth calendar quarter and
lower in the following quarter. In addition, expenditures by advertisers tend
to be cyclical, reflecting overall economic conditions and consumer buying
patterns. Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful and you should not
rely upon them as an indication of our future performance.
Liquidity and Capital Resources
Since our inception on March 30, 1999, we have financed our operations
primarily through the sale of equity securities, generating net proceeds of
$31.3 million through March 31, 2000.
Net cash used in operating activities was $4.7 million for the period from
March 30, 1999 to December 31, 1999 and $3.6 million for the three months ended
March 31, 2000. For each of these periods, net cash used in operating
activities consisted primarily of our net loss, substantially offset by
increases in accounts receivable and accounts payable.
Net cash used in investing activities was $797,000 for the period from March
30, 1999 to December 31, 1999 and $5.7 million for the three months ended March
31, 2000. For the period from March 30, 1999 to December 31, 1999, net cash
used in investing activities consisted primarily of capital expenditures. For
the three months ended March 31, 2000, net cash used in investing activities
consisted primarily of purchases of short-term investments.
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Net cash provided by financing activities was $10.4 million for the period
from March 30, 1999 to December 31, 1999 and $17.3 million for the three months
ended March 31, 2000. For each of these periods, net cash provided by financing
activities consisted primarily of the net proceeds from the sale of our
preferred stock.
At March 31, 2000, we had $17.7 million of cash, cash equivalents and short-
term investments. At March 31, 2000, our principal commitments consisted of
accounts payable to clients of $10.2 million. In addition, at March 31, 2000,
our series A redeemable preferred stock had an aggregate liquidation value of
$9.4 million. In May 2000, the terms of our series A preferred stock were
amended to provide that the series A preferred stock will be converted upon
completion of this offering into an aggregate number of shares of common stock
equal to the aggregate liquidation value of the series A preferred stock
divided by 50% of the initial public offering price per share of the common
stock in this offering.
We have outstanding a letter of credit for $2.5 million that expires on
December 31, 2000 and a letter of credit for $313,000 that expires on February
28, 2006. Our obligations under the $2.5 million letter of credit are secured
by substantially all of our assets. We are required to maintain cash balances
as collateral for our obligations under the letters of credit.
Under our agreement with Prodigy, we have guaranteed minimum advertising
sales. If we do not achieve these levels, we could be required to pay up to
$4.5 million per year during each year of the agreement relating to this
guarantee.
Although we do not currently have any material commitments for capital
expenditures, we anticipate that we will spend approximately $1.0 million per
year on capital expenditures over the next two to three years in connection
with our anticipated growth in operations, infrastructure and personnel. We
currently anticipate that we will continue to experience significant growth in
operating expenses for the foreseeable future. We believe that our existing
cash and cash equivalents, together with the net proceeds of this offering,
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months. If we are unable to raise
additional capital or additional capital is not available, our anticipated
growth would be impeded.
Year 2000 Compliance
To date our systems and software have not experienced any material disruption
due to the onset of the Year 2000, and we have completed our Year 2000
preparedness activities. However, we cannot assure that we will not experience
disruptions in the future as a consequence of the Year 2000 issue. We cannot
quantify the amount of our potential exposure, but do not believe it to be
material.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101. SAB 101 summarizes some of the Staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. We believe that our current revenue
recognition principles comply with SAB 101.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities
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Deferral of Effective Date of FASB Statement No. 133," which deferred the
effective date of SFAS 133 to all fiscal quarters of fiscal years beginning
after June 15, 2000. We do not currently have any derivative instruments or
hedging activities and do not expect SFAS 133 to materially adversely impact
us.
Inflation
The impact of inflation on our business has not been material to date.
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BUSINESS
Overview
Phase2Media is a leading Internet advertising sales and marketing
organization that sells advertising inventory on the Web sites of branded Web
publishers. We provide a comprehensive sales solution to Web publishers which
includes the sale of ad inventory, as well as a full complement of strategic,
marketing and consulting services. Our exclusive sales relationships with
branded Web sites enable us to offer their most desirable advertising space to
advertisers.
We identify prospective clients on the basis of a number of criteria,
including name recognition, high visitor traffic, desirable consumer
demographics, compelling content, a visible market position and an experienced
management team. We currently have agreements to sell the ad inventory of over
60 branded sites including Prodigy Communications and all of Hachette
Filipacchi's online properties, such as Elle, George and Road&Track. Branded
Web sites typically generate significantly higher advertising rates than
industry averages. We enhance the unique capabilities of these Web sites with
our experienced sales organization of over 70 professionals to maximize the
value of their ad inventory. We work closely with our clients to understand
their core audience and develop marketing materials that highlight attractive
advertising and sponsorship opportunities to advertisers.
Industry Background
The Emergence of Global Internet Advertising
The Internet has become an attractive medium for advertisers, offering an
ability to target and interact with consumers and to measure campaign
effectiveness not generally available in traditional advertising media. To
date, technology companies, Internet portals and electronic commerce companies
have been the leading advertisers on the Internet. Many of the largest
advertisers in traditional media, including consumer products companies and
automobile manufacturers, have only recently begun to advertise online.
Internet advertising is expected to grow quickly as larger advertisers shift
some of their ad spending from traditional media to the Internet. Forrester
Research has projected that total worldwide online advertising expenditures
will grow from an estimated $3.3 billion in 1999 to $33.1 billion in 2004.
Despite the growth in online advertising, advertising spending has been
focused on a relatively small number of established, high-traffic Web sites.
PricewaterhouseCoopers has estimated that the ten most visited Web sites
accounted for approximately 70% of all dollars spent on Internet advertising in
the fourth quarter of 1999. As online advertising grows, it is expected that
advertisers will look to a broader range of Web sites that offer substantial
traffic and desirable demographic characteristics that allow for highly
targeted advertising.
Challenges for Branded Web Publishers
Each Web publisher that wishes to succeed in the online advertising market
must determine whether to build its own sales force or to seek the expertise of
a third party to sell its ad inventory. In either case, Web publishers face
many challenges as they seek to maximize advertising revenue, including:
Cost of Building an In-House Sales Force. Web publishers that decide to build
an in-house sales force must devote significant management attention and
financial resources to attracting and retaining experienced sales people with
relationships with key media buyers at advertisers.
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Need to Maintain and Enhance Brand Value. Web publishers that outsource their
ad sales function often rely on third party advertising networks that bundle
hundreds or thousands of Web sites to sell ad inventory. This strategy can lead
to brand dilution if advertisers ignore or discount the value of the Web
publishers' unique brands.
Need to Efficiently Manage Ad Inventory. Maximizing the value of a Web site's
available ad inventory requires efficient inventory management. Web publishers
have difficulty charging premium rates to some advertisers while selling
remnant ad inventory at reduced rates on third party networks. This price
inconsistency may reduce a Web publisher's ability to charge premium rates over
the long term.
Limitations in Accessing Best Available Ad Serving and Tracking
Technologies. Given the ongoing evolution of ad serving and tracking
technologies, many Web publishers cannot afford to develop and maintain such
technologies. Web publishers that rely upon third party ad representation firms
are often required to utilize only the proprietary technology of the outside
firm, which can limit their ability to access the best solution.
Difficulty in Realizing Value from User Information. Many Web publishers
collect data that could be analyzed to better understand user characteristics
and enable targeted advertising. In many cases, Web publishers do not know how
to derive revenue from this data or adapt their practices to respond to user
privacy concerns.
Challenges for Advertisers
Advertisers that wish to use the Internet also face a number of challenges as
they seek to enhance the effectiveness of their advertising campaigns,
including:
Responding to a Complex and Evolving Advertising Medium. The proliferation of
Web sites and Web pages covering a broad range of audiences has resulted in an
increasingly complex and fragmented advertising environment. Advertisers must
be educated on the benefits of advertising online and then learn how to
construct, purchase and implement their advertising campaigns in this new and
evolving medium.
Lack of Strategic Online Expertise. Advertisers typically do not have
significant in-house online advertising expertise because of the time and
expense necessary to attract and retain experienced personnel. Consequently,
advertisers have begun to outsource this function to find sales professionals
with the expertise necessary to implement targeted online advertising
campaigns.
Limited Ability to Refine Campaigns. In order to maximize the effectiveness
of online strategies, advertisers must be able to implement changes to their
campaigns on a timely basis. Most advertisers lack the technical expertise to
analyze campaign performance data and quickly adjust their online advertising
and, therefore, require a third party solution. Some third party providers do
not offer campaign refinement tools, and those that do often lack the expertise
to effectively refine and customize an advertising campaign.
Opportunity for Advertising Sales of Branded Web Publishers
Many branded Web publishers have had limited success in promoting their sites
to advertisers and have instead relied upon advertising networks to sell their
ad inventory. Traditional advertisers have historically been reluctant to
advertise on the Web, and those that have advertised on the Web have focused on
a small group of leading Web sites. Advertisers understand the value of brands
and are
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willing to pay higher prices to advertise on media with targeted demographics.
We believe an opportunity exists for a company to assist branded Web publishers
in promoting their Web sites and realizing higher revenue for selling their
advertising inventory. We also believe an opportunity exists for a company to
work with advertisers to formulate campaigns that efficiently reach their
targeted audience.
The Phase2Media Solution
Phase2Media is a leading Internet sales and marketing organization that sells
the advertising inventory of branded Web publishers. Our experienced sales
organization works with our clients to maximize the value of their brands in
order to increase their ad sales revenue. Our focus on the sale of individual
branded Web sites, including their most desirable advertising space, provides
advertisers with access to the audiences they seek. We believe that our
solution provides our clients and their advertisers a number of advantages,
including the following:
Advantages to Branded Web Publishers
Access to Our Experienced Sales Organization. Our senior management team and
sales professionals include more than 70 individuals with experience and
expertise in both online and traditional media. We have over 20 senior
executives with an average of over 15 years of ad sales experience. Our clients
are assigned sales professionals with particular expertise in the industry in
which the client competes. Our sales professionals promote these Web sites
through their long standing relationships with advertisers and advertising
agencies.
Focus on Individual Brands. We have arrangements under which we generally
have access to 100% of a Web site's ad inventory. Our contracts range between
one and three years in duration. Our sales professionals employ a consultative
sales approach to develop individualized advertising and marketing strategies
for each client that emphasize the Web site's brand name and visitor
demographics. By highlighting this information to advertisers, we attract
targeted advertising campaigns that seek to capitalize on the demographics of
the users of the Web site.
High Level of Client Service. We have a team of client relationship
professionals who are responsible for responding to the evolving needs of our
clients and monitoring their overall satisfaction. In addition, we have
recently employed a sophisticated ad management system that has been designed
to provide our clients with real-time Internet access to every aspect of the
sales process, including sales leads, orders and ad management. Our ad
management technology also monitors each active ad campaign and available ad
inventory to help Web publishers maximize revenue.
Flexible Ad Serving and Tracking Platform. By taking advantage of multiple
third party ad serving and tracking technologies, we are able to offer our
clients the best available technologies without the significant costs
associated with developing these capabilities in-house. Our flexible platform
solution includes centralized ad serving and tracking capabilities for
executing, managing and optimizing advertising campaigns.
Direct Advertising Capabilities. Direct advertising targets individual Web
users to increase campaign effectiveness. After collecting customer data
obtained through sweepstakes, Web user registrations and other techniques, we
deliver targeted e-mails designed to allow advertisers to develop relationships
with users by customizing and directing messages.
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Advantages to Advertisers
Strategic Sales Approach. Our experienced sales professionals work closely
with leading advertisers to help them reach their target audience. We
understand the importance of ad placement in Web advertising campaigns, and are
able to offer advertisers the most desirable ad space that is available on our
clients' Web sites. We work with advertising executives to identify those Web
sites that offer the greatest opportunities to maximize return on advertising
dollars.
Innovative Advertising Solutions. We create comprehensive and integrated
sponsorship advertising solutions. We believe that these solutions enable
advertisers to place their advertisements in a more relevant context. Our
targeted solutions utilize value-added features such as integrating
advertisements into the content of our clients' Web sites. We believe these
placements generate higher returns by leveraging the existing relationship
between the online consumer and the Web site.
Utilization of Ad Serving and Tracking Technologies. We utilize leading third
party technologies from a number of vendors to collect data on the
effectiveness of advertisers' campaigns in driving traffic and click-throughs.
Our professional staff then analyzes the collected data and recommends
refinements in ad placement and targeting to the advertiser. As a result, we
work with advertisers to adjust campaigns in real time and utilize direct
marketing techniques to enhance value for advertisers.
Strategy
Our objective is to become the premier sales and marketing organization
selling the advertising inventory of branded Web publishers. The following are
the key elements of our strategy to achieve this objective:
Expand Our Branded Client Base. We will continue to selectively target Web
publishers throughout the world that demonstrate name recognition, high visitor
traffic, desirable consumer demographics, compelling content, a visible market
position and an experienced management team. We intend to continue to focus our
efforts on opportunities where we have access to 100% of our clients' ad
inventory on an exclusive basis.
Grow Our Sales and Marketing Organization. Our team of experienced sales
professionals is our greatest asset. We intend to continue to attract and
retain sales professionals who can leverage their expertise and existing
relationships with advertisers and ad agencies for the benefit of our clients.
Further Develop Our Direct Marketing Business. We intend to expand the number
of clients that offer high quality direct marketing to advertisers. For
instance, we intend to capitalize on the growing popularity of e-mail
newsletters distributed by Web publishers by selectively placing ads within
these newsletters.
Expand Our International Operations. We believe that the worldwide growth of
the Internet will lead to increased ad spending on Web sites that are operated
outside of the United States. Consequently, we intend to build a network of
international offices to expand our worldwide business development and sales
presence beginning in Europe. We intend to focus our business development
efforts on Web sites that appeal to a broad international audience.
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Services and Clients
Sale of Advertising Inventory of Branded Web Sites and Other Services
We offer the following services to address the needs of our clients:
Sale of Advertising Inventory. Our principal business is to work with branded
Web publishers to sell advertising inventory on their Web sites. The process of
selling advertising inventory includes identifying prospective clients,
establishing customer service relationships, preparing individual marketing
materials and calling on prospective advertisers. We identify prospective
clients on the basis of a number of criteria, including name recognition,
prospects for high visitor traffic, desirable consumer demographics, compelling
content, a visible market position, and an experienced management team. Once
our business development team signs up a new Web publisher client, we work
closely with the client to understand its core audience and develop marketing
materials that highlight attractive advertising and sponsorship opportunities
for advertisers. Our sales professionals promote the Web publisher's site
through their long standing relationships with advertisers and advertising
agencies. Finally, we provide ongoing customer service to respond to the needs
of our clients and monitor overall customer satisfaction.
When appropriate, we assemble dedicated sales teams for individual branded
Web publishers. These sales teams perform all advertising sales functions,
including multi-tiered promotional programs, sponsorships and e-commerce
opportunities. To date, we have established a separate sales team dedicated to
all of Hachette Filipacchi New Media's online properties, including Car and
Driver, Road&Track, George, Premiere and Home Online, and a separate sales team
to represent Prodigy Communications, a leading Internet service provider.
Our client list includes the following Web publishers:
<TABLE>
<S> <C> <C> <C>
AmericanGreetings Classmates gURL RadioWallStreet
www.americangreetings.com www.classmates.com www.gurl.com www.radiowallstreet.com
The Associated Press Elle Maxim Road&Track
www.ap.org www.elle.com www.maximonline.com www.roadandtrack.com
Astrocenter Foxtrot mySimon Sothebys
www.astrocenter.com www.foxtrot.com www.mysimon.com www.sothebys.com
Britannica FreeLotto NeoPlanet Sound & Vision Online
www.britannica.com www.freelotto.com www.neoplanet.com www.soundandvisionmag.com
CEOExpress Garfield Premiere Sydney 2000 Olympic Games
www.ceoexpress.com www.garfield.com www.premiere.com www.olympics.com
Car and Driver George Prodigy WeMedia
www.caranddriver.com www.georgemag.com www.prodigy.net www.wemedia.com
</TABLE>
Direct Advertising. Our direct advertising division, P2M Direct, sells
targeted advertising on high-traffic sites such as FreeLotto and Qool.com that
obtain opt-in registration data. In addition, P2M Direct sells advertisements
and sponsorships for LifeMinders.com, an online direct marketing company that
provides personalized content and advertisements by electronic newsletter to
its community of members. This division also provides other electronic
newsletter marketing opportunities to advertisers, including e-mail list
rental, sales and segmentation.
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Consulting. Our consulting division provides Web publishers with strategic
solutions in order to develop advertising sales, enhance e-commerce
capabilities, increase revenue and heighten the overall online presence of
their Internet properties. Recent projects have included business planning,
creation of high-value advertising inventory, trend forecasts and content
development.
Advertisers
Our sales professionals have developed long standing relationships with
numerous advertisers and advertising agencies involved in both traditional and
online media advertising. Our sales and marketing professionals consult closely
with advertisers to understand their needs and direct them toward Internet
properties that we believe can deliver the desired results. To date, we have
sold advertisements on our clients' Web sites to numerous companies, including:
Ameritech Forbes.com Mitsubishi Motors
AT&T Ford MTV
Barnes&Noble.com FOX Neiman Marcus
Bloomingdales Gateway Pontiac
Chrysler GEICO Direct RollingStone.com
Columbia House General Motors Sears
Delta Air Lines IBM Sony
DISCOVER Johnson & Johnson Staples.com
Disney Macy*s US West
Eddie Bauer Maybelline Visa
Selected Advertising and Marketing Campaigns
The following are several representative examples of the advertising and
marketing solutions that we have provided to clients and advertisers:
Neiman Marcus and Elle.com
Neiman Marcus is a retailer of high-end men's and women's apparel, jewelry
and home furnishings. Elle.com is the online portal of Elle, the popular
international women's fashion and lifestyle magazine.
The Challenge: Neiman Marcus wanted to create an approach to online shopping
that matched the unique, high-quality experience customers received in Neiman
Marcus stores. They also needed to build awareness and create excitement around
their new Web site, NeimanMarcus.com.
The Solution: Working closely with Neiman Marcus, we created one of Neiman
Marcus' first online advertising partnerships. Our sales team suggested that
Neiman Marcus sponsor a content rich, integrated advertising campaign on
Elle.com. Specifically, the sponsorship featured a mini-site with an interview
of the top Neiman Marcus Fashion Director on the latest fashions and multiple
pop-ups of new Neiman Marcus merchandise. Every other week, a new pop-up window
was created that continued the interview and featured new Neiman Marcus items.
The partnership ran from the end of November 1999 until January 2000.
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Universal Studios and MaximOnline.com
Universal Studios is a major motion picture company. MaximOnline is the
online version of the popular men's magazine and a leading site for men aged
18-34.
The Challenge: Universal Studios sought an online advertising and marketing
solution for its March 2000 release, "Erin Brockovich" starring Julia Roberts,
that would drive traffic to the movie's official site and create awareness and
excitement for the film. Specifically, Universal Studios and its advertising
agency were challenged with marketing a female targeted film to a male
audience.
The Solution: Our sales development group teamed up with Universal Studios
and its advertising agency to craft an integrated online sponsorship package
for MaximOnline. Julia Roberts was featured prominently on the Maxim home page
for the entire weekend of the movie's release. Julia Roberts was also profiled
in a popular column of MaximOnline that featured pictures of Julia Roberts from
the movie, a brief synopsis of the film and several text links to its official
site.
Visa and The Sydney 2000 Olympic Games
The Challenge: Visa wanted to extend its offline sponsorship commitment to
the Sydney 2000 Olympic Games online in order to build brand awareness and
prompt users to use Visa when making online purchases.
The Solution: Our dedicated sales team for the Sydney 2000 Olympic Games
crafted a sponsorship package for Visa designed to leverage its brand name and
recognition with its worldwide commitment to the Olympics and the four U.S.
teams that Visa sponsors. The sponsorship commenced March 1, 2000. Sponsorship
elements include: (1) preferred card status in all international markets with
the added element as the exclusive credit card for all transactions originating
in the United States, (2) full-time logo presence throughout the online Olympic
store, (3) "Brought to you by Visa" messaging, and (4) status as the exclusive
payments card for transactions originating within the United States.
Sales and Marketing
Our sales and marketing organization is divided into three groups. One group
markets our services and provides ongoing support service for our clients. A
second group develops marketing materials. The third group provides ad sales
services for our clients. At March 31, 2000, our marketing and customer service
group included nine employees, our group specializing in developing marketing
materials included seven employees, and our group providing ad sales services
included 69 sales professionals.
Our ad sales professionals are dedicated to expanding their long standing
relationships with advertisers and ad agencies. These individuals are located
at our headquarters in New York and our offices in Atlanta, Chicago, Dallas,
Detroit, Los Angeles and San Francisco.
To support our business development efforts and actively promote the
Phase2Media brand, we conduct comprehensive marketing programs, including
public relations, print advertisements, Web advertising seminars and trade
shows.
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Privacy Policy
We are focused on advertising sales for our clients and do not collect or own
any identifying personal information. Each of our sites has a privacy policy
that is compliant with industry standards established by the Internet
Advertising Bureau or the Online Privacy Alliance. We are committed to
protecting the privacy of the users of the sites of our Web publisher clients.
We only sell data received through opt-in practices when the purpose of that
data collection is made clear to the user. User information is not sold unless
the user expressly agrees to receivee-mails and targeted offers from third
parties.
Competition
The online advertising market is extremely competitive. We believe that our
ability to compete depends upon many factors both within and beyond our
control, including the following:
. the continued and increasing acceptance by advertisers of the Internet as
an effective and cost-efficient means of advertising;
. the effectiveness of our services compared to alternative advertising
methods, including the services of our competitors;
. our sales and marketing efforts;
. our client service and support efforts; and
. our ability to adapt to the rapidly changing trends of the Internet.
We compete directly with a number of different types of companies. Our
competitors include:
. third-party Internet advertising networks;
. large Internet media companies, Internet search engine companies and
Internet service providers;
. providers of advertising inventory management products and related
services; and
. in-house sales forces of Web publishers.
Third-party Internet advertising networks include CMGI, DoubleClick and 24/7
Media. Large Internet media companies, search engine companies and Internet
service providers that we compete with include America Online, CNN, Excite,
Infoseek and Yahoo!. Providers of advertising inventory management products and
related services include Accipiter, AdForce, DoubleClick and Engage
Technologies. We also compete with television, radio, cable and print for a
share of the overall advertising budgets of advertisers.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater
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financial, technical and marketing resources than we do. This may allow them to
devote greater resources than we can to the development, promotion and sale of
their products and services. These competitors may also undertake more far-
reaching marketing campaigns, adopt more aggressive pricing policies and make
more attractive offers to existing and potential employees, strategic partners,
advertisers and Web sites. Our competitors may develop services that are equal
or superior to our services or that achieve greater market acceptance than our
services. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products or services to address the needs of
prospective advertisers and Web sites. We may not be able to compete
successfully, and competitive pressures may materially and adversely affect our
business, results of operations and financial condition.
Intellectual Property
We regard the protection of our intellectual property rights to be important
to our success. We rely or expect to rely on a combination of copyright,
trademark, service mark and trade secret restrictions and contractual
provisions to protect our intellectual property rights. We require employees
and independent contractors to enter into proprietary information and
confidentiality agreements. The contractual provisions and the other steps we
have taken to protect our intellectual property may not prevent
misappropriation of our technology or deter third parties from developing
similar or competing technologies. We claim trademark rights in the mark
Phase2Media and the Phase2Media logo, and have obtained registrations of the
Phase2Media name and logo in the United States.
We cannot assure you that the steps we have taken to protect our intellectual
property will be adequate, that third parties will not infringe or
misappropriate our proprietary rights or that third parties will not
independently develop similar proprietary information. Any infringement,
misappropriation or independent development could harm our future financial
results. Additionally, effective trademark, copyright and trade secret
protection may not be available in every country where we provide services. We
may, at times, have to incur significant legal costs and spend time defending
our trademarks and copyrights. Any defense efforts, whether successful or not,
would divert both time and resources from the operation and growth of our
business.
We license all of our ad management technology from third parties to take
advantage of the best available technology solutions. We license DoubleClick's
DART ad management technology, which allows us to target advertising based on a
variety of factors including user interests, time of day, day of the week,
organization name and size, domain type, operating system, server type and
version and keywords. DART also manages the frequency and distribution of ad
placements to limit repetitive ad exposures that can reduce ad effectiveness.
We also license from AdForce, Inc. an Internet advertising management and
delivery service named AdForce for Publishers. In addition, we have recently
employed a sophisticated ad management system that has been designed to provide
our clients with real-time Internet access to every aspect of the sales
process, including sales leads, orders and ad management. Our ad management
technology also monitors each active ad campaign and available ad inventory to
help Web publishers maximize revenue.
Our Employees
At March 31, 2000, we had 115 employees, including 85 in sales and marketing
and 30 in accounting, human resources, business operations and administration.
We believe that we maintain good relationships with our employees.
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Our Facilities
Our principal executive offices are located in New York, New York, where we
lease approximately 24,000 square feet under a lease that expires on December
31, 2005, subject to options to renew. In addition, we lease space for our
regional sales offices in Atlanta, Chicago, Dallas, Detroit, Los Angeles and
San Francisco. We believe that our current facilities are adequate to meet our
needs through 2005, at which time we may need to lease additional space. We
believe that our existing leased space is adequate for our current operations,
and that suitable replacement and additional space will be available in the
future on commercially reasonable terms.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Our directors and executive officers
The directors and executive officers of Phase2Media, and their ages and
positions, are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard E. Glassberg........ 37 Chief executive officer and chairman of
the board of directors
Richard S. Nachmias......... 36 Chief financial officer and secretary
R. Scott Ford............... 45 Senior vice president, affiliate sales and
business development
Thomas Mannion.............. 43 Senior vice president of sales, P2M Direct
Mary Donahue Quinlan........ 45 Senior vice president, advertising sales
Herve Digne................. 42 Director
Jonathan D. Eilian.......... 32 Director
Alexander R. Slusky......... 32 Director
Steven D. Smith............. 41 Director
</TABLE>
Richard E. Glassberg co-founded Phase2Media and has served as our chief
executive officer and chairman of our board of directors since our inception in
March 1999. From February 1999 until March 1999, Mr. Glassberg served as
president and chief executive officer of Group Omni-Net, Inc., a start up
advertising representation firm. Mr. Glassberg held various positions with
Turner Broadcasting System, Inc. from November 1990 until January 1999,
including serving as Senior Vice President and General Manager of Turner
Interactive Sales from January 1997 until January 1999.
Richard S. Nachmias has served as our chief financial officer since November
1999 and as our secretary since April 2000. Prior to joining us, Mr. Nachmias
in October 1999 was a senior manager in the information, communications and
technology group of KPMG LLP, and from 1985 until October 1999 was a senior
manager in the Metropolitan New York technology, communications and
entertainment group of Ernst & Young LLP.
R. Scott Ford co-founded Phase2Media and has served as our senior vice
president of affiliate sales and business development since our inception in
March 1999. Prior to joining us, Mr. Ford served as senior vice president of
Group Omni-Net from February 1999 until March 1999. From June 1998 until
February 1999, Mr. Ford served as executive vice president in charge of
advertising sales and business development for Deja.com, a Web site for the
exchange of user-generated information. From February 1997 until May 1998, Mr.
Ford was vice president of publishing for the Atlantic Monthly. From February
1992 until January 1997, Mr. Ford was vice president - New York sales manager
for U.S. News and World Report.
Thomas Mannion co-founded Phase2Media and has served as our senior vice
president of sales, P2M Direct, since our inception in March 1999. Prior to
joining us, Mr. Mannion served as senior vice president of Group Omni-Net from
February 1999 until March 1999. From January 1996 until January 1999, Mr.
Mannion served as director of sales of PointCast Incorporated, a broadcaster of
news and information over the Internet. From December 1993 until December 1995,
Mr. Mannion held several key sales positions for CMP Publications.
Mary Donahue Quinlan has served as our senior vice president, advertising
sales since February 2000. From January 1998 until February 2000, Ms. Quinlan
served as the general manager of The Wall Street Journal's Weekend Journal.
From January 1997 until August 1997, Ms. Quinlan
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<PAGE>
was publisher of New Woman Magazine. From May 1994 until January 1997,
Ms. Quinlan served as corporate sales director for the Conde Nast Publications,
Inc. Ms. Quinlan has also held senior level management positions with Family
Circle Magazine and Prevention Magazine.
Herve Digne has served as a director of Phase2Media since October 1999. Mr.
Digne has served as chief executive officer of Hachette Filipacchi Medias - New
Media and Licensing since September 1998. Mr. Digne has also served as a senior
adviser to Lagardere Medias since 1998. From 1985 to September 1998, Mr. Digne
served in a variety of positions with Hachette Filipacchi.
Jonathan D. Eilian has served as a director of Phase2Media since October
1999. Mr. Eilian has been a senior managing director or executive officer of
Starwood Capital Group, L.L.C. and its predecessor entities since its formation
in 1991. Prior to being a founding member of Starwood Capital, Mr. Eilian
served as an associate for JMB Realty Corporation, a real estate investment
firm. Mr. Eilian has been a director of Starwood Hotels & Resorts Worldwide,
Inc., a publicly-traded owner and operator of hotels and resorts, since its
formation in 1994. Mr. Eilian has also been a trustee of iStar Financial Inc.,
a publicly-traded real estate finance company organized as a real estate
investment trust, since its recapitalization in 1998, and is a member of the
board of the Wharton Real Estate Center.
Alexander R. Slusky has served as a director of Phase2Media since September
1999. Since May 1998, Mr. Slusky has been a managing partner of Vector Capital,
a San Francisco-based venture capital firm. From August 1995 to May 1998, Mr.
Slusky was a principal of Ziff Brothers Investments, managing its technology
investment practice. From 1992 to August 1995, Mr. Slusky was an associate and
then a special limited partner of New Enterprise Associates, a venture capital
firm. Mr. Slusky serves on the boards of directors of several private Internet
and technology companies.
Steven D. Smith has served as a director of Phase2Media since February 2000.
Since March 1997, Mr. Smith has served as managing director of GE Equity, a
subsidiary of GE Capital. From 1990 to February 1997, Mr. Smith served in a
variety of positions at GE Capital, most recently as managing director, GE
Capital Ventures.
Board Composition
Upon completion of this offering, our restated certificate of incorporation
and bylaws will provide that our board of directors will be divided into three
classes, Class I, Class II and Class III, with each class serving staggered
three-year terms. Each director will be designated as a Class I, Class II or
Class III director, who will stand for reelection at an annual meeting of
stockholders in 2001, 2002 or 2003, respectively. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This staggered classification of the board of
directors may have the effect of delaying or preventing changes in control or
management.
Board Committees
The board of directors has a compensation committee and an audit committee.
Compensation committee. The compensation committee's duties include
establishing, reviewing and making recommendations to the board regarding
compensation of our officers, considering compensation plans for our employees,
and carrying out other duties under our stock
38
<PAGE>
incentive compensation and other plans approved by us as may be assigned to the
committee by the board. The current members of the compensation committee are
Messrs. Eilian and Slusky.
Audit committee. The audit committee recommends the selection and retention
of our independent auditors, reviews the scope and results of audits and
submits appropriate recommendations regarding audits, reviews our internal
controls and reviews procedures to ensure compliance with applicable financial
reporting requirements. The current members of the audit committee are Messrs.
Eilian, Slusky and Smith.
Director Compensation
Our directors do not receive salaries for their services. We reimburse our
non-employee directors for reasonable expenses they incur in attending meetings
of the board of directors and its committees.
In April 2000, we adopted a stock option grant program for non-employee
directors. The program will be administered under our 2000 equity incentive
plan. Under this program, each current non-employee director was granted a
nonqualified stock option to purchase 50,000 shares of common stock. This
option will vest on the first anniversary of the date of grant. In addition,
each newly-appointed non-employee director will automatically receive a
nonqualified stock option to purchase 50,000 shares of common stock upon
initial election or appointment to the board following this offering. These
options will vest in monthly increments over a three-year period commencing
with the grant date. Thereafter, beginning with the annual meeting of
stockholders in 2001, each non-employee director who continues to serve on the
board will receive an additional fully vested option to purchase 15,000 shares
of common stock upon reelection or reappointment to the board. The exercise
price for all options granted under the program will be the fair market value
of the common stock on the grant date. Options will have a ten-year term,
except that options will expire six months after a nonemployee director ceases
service as a director, unless cessation is due to death, in which case the
options will expire one year after date of death.
Compensation Committee Interlocks and Insider Participation
No interlocking relationships between any member of our compensation
committee and any member of the compensation committee of any other company,
nor has any such interlocking relationship existed in the past.
Employment Agreement
We entered into an employment agreement with Richard E. Glassberg in August
1999, under which we agreed to employ Mr. Glassberg as our chief executive
officer and chairman of our board of directors. The agreement provides for an
initial term of three years and is renewable on mutually agreed upon terms. Mr.
Glassberg's initial annual base salary under the agreement is $200,000, and our
board of directors will consider increases in his base salary at the beginning
of each calendar year. Mr. Glassberg is also eligible for an annual bonus at
the discretion of our board of directors. The agreement provides that Mr.
Glassberg will receive four weeks of vacation per year in addition to the
holidays established as part of our company policy, and other benefits that we
generally provide to our senior executives. The employment agreement prohibits
Mr. Glassberg from competing with us or soliciting our employees for employment
for twelve months following the
39
<PAGE>
termination of his employment. We can terminate Mr. Glassberg's employment with
or without cause, and Mr. Glassberg can terminate his employment with good
reason, such as a reduction in salary or responsibilities. If we terminate Mr.
Glassberg's employment without cause, or if he terminates it with good reason,
we are required to pay him twelve months' severance pay including a
continuation of all benefits, and one-third of all outstanding unvested options
or other contractual rights that Mr. Glassberg has to acquire our equity
securities will immediately vest and become exercisable.
Executive Compensation
The following table sets forth the cash and non-cash compensation paid by us
in 1999 to our chief executive officer and each of our other executive officers
who received compensation of more than $100,000 during 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------- ------------
Other Securities
Annual Underlying
Name and Principal Position Salary Bonus Compensation (1) Options (2)
- --------------------------- -------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Richard E. Glassberg........... $168,750 $60,000 $11,541 2,975,000
Chief executive officer
R. Scott Ford.................. 150,000 90,000 5,241 716,848
Senior vice president,
affiliate sales and business
development
Thomas Mannion................. 150,000 165,000 5,933 662,500
Senior vice president of
sales, P2M Direct
Robert Chmiel (3).............. 163,021 81,510 10,941 300,000
Chief operating officer
</TABLE>
- --------
(1) Other annual compensation consisted of the following: for Mr. Glassberg, a
$10,800 car allowance and $741 in life insurance premiums; for Mr. Ford, a
$4,500 car allowance and $741 in life insurance premiums; for Mr. Mannion,
a $5,192 car allowance and $741 in life insurance premiums; and for Mr.
Chmiel, a $10,200 car allowance and $741 in life insurance premiums.
(2) Securities underlying options for Mr. Glassberg includes a 1999 performance
bonus of a grant in February 2000 of options to purchase 475,000 shares of
common stock. Securities underlying options for Mr. Ford includes a 1999
performance bonus of a grant in February 2000 of options to purchase 54,348
shares of common stock.
(3) Mr. Chmiel's employment with us ended on March 10, 2000. All of Mr.
Chmiel's options were canceled as of this date.
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<PAGE>
Option Grants In Last Fiscal Year
The following table sets forth information relating to grants of stock
options made during 1999 to each of our executive officers named in the Summary
Compensation Table. The potential realizable value results from calculations at
the 5% and 10% rates required by the SEC regulations and are not intended to
forecast possible future appreciation, if any, of the common stock price. The
information in this table assumes that all options are exercised at the end of
each of their terms. Each option has a ten-year term. Actual gains, if any, on
stock option exercises depend on factors such as the future performance of the
common stock and overall stock market conditions. The amounts shown in this
table may not be achieved. There was no public market for our common stock at
December 31, 1999. Accordingly, the fair market value on December 31, 1999 is
based on the assumed initial public offering price of $ .
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Potential
Realizable
Value at
Assumed
Annual Rates
of Stock
Price
Number of Percent of Appreciation
Shares Total Options Exercise for
Underlying Granted to Price Option Term
Options Employees in Per Expiration -------------
Name Granted 1999 (1) Share Date 5% 10%
- ---- ---------- ------------- -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Glassberg.... 2,500,000 31.3% $0.05 4/5/09
R. Scott Ford........... 662,500 8.3 0.05 4/5/09
Thomas Mannion.......... 662,500 8.3 0.05 4/5/09
Robert Chmiel (2)....... 300,000 3.8 0.05 4/5/09
</TABLE>
- --------
(1) Based on a total of 7,997,000 options granted to employees during fiscal
1999.
(2) All of Mr. Chmiel's options were canceled on March 10, 2000.
Aggregated Year-End Option Values
The following table sets forth at December 31, 1999 the number of options and
the value of unexercised options held by each of the executive officers named
in the Summary Compensation Table. There was no public market for our common
stock at December 31, 1999. Accordingly, the fair market value on December 31,
1999 is based on the assumed initial public offering price of $ .
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised In-the-
Unexercised Options at Year End Money Options at Year End (1)
--------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard E. Glassberg.... -- 2,500,000 --
R. Scott Ford........... -- 662,500 --
Thomas Mannion.......... -- 662,500 --
Robert Chmiel (2)....... -- 300,000 --
</TABLE>
- --------
(1) The dollar values have been calculated by determining the difference
between the fair market value of the securities underlying the options at
December 31, 1999 and the exercise prices of the options.
(2) All of Mr. Chmiel's options were canceled on March 10, 2000.
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<PAGE>
Stock Plans
Long Term Equity Compensation Plan
In April 1999, our board of directors and stockholders approved our long term
equity compensation plan. The purpose of the plan is to enhance long-term
stockholder value by offering opportunities to selected persons to participate
in our growth and success, and to encourage them to remain in the service of
Phase2Media and its affiliates and to acquire and maintain ownership in our
company. The plan permits grants of stock options to purchase our common stock,
subject to restrictions. Persons eligible to receive grants under the plan are
our officers, directors, employees and consultants, but only employees may
receive incentive stock options under the plan.
The number of shares authorized for issuance under the plan is 16,029,000
shares of common stock. As of March 31, 2000, we had outstanding options to
purchase 11,741,391 shares of common stock under the plan. Upon the adoption of
our 2000 stock incentive plan, our board of directors ceased making awards
under the long term equity compensation plan. A committee appointed by the
board will administer the plan. The committee selects the individuals to
receive awards under the plan. Unless the committee permits otherwise, no
options may be assigned or transferred by the holder other than by will or by
the applicable laws of descent and distribution, and, during the holder's
lifetime, options generally may be exercised only by the holder.
Our board of directors has the authority to amend or terminate the plan,
provided that no amendment or termination of the plan may adversely affect the
rights and obligations with respect to options unless the participant consents
to such an amendment or termination. Amendments will generally be submitted for
stockholder approval only to the extent required by applicable law.
Stock option grants. The committee has the authority to specify the terms and
conditions of each option granted, and the term of each option. The exercise
price of an option must be equal to the fair market value of our common stock
on the grant date. Options granted under the plan vest over a three-year
period. Unless the plan administrator provides otherwise, options granted under
the plan will generally expire ten years from the grant date.
Adjustments. The committee will make proportional adjustments to the number
of shares issuable under the plan and to outstanding awards and, if applicable,
the exercise price, in the event of stock splits or other similar capital
adjustments.
Corporate transactions. In general, unless individual option agreements
provide otherwise, if a corporate transaction specified in the plan, such as
certain mergers or sales of Phase2Media, occurs, each outstanding option under
the plan will be assumed, continued or replaced so that the plan participant
will be entitled to the highest amount of cash, property or other securities
that the participant would have been entitled to provided he exercised his
option immediately prior to the change of control.
2000 Stock Incentive Plan
In April 2000, our board of directors and stockholders approved our 2000
stock incentive plan. The purpose of the plan is to enhance long-term
stockholder value by offering opportunities to selected persons to participate
in our growth and success, and to encourage them to remain in the service of
Phase2Media and its affiliates and to acquire and maintain ownership in our
company. The plan permits awards of stock options, restricted stock,
performance-based awards and other awards denominated in common stock, all of
which may be subject to restrictions. Persons eligible to receive
42
<PAGE>
awards under the plan are our and our affiliate's officers, directors,
employees, consultants and independent contractors, but only employees are
eligible to receive incentive stock options under the plan. In addition, our
non-employee directors will receive automatic option grants under the plan.
The number of shares authorized for issuance under the plan is 1,000,000
shares of common stock, plus an automatic annual increase, to be added on the
first day of the calendar year beginning in 2001, equal to the lesser of (1)
400,000 shares, or (2) 5% of the common stock outstanding on the last day of
the preceding calendar year. In addition, any unissued shares under our long
term equity compensation plan will be transferred to our 2000 stock incentive
plan.
The board or a committee appointed by the board will administer the plan,
except that our board of directors will have the sole authority to make
discretionary awards to our non-employee directors. The committee selects the
individuals to receive awards under the plan. Unless the committee permits
otherwise, no awards may be assigned or transferred by the holder other than by
will or by the applicable laws of descent and distribution, and, during the
holder's lifetime, awards generally may be exercised only by the holder. The
board may amend or terminate the plan at any time. Unless the board terminates
the plan sooner, the plan will terminate in April 2010.
Stock option grants. The committee has the authority to specify the terms and
conditions of each option granted, including the vesting schedule, the term and
the exercise price, which, for incentive stock options, must be at least equal
to the fair market value of the common stock on the grant date. Unless the
committee provides otherwise, options granted under the plan will generally
expire ten years from the grant date.
Stock-based awards. The committee is authorized to award shares of restricted
stock, performance-based awards and other awards denominated in common stock.
These stock awards may be subject to terms and conditions as determined by the
committee, including conditions on how the shares subject to restrictions must
be held while restricted and the circumstances under which a holder will
forfeit the shares if services with us are terminated.
Stock option grants to non-employee directors. Each non-employee director of
Phase2Media will automatically receive a non-qualified option to purchase
50,000 shares of common stock upon his or her initial election or appointment
to the board. These options will become exercisable for one-third of the shares
on each of the first three annual meetings of our stockholders following the
date of grant. Each non-employee director will also receive an option to
purchase 15,000 shares of common stock on the first trading day following each
annual meeting of our stockholders, provided such person has been a member of
the board for at least 180 days. The annual option grants will become
exercisable on the date of the first annual meeting of stockholders following
the date of grant, provided the optionee continues to serve on the board of
directors on that date. In addition, Messrs. Digne, Eilian, Slusky and Smith,
our non-employee directors on the date of approval of the plan, each received
an option to purchase 50,000 shares. These options will become exercisable on
the first anniversary of the date of grant, provided the optionee continues to
serve on the board of directors on that date. In addition, each non-employee
director's options will become fully exercisable if his or her service on the
board of directors is involuntarily terminated in connection with, or in
anticipation of, a change in control of Phase2Media.
The exercise price for options automatically granted to non-employee
directors will be the fair market value of the common stock on the grant date,
except that the options initially granted Messrs. Digne, Eilian, Slusky and
Smith have an exercise price of $3.00 per share. The difference between the
estimated fair value of our common stock for financial reporting purposes and
the exercise price of these options at the date of grant will be charged to
expense over the vesting period of the options.
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<PAGE>
Accordingly, we will recognize an aggregate compensation charge in the amount
of $600,000 over the related one-year vesting period. Options will have a ten-
year term, except that options will expire six months after a non-employee
director ceases service as a director, unless cessation is due to death or
disability, in which case the options will expire one year after the date of
death, or cause, in which case the option will expire immediately.
Adjustments. The committee will make proportional adjustments to the number
of shares issuable under the plan and to outstanding awards and, if applicable,
the exercise price, in the event of stock splits or other similar capital
adjustments.
Corporate transactions. In general, if a change in control specified in the
2000 stock incentive plan, such as certain mergers or sales of Phase2Media,
occurs, each outstanding option under the plan will be assumed or continued by
the successor corporation or the parent of the successor corporation, or, if a
successor corporation refuses to assume or continue outstanding options, each
outstanding option will automatically accelerate and become 100% vested and
exercisable immediately before such transaction.
2000 Employee Stock Purchase Plan
In April 2000, our board of directors and stockholders approved our 2000
employee stock purchase plan. We will implement our 2000 employee stock
purchase plan upon the effectiveness of this offering to assist employees in
acquiring a stock ownership interest in Phase2Media and to encourage employees
to remain in our employ or the employ of our subsidiaries. We intend for the
plan to qualify under Section 423 of the Internal Revenue Code. The plan will
be administered by our board, a committee of the board appointed to administer
the plan. Subject to adjustment to reflect recapitalizations, the board of
directors has reserved a total of 1,000,000 shares of common stock for issuance
under the plan, plus an automatic annual increase equal to the greater of (1)
2% of the number of shares of common stock outstanding on the last day of the
preceding calendar year, or (2) 100,000 shares. The plan will expire ten years
after it is adopted by our board of directors, but the board may suspend or
terminate the plan at any time.
Eligibility. Employees generally will be eligible to participate in the 2000
employee stock purchase plan if they are customarily employed by Phase2Media
for more than 20 hours per week and are not holders of 5% or more of our common
stock or our subsidiaries' common stock. The committee may require for future
offerings that an employee work a minimum of up to five months per year and
have been an employee for some minimum period of time not to exceed two years.
Options granted under the plan are not transferable and are only exercisable
during the employee's lifetime by the employee.
Payroll deductions. Our 2000 employee stock purchase plan permits our
eligible employees and those of our subsidiaries to purchase common stock
through payroll deductions of up to 15% of their base compensation. Under the
plan, no employee may purchase common stock with a fair market value of more
than $25,000 in any calendar year.
Offering periods. We will implement the 2000 employee stock purchase plan
with quarterly offering periods. The first offering period will commence on the
first day of the first full fiscal quarter after the completion of this
offering and will end on September 30, 2000. Subject to some limitations, the
committee may establish different offering periods in the future.
The price of the common stock purchased under the plan will be the lesser of
85% of the fair market value on the first day of an offering period and 85% of
the fair market value on the last day
44
<PAGE>
of the offering period. For purposes of the plan, fair market value means the
closing sales price as reported on the Nasdaq National Market on the applicable
day.
Adjustments. The plan administrator will make proportional adjustments to the
number of shares issuable under the plan and to outstanding rights and the
exercise price thereof in the event of stock splits or other similar capital
adjustments.
401(k) Plan
Effective April 1999, we adopted a 401(k) plan covering our full-time
employees located in the United States. The 401(k) plan is intended to qualify
under Section 401(k) of the Internal Revenue Code, so that 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, and so that we can
deduct our contributions, if any, when made. Pursuant to the 401(k) plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit and to have the amount of the reduction
contributed to the 401(k) plan. The 401(k) plan permits, but does not require,
that we provide additional matching contributions to the 401(k) plan on behalf
of all participants in the 401(k) plan. To date, we have not made any matching
contributions to the 401(k) plan.
Indemnification and Limitation of Liability
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:
. Any breach of their duty of loyalty to the corporation or its
stockholders;
. Acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. Unlawful payments of dividends or unlawful stock repurchases or
redemptions; 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 bylaws provide that we must indemnify our directors and executive
officers and may indemnify our other officers and employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in this capacity, regardless of whether the bylaws would
permit indemnification. We have purchased directors and officers liability
insurance, which provides coverage against specified liabilities.
We intend to enter into indemnification agreements with our directors and
executive officers that provide for indemnification beyond what is provided for
in our bylaws. These agreements will among other things, indemnify our
directors and executive officers for expenses, including attorneys' fees,
judgments, fines and settlement amounts incurred by them in any action or
proceeding, including any action by us arising out of their services as
directors or executive officers of Phase2Media, any of our subsidiaries 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.
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<PAGE>
TRANSACTIONS WITH MANAGEMENT AND RELATED PARTIES
Since March 1999, we have issued, purchased and sold securities to the
persons identified below who are our directors, executive officers and/or
holders of more than 5% of our common stock. You may find more details about
shares held by these purchasers in the Principal Stockholders section of this
prospectus.
Common Stock Issuances
In March 1999, we sold 6,750,000 shares of class A common stock to Richard E.
Glassberg, our chief executive officer and the chairman of our board of
directors, for an aggregate of $0.45.
In April 1999, we effected a share exchange with Richard E. Glassberg
pursuant to which we exchanged Mr. Glassberg's 6,750,000 shares of class A
common stock for 3,000,000 shares of class A common stock and reissued the
remaining 3,750,000 shares as common stock to other founding employees of
Phase2Media for an aggregate of $0.25.
In April 1999, we issued an aggregate of 8,250,000 shares of common stock to
the CKG Media.com, Inc. Stock Trust for an aggregate purchase price of $430,000
and certain assets of the affiliates of the CKG Trust valued at $4,000.
Common Stock Repurchases
In August 1999, we completed the repurchase of 8,250,000 shares of common
stock from the CKG Trust for an aggregate purchase price of $3,550,000.
In March 2000, we repurchased 2,562,500 shares of common stock from an
officer for an aggregate purchase price of $2,600 upon the termination of his
employment.
Promissory Notes
In May 1999, we issued a promissory note in the principal amount of
$1,000,000 and a warrant to purchase 2,115,000 shares of class A common stock
at a purchase price of $0.01 per share to Vector Capital II, L.P., a 5%
stockholder and an entity affiliated with Alexander R. Slusky, a director of
Phase2Media. In June 1999 we issued another promissory note in the principal
amount of $500,000 and a warrant to purchase an additional 2,032,500 shares of
class A common stock at a purchase price of $0.01 per share to Vector Capital.
In July 1999, Vector Capital loaned an additional $500,000 to Phase2Media. The
entire $2,000,000 loan, plus all accrued interest, from Vector Capital was
converted into series A preferred stock in August 1999, at which time all of
the warrants issued in connection with the loan were cancelled.
Series A Preferred Stock and Series B Preferred Stock
In August 1999, October 1999 and December 1999, pursuant to an agreement
entered into in August of 1999, we sold an aggregate of 9,000 shares of our
series A preferred stock at a price of $1,000 per share and an aggregate of
22,910,000 shares of our series B preferred stock at an average price of
$0.0436 per share to a group of private investors that included the following
5% beneficial stockholders or their affiliates:
46
<PAGE>
<TABLE>
<CAPTION>
Shares of Series A Shares of Series B
Purchaser Preferred Stock Preferred Stock
--------- ------------------ ------------------
<S> <C> <C>
Vector Capital II, L.P. and related
parties............................. 6,330 16,113,367
Hachette Filipacchi Interactions,
S.A................................. 2,670 6,796,633
</TABLE>
In connection with the December 1999 sale of these shares, we also issued
warrants to purchase an aggregate of 450,000 shares of common stock for $0.63
per share. Vector Capital and related parties received 316,499 of these
warrants and Hachette Filipacchi received the remaining 133,501 warrants.
Series C Preferred Stock
In August 1999, we sold an aggregate of 9,750,000 shares of our series C
preferred stock at a price of $0.3897 per share to a group of private investors
that included the following 5% beneficial stockholders or their affiliates:
<TABLE>
<CAPTION>
Shares of Series C
Purchaser Preferred Stock
--------- ------------------
<S> <C>
Vector Capital II, L.P.................................. 2,925,000
STV Partners II, L.L.C., an affiliate of STV Holdings,
L.L.C. ................................................ 4,900,658
</TABLE>
Series D Preferred Stock
In January 2000, February 2000 and March 2000, pursuant to an agreement
entered into in January of 2000, we sold an aggregate of 11,363,195 of our
series D preferred stock for an aggregate price of $1.529 per share to a group
of private investors that included the following 5% beneficial stockholders or
their affiliates:
<TABLE>
<CAPTION>
Shares of Series D
Purchaser Preferred Stock
--------- ------------------
<S> <C>
GE Capital Equity Investments, Inc...................... 4,577,977
Vector Capital II, L.P. and related parties............. 2,615,987
Hachette Filipacchi Interactions, S.A. and related
parties................................................ 1,994,690
STV Partners IX, L.L.C., an affiliate of STV Holdings,
L.L.C. ................................................ 1,209,894
</TABLE>
Warrants
In December 1999, in connection with our issuance of series A preferred stock
and series B preferred stock, we issued to Vector Capital II, L.P. and related
parties and Hachette Filipacchi Interactions, S.A. warrants to purchase up to
an aggregate of 450,000 shares of common stock at an exercise price of $0.63
per share.
In January 2000, we issued to Vector Capital II, L.P. warrants to purchase up
to 280,000 shares of common stock at an exercise price of $0.63 per share. We
issued these warrants in consideration for Vector Capital guaranteeing our
payment under a $2.5 million standby letter of credit issued by a bank on our
behalf.
Stock Options
Stock option grants to our directors and executive officers are described in
this prospectus under the captions "Management--Executive Compensation" and
"Principal Shareholders."
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<PAGE>
Other Agreements
In February 2000, we entered into an exclusive Internet advertising services
agreement with Hachette Filipacchi Magazines, Inc., an affiliate of Hachette
Filipacchi Interactions, S.A., a 5% stockholder. Under the agreement, we will
provide exclusive advertising and ad serving services to Hachette for all of
its Web sites for a period of three years. During the three months ended March
31, 2000, we purchased approximately $260,000 of advertising inventory from
Hachette Filipacchi for sale to advertisers and derived approximately $160,000
of revenue from the purchase by Hachette Filipacchi of advertising space on
other Web sites.
We have entered into an amended and restated securityholders' agreement with
our common and preferred stockholders and an amended and restated registration
rights agreement with our series B, C and D preferred stockholders. The amended
and restated securityholders' agreement will terminate on the closing of this
offering. Richard E. Glassberg has also entered into voting trust agreements
with some stockholders that will terminate upon this offering. Holders of
shares of our series B, C and D preferred stock and our common stock issued or
issuable upon conversion of our series B, C and D preferred stock and certain
of our warrant holders have registration rights under the amended and restated
registration rights agreement. See "Description of Capital Stock--Registration
Rights."
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership
of our capital stock as of May 9, 2000, after giving effect to the conversion
of all outstanding shares of our class A common stock, series A preferred
stock, series B preferred stock, series C preferred stock and series D
preferred stock into common stock and as adjusted to reflect the sale of the
common stock offered by us pursuant to this prospectus for:
. each person or entity who is known by us to beneficially own 5% or more
of our outstanding common stock;
. each of our directors;
. our named executive officers shown in the summary compensation table; and
. our current directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o Phase2Media, Inc., 420 Lexington Avenue, New York, NY 10170. The table
includes all shares of common stock beneficially owned by the indicated
stockholder as of May 9, 2000. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission. In computing the
number of shares beneficially owned by a person and the percentage of ownership
of that person, shares of common stock subject to options or warrants held by
that person that are currently exercisable or exercisable within 60 days of May
9, 2000 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage of ownership of any
other person. To our knowledge, except as otherwise noted, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them, subject to community property
laws where applicable.
The percent of beneficial ownership for each stockholder is based on
shares of common stock outstanding prior to this offering on an as converted
basis and shares of common stock outstanding after this
offering.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
Number of Shares ------------------------
Beneficially Before After
Name and Address Owned Offering Offering
- ---------------- ---------------- ---------- ----------
<S> <C> <C> <C>
Entities affiliated with Vector
Capital (1) .................... 22,174,870 % %
456 Montgomery St., 19th Floor
San Francisco, CA 94104
Hachette Filipacchi Interactions,
S.A. (2)........................ 8,892,124
149 rue Anatole France
92534 Levallois--Perret Cedex
France
GE Capital Equity Investments,
Inc. (3)........................ 4,577,977
120 Long Ridge Road
Stanford, CT 06927
Richard E. Glassberg (4)......... 4,111,111
R. Scott Ford (5)................ 631,944
Thomas Mannion (5)............... 631,944
Robert Chmiel (6)................ 437,500
Herve Digne (7).................. 8,924,824
Jonathan D. Eilian .............. 390,538
Alexander R. Slusky (8).......... 22,174,870
Steven D. Smith (9).............. 4,577,977
All directors and executive
officers as a group (9
persons) (10)................... 41,443,208
</TABLE>
49
<PAGE>
- --------
* Indicates ownership of less than 1%.
(1) Consists of 18,558,578 shares held by Vector Capital II, L.P. and 551,009
shares underlying warrants held by Vector Capital II, L.P.; 1,942,178
shares held by Vector Member Fund II, L.P. and 28,361 shares underlying a
warrant held by Vector Member Fund II, L.P.; and 1,078,987 shares held by
Vector Entrepreneur Fund II, L.P. and 15,757 shares underlying a warrant
held by Vector Entrepreneur Fund II, L.P. Vector Capital Partners II,
L.L.C. is the sole general partner of all three of these funds. Entities
affiliated with Vector Capital also hold $6.6 million of series A preferred
stock, which will convert into common stock upon completion of this
offering at 50% of the initial public offering price per share in this
offering.
(2) Includes 133,501 shares underlying a warrant. Hachette Filipacchi
Interactions, S.A. also holds $2.8 million of series A preferred stock,
which will convert into common stock upon completion of this offering at
50% of the initial public offering price per share in this offering.
(3) GE Capital Equity Investments, Inc. shares beneficial ownership with its
parent, General Electric Capital Corporation, with respect to 4,577,977
shares. General Electric Capital Corporation is a less than 10% limited
partner in Vector Capital II, L.P.
(4) Includes 1,111,111 shares underlying options. Also includes 40,000 shares
held by The Glassberg Family Trust I and 40,000 shares held by The
Glassberg Family Trust II, which are trusts for the benefit of Mr.
Glassberg's children.
(5) Includes 294,444 shares underlying options.
(6) Mr. Chmiel's employment with us ended on March 10, 2000.
(7) Includes the 8,892,124 shares beneficially owned by Hachette Filipacchi
Interactions, S.A. Mr. Digne disclaims beneficial ownership of these
8,892,124 shares.
(8) Constitutes the 22,174,870 shares beneficially owned by entities affiliated
with Vector Capital. Mr. Slusky disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest therein.
(9) Constitutes the 4,577,977 shares beneficially owned by GE Capital Equity
Investments, Inc. Mr. Smith disclaims beneficial ownership of these shares.
(10) Includes 1,699,999 shares underlying options.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, our authorized capital stock will
consist of shares of common stock, $0.001 par value, and 50,000,000
shares of undesignated preferred stock, $0.001 par value. The following summary
of provisions of the common stock and preferred stock is not complete and may
not contain all the information you should consider before investing in the
common stock. You should read carefully our restated certificate of
incorporation, which is included as an exhibit to the registration statement of
which this prospectus is a part.
Common Stock
At May 9, 2000, there were shares of common stock outstanding that were
held of record by approximately 46 stockholders, which reflects the conversion
of all outstanding shares of class A common stock, series A preferred stock,
series B preferred stock, series C preferred stock and series D preferred stock
into common stock upon the closing of this offering. In addition, as of April
30, 2000, there were 12,261,391 shares of common stock subject to outstanding
options and 1,445,000 shares of common stock subject to outstanding warrants.
Upon completion of this offering, and after giving effect to the issuance of
shares of common stock offered by us hereby, there will be
shares of common stock and no shares of preferred stock issued and outstanding,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options under our stock option plans.
The holders of common stock are entitled to one vote per share on all matters
to be voted upon by stockholders. Subject to preferences that may be applicable
to any outstanding preferred stock, holders of common stock are entitled to
receive ratably such dividends as may be declared by the board of directors out
of funds legally available for that purpose. For more details, 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 and the liquidation preference of any outstanding
preferred stock. The common stock has no preemptive or conversion rights, other
subscription rights, or redemption or sinking fund provisions. All outstanding
shares of common stock are fully paid and non-assessable.
Class A Common Stock
Upon the closing of this offering, each outstanding share of class A common
stock will be converted into one share of common stock and automatically
retired. Each share of class A common stock has substantially the same rights
as a share of common stock, except that the holder of the shares of class A
common stock is entitled to ten votes per share on all matters to be voted upon
by stockholders.
Preferred Stock
Upon the closing of this offering, all outstanding shares of series A
preferred stock, series B preferred stock, series C preferred stock and series
D preferred stock will be converted into shares of common stock and
automatically retired. The outstanding series A preferred stock will be
converted into an aggregate number of shares of common stock equal to the
aggregate liquidation value of the series A preferred stock divided by 50% of
the initial public offering price per share of the common stock in this
offering. Each outstanding share of Series B preferred stock, series C
preferred stock and series D preferred stock will convert into one share of
common stock. After this offering, the board of directors will have the
authority, without further action by stockholders, to issue up to 50,000,000
shares of preferred stock in one or more series and to designate the rights,
preferences, privileges and restrictions of each such series. The issuance of
preferred stock could have the effect
51
<PAGE>
of restricting dividends on the common stock, diluting the voting power of the
common stock, impairing the liquidation rights of the common stock or delaying
or preventing our change in control without further action by the stockholders.
We have no present plans to issue any shares of preferred stock after the
completion of this offering.
Warrants
Some of our stockholders hold warrants to purchase an aggregate of up to
730,000 shares of our common stock at an exercise price of $0.63 per share. The
holders of warrants to purchase 450,000 of these shares can exercise these
warrants until December 23, 2002, while the holders of the warrants to purchase
the remaining 280,000 shares can exercise these warrants until October 27,
2003.
In connection with our lease for our corporate headquarters, we issued
warrants to the landlord to purchase up to 30,000 shares of our common stock.
These warrants are exercisable at a price of $2.50 per share and expire on June
17, 2004.
In connection with a loan and security agreement with Silicon Valley Bank, we
issued warrants to purchase up to 35,000 shares of our common stock. These
warrants are exercisable at a price of $0.63 per share and expire on October
28, 2006.
In connection with our agreement with Prodigy, we issued warrants to Prodigy
to purchase up to 200,000 shares of our common stock at an exercise price of
$6.00 per share, expiring on February 14, 2003. Warrants to purchase an
additional 450,000 shares of our common stock will be issued if Prodigy meets
agreed upon revenue or operating targets. The exercise price of the warrants to
purchase the additional 450,000 shares will be equal to 85% of the fair market
value of our common stock on the date the warrants are issued. The warrants to
purchase the additional 450,000 shares will expire on the later of February 14,
2003 and one year after the date the warrants are issued.
To date, none of these warrants have been exercised.
Registration Rights
The holders of shares of our series B preferred stock, series C
preferred stock and series D preferred stock and certain common stock purchase
warrants are entitled to have their shares registered by us under the
Securities Act pursuant to the terms of an amended and restated registration
rights agreement, dated as of January 19, 2000, between us and the holders of
these registrable securities. Subject to the limitations specified in these two
agreements, the registration rights include the following:
. the holders of at least 25% of the then outstanding registrable
securities may require that we use our reasonable best efforts to
register the registrable securities for public resale; and
. if we register any common stock, either for our own account or for the
account of other security holders, the holders of registrable securities
are entitled to include their shares of common stock in such
registration, subject to the ability of the underwriters to limit the
number of shares included in the offering in view of market conditions.
52
<PAGE>
Antitakeover Effects of Provisions of Delaware Law and Our Charter and Bylaws
Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:
. the acquisition of Phase2Media by means of a tender offer;
. the acquisition of Phase2Media by means of a proxy contest or otherwise;
or
. the removal of Phase2Media incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of
Phase2Media to negotiate first with Phase2Media's board. 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
Phase2Media outweigh the disadvantages of discouraging these proposals because
negotiation of any proposals of this type could result in an improvement of
their terms.
Election and removal of directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
with our stockholders electing one class each year. See "Management--Board
Composition." This system of electing and removing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of Phase2Media, because it generally makes it more difficult for
stockholders to replace a majority of the directors.
Stockholder meetings. Under our bylaws, only the board of directors, the
chairman of the board or the chief executive officer may call special meetings
of stockholders.
Requirements for advance notification of stockholder nominations and
proposals. Our bylaws establish advance notice procedures for stockholder
proposals and for 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 of the board.
Delaware Section 203. Phase2Media is subject to Section 203 of the Delaware
General Corporation Law, an antitakeover 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 the business combination or
the transaction in which the person became an interested stockholder is
approved in the manner specified in Section 203. 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 may have an antitakeover effect by discouraging
takeover attempts not approved in advance by the board of directors, that might
result in a premium over the market price for the shares of common stock held
by stockholders.
Elimination of stockholder action by written consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
No cumulative voting. Our certificate of incorporation and bylaws do not
provide for cumulative voting in the election of directors.
53
<PAGE>
Undesignated preferred stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of any
attempt to change control of Phase2Media. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or
management of Phase2Media.
Amendment of charter provisions. The amendment of any of the above provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock.
Nasdaq National Market Listing
We have applied for quotation on the Nasdaq National Market under the symbol
"PTWO."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no public market for our common stock. We
cannot predict the effect, if any, that market sales of shares or the
availability of any shares for sale will have on the market price of the common
stock prevailing from time to time. Furthermore, due to contractual and legal
restrictions on resale, only a limited number of shares will be available for
sale shortly after this offering. After these restrictions lapse, sales of
substantial amounts of common stock, or the perception that such sales could
occur, could adversely affect the market price of our common stock and our
ability to raise equity capital.
Upon completion of this offering, based on shares outstanding at May 9, 2000,
we will have shares of common stock outstanding assuming:
. the issuance of shares of common stock in this offering;
. the conversion of all shares of class A common stock and preferred stock
into shares of common stock upon completion of this offering;
. no exercise of the underwriters' over-allotment option; and
. no exercise of options or warrants after May 9, 2000.
Of these shares, the shares of common stock sold in this
offering will be freely tradable without further restriction or further
registration under the Securities Act, except for shares purchased by our
"affiliates," as that term is defined in the Securities Act.
The remaining shares of common stock outstanding are
"restricted securities" within the meaning of Rule 144. Restricted shares may
be sold in the public market only if registered with the Securities and
Exchange Commission or if they qualify for an exemption from registration under
Rule 144, Rule 144(k), or Rule 701 of the Securities Act, all of which are
summarized below. Sales of the restricted shares in the public market, or the
availability of shares for sale, could adversely affect the market price of our
common stock.
Our stockholders have entered into agreements in which they have agreed that
they will not, without the prior written consent of FleetBoston Robertson
Stephens Inc., offer, sell, contract to sell, or grant any option to purchase
or otherwise dispose of their shares of our common stock for a period of 180
days following the effective date of the registration statement filed pursuant
to this offering. These agreements, often referred to as lock-up agreements,
also apply to any securities owned by our stockholders that are exercisable for
or convertible into our common stock. As a result of these contractual
restrictions, shares subject to lock-up agreements may not be sold until such
lock-up agreements expire or are waived by FleetBoston Robertson Stephens Inc.
Taking into account the lock-up agreements, and assuming FleetBoston Robertson
Stephens Inc. does not release stockholders from these agreements, the
following shares will be eligible for sale in the public market at the
following times:
. beginning on the effective date, only the shares sold in the offering
will be immediately available for sale in the public market;
. beginning 180 days after the effective date, approximately
shares will be eligible for sale pursuant to Rules 144 and 701; and
. beginning on , 2001, approximately shares will be
eligible for sale pursuant to Rule 144.
55
<PAGE>
Under Rule 144, the number of shares that may be sold by affiliates of our
stockholders are subject to volume restrictions. In general, under Rule 144,
and beginning after the expiration of the lock-up agreements, a person who has
beneficially owned restricted shares, including shares that are aggregated to
such person or persons, for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after the
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale. In order to sell shares under Rule
144, the selling stockholder must comply with manner of sale provisions
and notice requirements and current public information about us must be
available.
Under Rule 144(k), the following persons may sell their shares without
complying with the manner of sale, public information, number of shares
limitation or notice provisions of Rule 144:
. not our affiliate during the three months preceding a sale; and
. beneficially owned the shares proposed to be sold for at least two years.
As part of the lock-up agreements, all of our employees holding common stock
or stock options may not sell shares acquired upon exercise of their options
until 180 days after the effective date. Beginning 180 days after the effective
date, any of our employees, officers, directors, or consultants who purchased
his or her shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell to 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 their shares in reliance on Rule 144 without
having to comply with the holding period, public information, number of shares
limitation or notice provisions of Rule 144.
Within approximately 180 days after the date of this prospectus, we intend to
file one or more registration statements under the Securities Act to register
shares of common stock subject to outstanding stock options or reserved
for issuance under our equity compensation plans. Upon completion of this
offering, options to purchase approximately shares will be outstanding
under our equity compensation plans.
In addition, upon completion of this offering, the holders of shares of
common stock will be entitled to certain registration rights with respect to
these shares, which will allow these stockholders to sell these shares in the
market simultaneously with any further public offerings by us of our equity
securities. Sales of a substantial amount of common stock in the public market,
or the perception that these sales may occur, could adversely affect the market
price of the common stock prevailing from time to time in the public market and
could impair our ability to raise additional capital through the sale of our
equity securities.
56
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Chase Securities Inc., Thomas Weisel
Partners LLC and DLJdirect Inc., have each agreed with us, subject to the terms
and conditions in the underwriting agreement, to purchase from us the number of
shares of common stock listed opposite their names below. The underwriters are
committed to purchase and pay for all the shares if they are purchased.
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- ------
<S> <C>
FleetBoston Robertson Stephens Inc. ...............................
Chase Securities Inc. .............................................
Thomas Weisel Partners LLC.........................................
DLJdirect Inc. ....................................................
------
Total............................................................
======
</TABLE>
We have been advised by the representatives that the underwriters propose to
offer the shares of common stock to the public at the public offering price
stated on the cover page of this prospectus and to dealers at this price less a
concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After the public offering, the public offering
price, concession and reallowance to dealers may be reduced by the
representatives. No reduction shall change the amount of proceeds to be
received by us as stated on the cover page of this prospectus. The shares of
common stock are offered by the underwriters as stated in this prospectus,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to shares of common stock to cover over-allotments, if any,
at the public offering price less the underwriting discount stated on the cover
page of this prospectus. If the underwriters exercise their over-allotment
option to purchase any of the additional shares, the underwriters have
each agreed to purchase approximately the same percentage of the additional
shares as the number of shares to be purchased by each of them bears to the
total number of shares of common stock offered in this offering. If purchased,
these additional shares will be sold by the underwriters on the same terms as
those on which the shares offered by this prospectus are being sold. We will be
obligated, under the over-allotment option, to sell shares to the underwriters
to the extent the over-allotment option is exercised. The underwriters may
exercise this option only to cover over-allotments made when selling the shares
of common stock offered in this offering.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share Allotment Allotment
----- --------- ---------
<S> <C> <C> <C>
Assumed public offering price......................... $ $ $
Underwriting discounts and commissions................
Proceeds, before expenses, to us......................
</TABLE>
57
<PAGE>
We estimate that the total expenses of this offering, other than the
underwriting discounts and commissions referred to above, payable by us will be
approximately $ .
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against some civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each of our executive officers, directors and
substantially all of our stockholders have agreed that, without the prior
written consent of FleetBoston Robertson Stephens Inc., they will not offer to
sell, contract to sell or dispose of any shares of common stock or any
securities that may be convertible into or exchanged for shares of common stock
for a period of 180 days after the date of this prospectus. FleetBoston
Robertson Stephens Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to the lock-up
agreements. There are no agreements between the representatives and any of our
stockholders providing consent by the representatives to the sale of shares
before the expiration of the period of 180 days after this prospectus.
Future Sales By Us. We have agreed that, without the prior written consent of
FleetBoston Robertson Stephens Inc, we will not issue, sell or dispose of any
shares of common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock, for a period of 180 days after the
date of this prospectus. This lock-up does not apply to:
. the issuance of shares of common stock upon the exercise or conversion of
outstanding options, warrants or convertible securities;
. our issuance of stock options under existing stock option plans; and
. the issuance of shares of common stock in an acquisition transaction.
Listing. We have applied to have our shares of common stock quoted on the
Nasdaq National Market under the symbol "PTWO."
Stabilization. The representatives have advised us that, under Regulation M,
persons participating in this offering may engage in transactions that may have
the effect of stabilizing or maintaining the market price of the shares of
common stock at a level above that which might otherwise prevail in the open
market. These transactions may include:
. stabilizing bids, which are bids for the purchase of the shares of common
stock on behalf of the underwriters for the purpose of fixing or
maintaining the price of the shares of common stock;
. syndicate covering transactions, which are bids for or the purchase of
the shares of common stock on behalf of the underwriters to cover
purchase orders filled by the underwriters above the shares being
offered by this prospectus; and
. penalty bids, which are arrangements permitting the representatives to
reclaim the selling concession otherwise accruing to an underwriter or
syndicate member in this offering if the shares of common stock
originally sold by the underwriter or syndicate member are purchased by
the representatives in a syndicate covering transaction and have
therefore not been effectively placed by the underwriter or syndicate
member.
The representatives have advised us that these transactions may be effected on
the Nasdaq National Market or in other markets and, if begun, may be
discontinued at any time.
58
<PAGE>
Directed Share Program. At our request, the underwriters have reserved up to
7.5 percent of the shares of common stock offered by this prospectus for sale
to our employees and their family members and to our business associates at the
public offering price stated on the cover page of this prospectus. These
persons must commit to purchase no later than the close of business on the day
following the date of this prospectus. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares. Any reserved shares that are not so purchased will be offered
by the underwriters to the general public on the same basis as the other shares
offered by this prospectus.
Thomas Weisel Partners LLC. Due to the fact that one of the representatives
of the underwriters was organized within the last three years, we are providing
the following information. 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 of, or as a syndicate member in, numerous
public offerings of equity securities. Thomas Weisel Partners LLC does not have
any material relationship with us or any of our officers, directors or other
controlling persons.
FleetBoston Robertson Stephens Inc. Bayview 2000 I, LP and Bayview 2000 II,
LP, entities affiliated with FleetBoston Robertson Stephens Inc., hold an
aggregate of 163,499 shares of our common stock.
DLJdirect Inc. An electronic prospectus will be available on the Web site
maintained by DLJdirect. Other than the prospectus in electronic format, the
information on this Web site relating to this offering is not part of this
prospectus and has not been approved or endorsed by Phase2Media or the
underwriters, and should not be relied on by prospective investors.
59
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for Phase2Media by Fulbright & Jaworski L.L.P., New York, New York. Certain
legal matters in connection with the offering will be passed upon for the
underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999 and for the period from March 30, 1999
(inception) to December 31, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report given on their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement, of which this
prospectus constitutes a part, on Form S-1 under the Securities Act (herein,
together with all amendments and exhibits referred to herein as the
"Registration Statement") with respect to the common stock being sold in this
offering. This prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules to the Registration
Statement, because some parts have been omitted in accordance with rules and
regulations of the Commission. For further information with respect to
Phase2Media and the common stock being sold in this offering, please refer to
the Registration Statement and the exhibits and schedules filed as a part of
the Registration Statement. Statements contained in this prospectus as to the
contents of any contract, agreement or any other document referred to are not
necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the Registration Statement. Each
such statement is qualified in all respects by such reference to such exhibit.
A copy of the Registration Statement, including exhibits and schedules thereto,
may be inspected without charge and obtained at prescribed rates at the Public
Reference Section of the Commission at its principal offices, located at 450
Fifth Street, N.W., Washington, D.C. 20549, and may be inspected without charge
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. The Registration Statement,
including the exhibits and schedules thereto, is also available at the
Commission's site on the World Wide Web at http://www.sec.gov.
We intend to furnish our stockholders annual reports containing financial
statements audited by our independent auditors and make available quarterly
reports containing unaudited financial information.
60
<PAGE>
PHASE2MEDIA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors........................................... F-2
Balance Sheets as of December 31, 1999 and March 31, 2000 (unaudited).... F-3
Statements of Operations for the period from March 30, 1999 (inception)
to December 31, 1999 and the three months ended March 31, 2000
(unaudited)............................................................. F-4
Statements of Changes in Stockholders' Equity for the period from March
30, 1999 (inception) to December 31, 1999 and the three months ended
March 31, 2000 (unaudited).............................................. F-5
Statements of Cash Flows for the period from March 30, 1999 (inception)
to December 31, 1999 and the three months ended March 31, 2000
(unaudited)............................................................. F-7
Notes to Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Phase2Media, Inc.
We have audited the accompanying balance sheet of Phase2Media, Inc. as of
December 31, 1999, and the related statements of operations, changes in
stockholders' equity, and cash flows for the period from March 30, 1999
(inception) to 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 audit.
We conducted our audit 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 audit provides 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 Phase2Media, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
period from March 30, 1999 (inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
March 31, 2000,
except for Note 11,
as to which the date
is May 10, 2000.
F-2
<PAGE>
PHASE2MEDIA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro forma
December 31, March 31, March 31,
1999 2000 2000
------------ ------------ -----------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 4,903,000 $ 12,966,000
Short-term investments................. -- 4,727,000
Accounts receivable, less allowance of
$190,000 (1999) and $553,000 (2000)... 7,904,000 14,772,000
Prepaid and other current assets....... 63,000 450,000
----------- ------------
Total current assets..................... 12,870,000 32,915,000
Fixed assets, net........................ 722,000 1,573,000
Other assets............................. 76,000 836,000
----------- ------------
Total assets............................. $13,668,000 $ 35,324,000
=========== ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable to web publishers,
including $260,000 from a stockholder
in 2000 .............................. $ 5,639,000 $ 10,214,000
Accounts payable and accrued expenses.. 1,812,000 2,008,000
Deferred revenue....................... 996,000 2,227,000
----------- ------------
Total current liabilities................ 8,447,000 14,449,000
Deferred rent............................ 79,000 72,000
Series A redeemable convertible preferred
stock--150,000 shares designated; 9,000
shares issued and outstanding
($9,159,000 (1999) and $9,365,000 (2000)
redemption and liquidation values)...... 1,731,000 2,090,000 $ --
Stockholders' equity:
Preferred stock--$.001 par value;
50,000,000 shares authorized:
Series B convertible preferred stock-
23,000,000 shares designated;
22,910,000 shares issued and
outstanding (liquidation preference
equals stated value)................ 8,572,000 8,572,000 --
Series C convertible preferred stock-
9,908,000 shares designated;
9,908,000 shares issued and
outstanding (liquidation preference
equals stated value)................ 3,900,000 3,900,000 --
Series D convertible preferred stock-
11,363,195 shares designated;
11,363,195 (2000) shares issued and
outstanding (liquidation preference
equals stated value)................ -- 17,375,000 --
Class A common stock--$.001 par value,
40,000,000 shares authorized:
3,000,000 shares issued and
outstanding........................... 3,000 3,000 --
Common stock--$.001 par value;
100,000,000 shares authorized:
12,623,000 (1999), 1,812,500 (2000)
and 51,212,927 (pro forma) shares
issued and outstanding................ 13,000 2,000
Additional paid-in capital............. 2,223,000 14,801,000
Accumulated deficit.................... (6,136,000) (9,812,000)
Deferred compensation.................. (1,614,000) (16,129,000)
Treasury stock, 8,250,000 (1999) and 0
(2000) shares of common stock, at
cost.................................. (3,550,000) --
Accumulated other comprehensive
income................................ -- 1,000
----------- ------------ -----------
Total stockholders' equity............... 3,411,000 18,713,000 $
----------- ------------ -----------
Total liabilities and stockholders'
equity.................................. $13,668,000 $ 35,324,000
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
PHASE2MEDIA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
March 30, 1999 Three months
(inception) to ended
December 31, 1999 March 31, 2000
----------------- --------------
(unaudited)
<S> <C> <C>
Revenue....................................... $ 4,452,000 $5,253,000
Cost of revenue............................... 2,108,000 1,909,000
----------- -----------
Gross profit.................................. 2,344,000 3,344,000
Operating expenses:
Sales and marketing, including $14,000
(1999) and $98,000 (2000) of non-cash
charges.................................... 4,339,000 3,463,000
Product development......................... 702,000 307,000
General and administrative, including
$491,000 (1999) and $293,000 (2000) of non-
cash charges............................... 2,978,000 2,418,000
Non-cash compensation....................... 87,000 560,000
Depreciation and amortization............... 79,000 82,000
----------- -----------
Total operating expenses...................... 8,185,000 6,830,000
----------- -----------
Loss from operations.......................... (5,841,000) (3,486,000)
Other income (expense):
Interest income............................. 29,000 169,000
Interest expense............................ (22,000) --
----------- -----------
Net loss...................................... (5,834,000) (3,317,000)
Preferred stock dividends and accretion....... (302,000) (359,000)
----------- -----------
Net loss applicable to common shareholders.... $(6,136,000) $(3,676,000)
=========== ===========
Basic and diluted loss per common share
applicable to common stockholders............ $ (0.58) $ (0.54)
=========== ===========
Weighted average shares used in calculating
basic and diluted loss per share............. 10,587,000 6,862,000
=========== ===========
Pro forma basic and diluted net loss per share
(see Note 4)................................. $ $
=========== ===========
Number of shares used in calculating pro forma
basic and diluted net loss per share (see
Note 4)......................................
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PHASE2MEDIA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Period from March 30, 1999 (inception) to December 31, 1999 and the three
months ended March 31, 2000
(Unaudited with respect to the three months ended March 31, 2000)
<TABLE>
<CAPTION>
Series C
Series B Convertible Series D Class A
Convertible Preferred Preferred Convertible Preferred Common Stock
--------------------- -------------------- ---------------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ---------- --------- ---------- ---------- ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock--inception....... -- -- -- -- -- -- 3,000,000 $3,000
Issuance of common
stock--April 1999...... -- -- -- -- -- -- -- --
Purchase of treasury
stock.................. -- -- -- -- -- -- -- --
Issuance of series B
preferred stock........ 22,910,000 $8,572,000 -- -- -- -- -- --
Issuance of series C
preferred stock........ -- -- 9,908,000 $3,900,000 -- -- -- --
Deferred compensation... -- -- -- -- -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- -- -- --
Issuance of common stock
in exchange for
services provided...... -- -- -- -- -- -- -- --
Issuance of options in
exchange for services
provided............... -- -- -- -- -- -- -- --
Costs incurred in
connection with
issuance of preferred
stock.................. -- -- -- -- -- -- -- --
Issuance of warrants in
exchange for services
provided............... -- -- -- -- -- -- -- --
Preferred stock
dividends and
accretion.............. -- -- -- -- -- -- -- --
Net loss and
comprehensive loss for
the period from March
30, 1999 (inception) to
December 31, 1999...... -- -- -- -- -- -- -- --
---------- ---------- --------- ---------- ---------- ----------- --------- ------
Balance, December 31,
1999................... 22,910,000 8,572,000 9,908,000 3,900,000 -- -- 3,000,000 3,000
Repurchase of treasury
stock.................. -- -- -- -- -- -- -- --
Deferred compensation... -- -- -- -- -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- -- -- --
Issuance of options in
exchange for services
provided............... -- -- -- -- -- -- -- --
Issuance of series D
preferred stock........ -- -- -- -- 11,363,195 $17,375,000 -- --
Issuance of warrants in
exchange for services
provided............... -- -- -- -- -- -- -- --
Exercise of stock
options................ -- -- -- -- -- -- -- --
Retirement of treasury
stock.................. -- -- -- -- -- -- -- --
Costs incurred in
connection with
issuance of preferred
stock.................. -- -- -- -- -- -- -- --
Preferred stock
dividends and
accretion.............. -- -- -- -- -- -- -- --
Net loss for the three
months ended March 31,
2000................... -- -- -- -- -- -- -- --
Unrealized gain on
short-term
investments............ -- -- -- -- -- -- -- --
Comprehensive loss...... -- -- -- -- -- -- -- --
---------- ---------- --------- ---------- ---------- ----------- --------- ------
Balance, March 31,
2000................... 22,910,000 $8,572,000 9,908,000 $3,900,000 11,363,195 $17,375,000 3,000,000 $3,000
========== ========== ========= ========== ========== =========== ========= ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Treasury Stock Other Total
- --------------------- Paid-in Accumulated Deferred ------------------------ Comprehensive Stockholders'
Shares Amount Capital Deficit Compensation Shares Amount Income Equity
- ----------- ------- ----------- ----------- ------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3,750,000 $ 4,000 $ (7,000) -- -- -- -- -- $ --
8,250,000 8,000 426,000 -- -- -- -- -- 434,000
-- -- -- -- -- 8,250,000 $(3,550,000) -- (3,550,000)
-- -- -- -- -- -- -- -- 8,572,000
-- -- -- -- -- -- -- -- 3,900,000
-- -- 1,701,000 -- $ (1,701,000) -- -- -- --
-- -- -- -- 87,000 -- -- -- 87,000
623,000 1,000 236,000 -- -- -- -- -- 237,000
-- -- 34,000 -- -- -- -- -- 34,000
-- -- (401,000) -- -- -- -- -- (401,000)
-- -- 234,000 -- -- -- -- -- 234,000
-- -- -- $ (302,000) -- -- -- -- (302,000)
-- -- -- (5,834,000) -- -- -- -- (5,834,000)
- ----------- ------- ----------- ----------- ------------ ----------- ----------- ------ -----------
12,623,000 13,000 2,223,000 (6,136,000) (1,614,000) 8,250,000 (3,550,000) -- 3,411,000
-- -- -- -- -- 2,562,500 (3,000) -- (3,000)
-- -- 15,075,000 -- (15,075,000) -- -- -- --
-- -- -- -- 560,000 -- -- -- 560,000
-- -- 67,000 -- -- -- -- -- 67,000
-- -- -- -- -- -- -- -- 17,375,000
-- -- 1,025,000 -- -- -- -- -- 1,025,000
2,000 -- -- -- -- -- -- -- --
(10,812,500) (11,000) (3,542,000) -- -- (10,812,500) 3,553,000 -- --
-- -- (47,000) -- -- -- -- -- (47,000)
-- -- -- (359,000) -- -- -- -- (359,000)
-- -- -- (3,317,000) -- -- -- -- (3,317,000)
-- -- -- -- -- -- -- $1,000 1,000
-----------
-- -- -- -- -- -- -- -- (3,316,000)
- ----------- ------- ----------- ----------- ------------ ----------- ----------- ------ -----------
1,812,500 $ 2,000 $14,801,000 $(9,812,000) $(16,129,000) -- $ -- $1,000 $18,713,000
=========== ======= =========== =========== ============ =========== =========== ====== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
PHASE2MEDIA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
March 30, 1999 Three months
(inception) to ended
December 31, 1999 March 31, 2000
----------------- --------------
(Unaudited)
<S> <C> <C>
Operating activities
Net loss..................................... $(5,834,000) $(3,317,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 79,000 82,000
Provision for doubtful accounts............ 190,000 363,000
Non-cash compensation...................... 87,000 560,000
Non-cash sales and marketing............... 14,000 98,000
Non-cash general and administrative........ 491,000 293,000
Changes in operating assets and
liabilities:
Accounts receivable...................... (8,094,000) (7,231,000)
Prepaid and other current assets......... (63,000) (174,000)
Other assets............................. (76,000) (272,000)
Accounts payable to web publishers....... 5,639,000 4,575,000
Accounts payable and accrued expenses.... 1,812,000 196,000
Deferred revenue......................... 996,000 1,231,000
Deferred rent............................ 79,000 (7,000)
----------- -----------
Net cash used in operating activities........ (4,680,000) (3,603,000)
Investing activities
Purchases of fixed assets.................... (797,000) (933,000)
Purchases of short-term investments.......... -- (4,726,000)
----------- -----------
Net cash used in investing activities........ (797,000) (5,659,000)
Financing activities
Purchase of treasury stock................... (3,550,000) (3,000)
Proceeds from promissory notes............... 2,000,000 --
Issuance of preferred stock.................. 11,901,000 17,375,000
Costs in connection with issuance of stock... (401,000) (47,000)
Issuance of common stock..................... 430,000 --
----------- -----------
Net cash provided by financing activities.... 10,380,000 17,325,000
Increase in cash and cash equivalents........ 4,903,000 8,063,000
Cash and cash equivalents, beginning of
period...................................... -- 4,903,000
----------- -----------
Cash and cash equivalents, end of period..... $ 4,903,000 $12,966,000
=========== ===========
Supplemental disclosures of cash flow
information
Interest paid................................ $ 22,000 $ --
Non-cash investing and financing activities:
Preferred stock issued to repay promissory
notes..................................... 2,000,000 --
Fixed assets contributed in exchange for
common stock.............................. 4,000 --
Common stock issued for services provided.. 237,000 --
Common stock options issued for services
provided.................................. 34,000 67,000
Warrants issued for services provided...... 234,000 1,025,000
Common stock and class A common stock
issued to founders........................ 7,000 --
Warrants issued in connection with issuance
of preferred stock........................ 563,000 --
</TABLE>
See accompanying notes.
F-7
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
Period from March 30, 1999 (inception) to December 31, 1999
(information as of and for the three month period ended March 31, 2000 is
unaudited)
1. Significant Accounting Policies
Description of Business
Phase2Media, Inc. was incorporated in the State of Delaware on March 30, 1999
and commenced operations in April 1999. Phase2Media, Inc. ("Phase2Media")
provides internet advertising placement and related consulting services to
branded Web publishers. Phase2Media's customers are primarily located
throughout the United States. At March 31, 2000, Phase2Media has offices in San
Francisco and Los Angeles, California; Chicago, Illinois; Atlanta, Georgia;
Troy, Michigan and is headquartered in New York, New York.
Initial Public Offering
In March 2000, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission ("SEC") that would permit
Phase2Media to sell shares of it's common stock in connection with a proposed
initial public offering ("IPO"). In conjunction with a qualified IPO, as
defined, all outstanding shares of series A preferred stock, with a redemption
value of $1,000 per share plus accrued and unpaid dividends will automatically
convert into shares of common stock at 50% of the IPO price per share and each
outstanding share of series B, C and D preferred stock will automatically
convert into shares of common stock on a one-for-one basis (see Notes 3 and
11). Accordingly, the effect of the conversions has been reflected in the
accompanying unaudited pro forma balance sheet as if they had occurred as of
March 31, 2000.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Interim Financial Information
The unaudited interim information as of March 31, 2000 and for the three
months then ended has been prepared on the same basis as the audited financial
statements for the period ended December 31, 1999 and, in the opinion of
Phase2Media's management, contains all adjustments (consisting of normal
recurring accruals) necessary for fair presentation. Operating results for any
interim period are not necessarily indicative of results to be expected for the
entire year.
Revenue Recognition
Phase2Media generates its revenue primarily from the delivery of advertising
impressions on third-party web sites. Revenue from ad sales is earned under
service-fee or commission-based contracts.
F-8
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
1. Significant Accounting Policies (continued)
Under service-fee based contracts, Phase2Media is the principal in separate
and usually concurrent transactions to purchase and sell advertising space and
has the risks and rewards of ownership, such as the risk of loss due to
performance, delivery or distribution failure. Accordingly, Phase2Media
recognizes the full value of ads sold as revenue in accordance with the
guidance in Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. Revenue from service-fee ad sales is recognized in the
period in which the advertising impressions and clicks are delivered provided
collection of the resulting receivable is probable and any related consulting
services have been completed. Consulting revenue related to service-fee based
contracts, which are short-term in nature are recognized concurrently with the
related service fee revenue. Phase2Media becomes obligated to make payments to
third-party web publishers, which have contracted with Phase2Media, in the
period the advertising impressions are delivered. Such expenses in addition to
third-party ad serving costs and direct consulting costs are classified as cost
of revenue in the statements of operations. Service fee-based revenue for the
period from March 30, 1999 (inception) to December 31, 1999 and for the three
months ended March 31, 2000 was $2,267,000 and $2,204,000, respectively.
Revenue earned from commission-based contracts reflects only the amount of
the commission earned without any associated cost of revenue. Phase2Media
recognizes commissions in the period in which an advertisement is served on the
web sites. In certain circumstances, Phase2Media provides billing and
collection on behalf of commission-based customers. Commission-based revenue
for the period from March 30, 1999 (inception) to December 31, 1999 and for the
three months ended March 31, 2000 was $2,102,000 and $2,839,000, respectively.
Phase2Media also provides consulting services that are unrelated to service-
fee based contracts. Such consulting revenue is recognized on a time and
materials basis. Consulting revenue for the period from March 30, 1999
(inception) to December 31, 1999 and for the three months ended March 31, 2000
was $83,000 and $210,000, respectively.
System revenue represents the full value of gross billings for ads sold under
either commission-based or service fee-based contracts and related consulting
revenue. System revenues were approximately $9,576,000 and $11,730,000 for the
period from March 30, 1999 (inception) to December 31, 1999 and for the three
months ended March 31, 2000, respectively.
Deferred Revenue and Accounts Receivable
Phase2Media generally bills advertisers for the estimated impressions per
agreement, on a monthly basis. Deferred revenue represents differences between
estimated and actual impressions generated and is recognized in the period the
remaining impressions are delivered which is usually within 12 months.
Accounts receivable includes unbilled receivables of approximately $482,000
and $2,355,000 at December 31, 1999 and March 31, 2000, respectively.
Advertising Costs
Advertising costs are expensed as incurred. For the period from March 30,
1999 (inception) to December 31, 1999 and the three months ended March 31,
2000, advertising expense amounted to approximately $202,000 and $156,000,
respectively, and is included in sales and marketing expenses.
F-9
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
1. Significant Accounting Policies (continued)
Cash and Cash Equivalents
Phase2Media considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject Phase2Media to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. Phase2Media's sales are primarily to companies located
in the United States. Phase2Media performs periodic credit evaluations of its
customers' financial condition and does not require collateral and establishes
an allowance for doubtful accounts based upon factors surrounding the credit
risk of customers, historical trends and other information; to date, such
losses have been within management's expectations.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
accrued expenses approximate their fair values.
Fixed Assets
Fixed assets are stated at cost and depreciation is calculated using the
straight-line method over the estimated useful lives of the assets ranging from
three to five years. Leasehold improvements are amortized over the lesser of
the useful life of the asset, which ranges from three to five years or the
remaining period of the lease.
Software Development Costs
Phase2Media capitalizes internal use software costs in accordance with SOP
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use.' This standard requires certain direct development costs
associated with internal-use software to be capitalized including external
direct costs of material and services and payroll costs for employees devoting
time to the software projects. Costs incurred during the preliminary project
stage, as well as for maintenance and training are expensed as incurred.
Internal use software capitalized at December 31, 1999 and March 31, 2000 was
not significant.
Short-Term Investments
Short-term investments, principally commercial paper, are stated at fair
value, with the unrealized gains and losses, net of tax, reported in other
comprehensive income or loss. The cost of investments sold is based on a
specific identification method.
F-10
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
1. Significant Accounting Policies (continued)
Income Taxes
Phase2Media uses the liability method of accounting for income taxes, whereby
deferred income taxes are provided on items recognized for financial reporting
purposes over different periods than for income tax purposes. Valuation
allowances are provided when the expected realization of tax assets does not
meet a more likely than not criteria.
Stock Options and Warrants
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), Phase2Media measures
compensation expense related to the grant of stock options and stock-based
awards to employees in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, under which compensation expense, if any, is
generally based on the difference between the exercise price of an option, or
the amount paid for the award and the market price or fair value of the
underlying common stock at the date of the award. As required by SFAS No. 123,
Phase2Media discloses pro forma net loss information reflecting the effect of
applying SFAS 123 fair value measurement to employee arrangements.
Stock-based compensation arrangements involving non-employees are accounted
for under SFAS 123 and EITF 96-18, "Accounting For Equity Instruments That Are
Issued To Other Than Employees For Acquiring Or In Conjunction With Selling,
Goods And Services", under which such arrangements are accounted for based on
the fair value of the option or award. The fair value on the issue date of any
non-performance related warrants, which are nonforfeitable, fully vested and
exercisable, is amortized over the term of the related agreement as a non-cash
expense. Performance warrants, which are subject to vesting based on the
achievement of defined performance targets are valued at the time the award is
probable of being earned. The portion of the value related to the completed
term of the related agreement is expensed, and the remaining non-cash deferred
expense is amortized over the remaining term of the agreement. The value of
such performance warrants may be subject to adjustment until such time that the
performance warrant is nonforfeitable, fully vested and exercisable.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting For Certain Transactions Involving Stock
Compensation, An Interpretation of APB Opinion No. 25 ("Interpretation 44").
The accounting for stock-based compensation by Phase2Media is consistent with
Interpretation 44.
Loss Per Share
Phase2Media calculates loss per share in accordance with SFAS No. 128,
"Computation of Earnings Per Share" and SEC Staff Accounting Bulletin No. 98.
Accordingly, basic loss per share applicable to common stockholders is computed
by dividing the net loss for the period by the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Common equivalent shares consist of the incremental common shares issuable upon
the conversion of preferred stock (using an if-converted method) and shares
issuable upon the exercise of stock options and warrants (using the treasury
stock method). Common equivalent shares are excluded from the calculation of
net loss per share if their effect is anti-dilutive.
F-11
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
1. Significant Accounting Policies (continued)
Segment Information
Phase2Media discloses information regarding segments in accordance with SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for reporting of financial information about
operating segments in annual financial statements and requires reporting
selected information about operating segments in interim financial reports. The
disclosure of segment information was not required as Phase2Media operates in
only one business segment. As of December 31, 1999 and March 31, 2000 and for
the period from March 30, 1999 (inception) to December 31, 1999 and for the
three months ended March 31, 2000, substantially all of Phase2Media's assets
were located in the U.S. and Phase2Media derived substantially all of its
revenue from businesses located in the U.S.
2. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ----------
<S> <C> <C>
Computer equipment................................ $327,000 $ 575,000
Office furniture, fixtures and equipment.......... 199,000 427,000
Leasehold improvements............................ 181,000 244,000
Construction in progress.......................... 94,000 488,000
-------- ----------
801,000 1,734,000
Less accumulated depreciation..................... (79,000) (161,000)
-------- ----------
$722,000 $1,573,000
======== ==========
</TABLE>
3. Stockholders' Equity
Common Stock
Upon inception, Phase2Media issued 6,750,000 shares of Class A common stock
to the founder of which 3,750,000 shares were cancelled shortly thereafter and
3,750,000 shares of common stock were issued to certain co-founders. In April
1999, Phase2Media issued 8,250,000 shares of its common stock to an investment
trust ("Trust") for approximately $430,000 in cash and fixed assets with a fair
value of $4,000, or $0.05 per share.
In August 1999, Phase2Media repurchased all 8,250,000 shares of common stock
held by the Trust for an aggregate of $3,550,000, or $0.43 per share.
In 1999, Phase2Media issued 623,000 shares of common stock to vendors in
exchange for legal and consulting services provided. Accordingly, Phase2Media
recorded the fair value of the shares on the date of issuance of approximately
$237,000 as a non-cash charge which is included in general and administrative
expenses.
Series A and B Preferred Stock
In August 1999, Phase2Media entered into an agreement ("Initial Closing")
with certain investors for the issuance of series A redeemable preferred stock
("Series A Preferred") and series B
F-12
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
3. Stockholders' Equity (continued)
convertible preferred stock ("Series B Preferred"). In August and October 1999,
Phase2Media issued 5,400 shares of Series A Preferred and 16,590,000 shares of
Series B Preferred for an aggregate purchase price of $6,000,000, including the
cancellation of promissory notes for an aggregate of $2,000,000.
The Initial Closing agreement also provided the investors with an option to
purchase 3,600 and 6,320,000 additional shares of Series A Preferred and B
Preferred, respectively for an aggregate purchase price of $4,000,000 (the
"Second Closing") at any time prior to August, 2000. The Second Closing was
mandatory if Phase2Media met the "Gross Margin Milestone", as defined. On
December 31, 1999, the investors exercised their option and Phase2Media issued
3,600 shares of Series A Preferred and 6,320,000 shares of Series B Preferred.
The Series B Preferred at the Initial Closing was valued based on the
estimated fair value of Phase2Media's common stock at the Initial Closing. The
difference between the estimated fair value of the Series B Preferred and the
aggregate purchase price was allocated to the Series A Preferred. The proceeds
received in connection with the Second Closing were allocated to the Series A
Preferred at the same per share amount as the Initial Closing and the balance
was allocated to the Series B Preferred. The amount allocated to the Series A
Preferred is being increased by periodic accretions, using the interest method,
such that the carrying amounts will equal the mandatory redemption amounts at
the mandatory redemption dates of the Series A Preferred. The costs incurred
related to the Initial Closing and Second Closing, aggregating $303,000 have
been accounted for as a reduction to additional paid-in-capital.
Series C Preferred
In August 1999, Phase2Media issued 9,750,000 shares of series C convertible
preferred stock ("Series C Preferred") for an aggregate purchase price of
$3,800,000, or $0.39 per share. In December 1999, Phase2Media issued an
additional 158,000 shares of Series C Preferred for an aggregate purchase price
of $100,000, or $0.63 per share. The costs incurred related to these issuances,
aggregating $98,000 have been accounted for as a reduction to additional paid-
in-capital.
Series D Preferred
In January 2000, Phase2Media entered into an agreement to issue series D
convertible preferred stock ("Series D Preferred") at $1.53 per share. Pursuant
to this agreement, Phase2Media issued an aggregate of 11,363,195 shares in
January, February and March 2000 for an aggregate purchase price of
$17,375,000. The costs incurred related to these issuances, aggregating $47,000
have been accounted for as a reduction to additional paid-in-capital.
Redemption
The holders of the Series A Preferred Stock are entitled to $1,000 per share,
plus any accrued but unpaid dividends, upon the occurrence of certain events,
as defined, including (i) any liquidation,
F-13
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
3. Stockholders' Equity (continued)
dissolution or winding up of Phase2Media, (ii) merger, purchase or
consolidation or (iii) upon a qualified initial public offering. Additionally,
Phase2Media is required to redeem one-third of the Series A Preferred on each
of the fourth, fifth and sixth anniversary dates of the date of issuance. The
maturity of the Series A Preferred at December 31, 1999 and at March 31, 2000
is $3,000,000 for each of the three years ending December 31, 2003, 2004 and
2005. See Note 11.
Dividends
Holders of Series A Preferred are entitled to receive cumulative dividends
payable solely in additional shares of Series A Preferred at a rate of 9% of
the liquidation value of $1,000 per share. The holders of the Series B, C and D
Preferred Stock are not entitled to any dividends.
Conversion
The Series B, C and D Preferred Stock are automatically convertible into
shares of Phase2Media's common stock on a one-for-one basis upon an qualified
initial public offering, as defined, or at any time at the option of the
holder. See Note 11.
Liquidation Preference
The holders of the Series A, B and D Preferred Stock are entitled to a
preference, on a parri passu basis with respect to any distributions prior to
holders of any common stock or Series C Preferred in the event of liquidation
or merger of Phase2Media, as defined.
Voting Rights
The holders of the Series A Preferred Stock do not have any voting rights
other than those pursuant to Delaware law. Holders of the Series B, C and D
Preferred stock are entitled to vote on all matters that are subject to the
vote of the common stockholders on an as converted basis.
4. Loss per Share
Diluted net loss per share for the period from March 30, 1999 (inception) to
December 31, 1999 and the three month period ended March 31, 2000 does not
include the effect of options to purchase 7,920,000 and 11,741,000 shares of
common stock, respectively, warrants to purchase 715,000 and 995,000 shares of
common stock, respectively, or and shares of common stock issuable
upon the conversion of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and class A common stock on an "as converted"
basis, respectively, as the effect of their inclusion is antidilutive during
each period.
F-14
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
4. Loss Per Share (continued)
The following table sets forth the computation of the unaudited pro forma
basic and diluted loss per share, assuming conversion of preferred stock,
including the impact of the beneficial conversion attributable to Series A
Preferred and without giving effect the redemption of the Series A Preferred.
See Note 11.
<TABLE>
<CAPTION>
Period from March Three month
30, period ended
1999 (inception) to March 31,
December 31, 1999 2000
------------------- ------------
<S> <C> <C>
Numerator:
Net loss available to common stockholders... $(6,136,000) $(3,676,000)
Series A preferred stock beneficial
conversion dividend........................
----------- -----------
Numerator for pro forma net loss available
to common stockholders..................... $ $
=========== ===========
Denominator:
Weighted average number of common shares.... 10,587,000 6,862,000
Assumed conversion of series B, C and D
preferred stock to common shares (if
converted method).......................... 11,908,000 41,743,000
----------- -----------
Denominator for pro forma basic and diluted
loss per share............................. 22,495,000 48,605,000
=========== ===========
Pro forma basic and diluted net loss per
share...................................... $ $
=========== ===========
</TABLE>
5. Stock Options and Warrants
Warrants
In June 1999, Phase2Media issued non-forfeitable, vested and exercisable
warrants to purchase 30,000 common shares at an exercise price of $2.50 per
share to a landlord in connection with the signing of a lease. The fair value
of the warrant on the date of issuance, of approximately $3,000, was recorded
as a non-cash charge which is included in general and administrative expenses.
In October 1999, Phase2Media issued a non-forfeitable, vested and exercisable
warrant to purchase 35,000 common shares at an exercise price of $0.63 per
share to a bank in connection with a letter of credit facility. The fair value
of the warrant on the date of issuance, of approximately $18,000, was recorded
as a non-cash charge which is included in general and administrative expenses.
As an inducement to complete the Second Closing in December 1999, the Company
issued non-forfeitable, vested and exercisable warrants to purchase 450,000
common shares at an exercise price of $0.63 per share to the then existing
Series B Preferred stockholders. The fair value of the warrants on the date of
issuance, of approximately $563,000, has been accounted for as a cost of
raising equity, related to the Series D Preferred transaction as the Series D
shareholders required that the Second Closing occur prior to the Series D
financing.
F-15
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
5. Stock Options and Warrants (continued)
In October 1999, Phase2Media entered into an agreement with a shareholder of
Phase2Media to provide a guarantee on behalf of the Company for a letter of
credit facility. In consideration of the guarantee, which was from November
1999 through January 2000, Phase2Media agreed to issue 100,000 non-forfeitable,
vested and exercisable warrants, at an exercise price of $0.63 per share for
each month that the guarantee was outstanding. The fair value of the 280,000
warrants from the dates of issuance, aggregating approximately $506,000 is
being expensed over the term of the guarantee as a non-cash charge which is
included in general and administrative expenses. For the period from March 30,
1999 (inception) to December 31, 1999 and for the three months ended March 31,
2000, Phase2Media expensed approximately $213,000 and $293,000, respectively.
In February 2000, Phase2Media issued warrants at an exercise price of $6.00
to Prodigy Communications Corporation ("Prodigy") in connection with an
Exclusive Internet Advertising Services Agreement ("Prodigy Agreement").
Warrants to purchase 200,000 shares of common stock were issued upon the
closing of the agreement and are non-forfeitable, fully vested and exercisable.
The estimated fair value of such warrants at the date of issuance, $732,000 is
being amortized over the three-year term of the Prodigy Agreement as a non-cash
charge which is included sales and marketing expenses. For the three months
ended March 31, 2000 $31,000 is included in sales and marketing expenses. In
addition, Phase2Media agreed to issue performance warrants to purchase 450,000
shares of common stock ("Performance Warrants"), which are contingent upon the
achievement of certain minimum requirements, as defined. The exercise price
will be at a 15% discount from the current market price on the date the warrant
first becomes exercisable. At March 31, 2000, the minimum requirements were not
deemed to be probable of being met. Upon the determination that the Prodigy
minimum requirements are probable of being met, Phase2Media will be required to
record the value of the warrants.
In addition, Phase2Media guaranteed Prodigy annual gross billings based on
Prodigy's annual page views, as defined. If the guaranteed annual billings are
not achieved then Phase2Media is obligated to make annual cash payments to
Prodigy for such shortfall. Under such guarantee, Phase2Media may be obligated
to pay Prodigy up to $4,500,000 per year during each year of the agreement
relating to this guarantee.
Options
Phase2Media granted non-forfeitable, vested and exercisable options to
purchase 183,250 shares and 10,694 shares of common stock to certain
consultants and vendors for services provided during the period from March 30,
1999 (inception) to December 31, 1999 and for the three months ended March 31,
2000, respectively. The options had exercise prices ranging from $0.05 to
$0.39. Accordingly, Phase2Media recorded the fair value of the options on the
dates of grant as non-cash charges. For the period from March 30, 1999
(inception) to December 31, 1999, $20,000 and $14,000 is included in general
and administrative expenses and sales and marketing expenses, respectively. For
the three months ended March 31, 2000, $67,000 is included in sales and
marketing expenses.
F-16
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
5. Stock Options and Warrants (continued)
Stock Option Plan
In April 1999, Phase2Media established the Phase2Media, Inc. Long Term
Equity Compensation Plan ("Plan"). The Plan, as amended, authorizes the
granting to employees, officers, directors and consultants of Phase2Media
options to purchase an aggregate of 16,029,000 shares of Phase2Media's common
stock. The options may be either incentive stock options or non-qualified
stock options. The exercise price and vesting schedule of an option shall be
determined by Phase2Media's board of directors at the time of grant, provided,
however that in the case of an incentive stock option the exercise price may
not be less than 100% of the fair market value of such stock at the time of
the
grant. Stock options generally become exercisable over a three-year vesting
period whereby one-third is exercisable on the first anniversary of the date
of grant and then quarterly thereafter. Phase2Media's board of directors
determines the expiration periods of options issued under the stock option
plan, provided that the expiration period shall be not later than ten years
from the date of grant.
For accounting purposes, Phase2Media recognized deferred compensation of
approximately $1,701,000 and $15,075,000 related to the issuance of stock
options granted in 1999 and 2000, respectively. Deferred compensation is being
amortized for financial reporting purposes over the vesting period of the
options. During the period from March 30, 1999 (inception) to December 31,
1999 and the three months ended March 31, 2000, such non-cash compensation
expense was $87,000 and $560,000, respectively. Deferred compensation was
calculated by multiplying the number of options by the difference between the
exercise price of the option and the fair value of the common stock on the
date of grant. The fair value of common stock was derived from the per share
price of the Series C and Series D Preferred stock.
The following activity occurred with respect to Phase2Media's stock option
plan:
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
---------- ----------------
<S> <C> <C>
Granted.......................................... 7,997,000 $0.11
Canceled......................................... (77,000) 0.05
---------- -----
Options outstanding at December 31, 1999........... 7,920,000 0.11
Granted.......................................... 4,261,000 1.22
Exercised........................................ (2,000) 0.05
Canceled......................................... (438,000) 0.14
---------- -----
Options outstanding at March 31, 2000.............. 11,741,000 0.52
========== =====
</TABLE>
F-17
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
5. Stock Options and Warrants (continued)
The following table summarizes information concerning outstanding options:
At December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average Number of
Remaining Stock
Exercise Options Contractual Options
Prices Outstanding Life in Years Exercisable
-------- ----------- ------------- -----------
<S> <C> <C> <C>
$0.05 6,192,000 9.38 120,000
0.29 80,000 9.67 --
0.31 1,464,000 9.88 --
0.39 64,000 9.75 64,000
0.50 120,000 10.00 --
---------- -------
7,920,000 184,000
========== =======
At March 31, 2000:
<CAPTION>
Weighted
Average Number of
Remaining Stock
Exercise Options Contractual Options
Prices Outstanding Life in Years Exercisable
-------- ----------- ------------- -----------
<S> <C> <C> <C>
$0.05 5,840,000 9.14 130,000
0.29 60,000 9.42 --
0.31 1,982,000 9.69 --
0.39 64,000 9.50 64,000
0.50 120,000 9.75 --
1.38 3,675,000 9.92 --
---------- -------
11,741,000 194,000
========== =======
</TABLE>
Pro forma information regarding net loss, as required by SFAS 123, has been
determined as if Phase2Media had accounted for its employee stock options under
the fair value method of that Statement. The fair value of the options was
estimated at the date of grant using a Black Sholes option pricing model with
the following assumptions for the period from March 30, 1999 (inception) to
December 31, 1999 and for the three month period ended March 31, 2000: average
risk free interest rate of 5.80%; dividend yield of 0%; volatility (based on
comparable companies) of 80% and an average life of 10 years.
Option pricing models require the input of highly subjective assumptions.
Because Phase2Media's employee stock options have characteristics significantly
different from those of traded options and because changes in subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The weighted average fair value of options granted for the period from March
30, 1999 (inception) to December 31, 1999 and the three months ended March 31,
2000 was $0.23 and $3.97, respectively.
F-18
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
5. Stock Options and Warrants (continued)
Phase2Media's pro forma information is as follows:
<TABLE>
<CAPTION>
For the
period from
March 30, 1999 Three month
(inception) to period ended
December 31, March 31,
1999 2000
--------------- ------------
<S> <C> <C>
Pro forma net loss applicable to common
stockholders................................. $(6,162,000) $(3,693,000)
=========== ===========
Pro forma basic and diluted loss per share
applicable to common stockholders............ $ (0.58) $ (0.54)
=========== ===========
</TABLE>
6. Income Taxes
Significant components of Phase2Media's deferred tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
December 31, 1999
-----------------
<S> <C>
Deferred tax assets:
Net operating loss carryforward...................... $2,245,000
Accounts receivable reserves......................... 80,000
Issuance of stock options and warrants for services
provided............................................ 126,000
Deferred tax liability:
Depreciation......................................... (11,000)
----------
Net deferred tax assets.............................. 2,440,000
Valuation allowance.................................. (2,440,000)
----------
Deferred tax assets.................................... $ --
==========
</TABLE>
The net deferred tax assets have been fully offset by a valuation allowance
due to the uncertainty of the realization of these assets.
Phase2Media had net operating loss carryforwards of approximately $5,400,000
at December 31, 1999, and $8,200,000 at March 31, 2000, for Federal, state and
local income tax purposes expiring through 2019 and 2020, respectively.
The provision for income taxes differs from the federal statutory rate,
primarily due to the following:
<TABLE>
<CAPTION>
Period from
March 30, 1999 Three months
(inception) to ended
December 31, March 31,
1999 2000
-------------- ------------
<S> <C> <C>
Statutory rate................................ $(1,984,000) $(1,128,000)
Losses for which no benefit is provided....... 1,975,000 1,126,000
Other permanent items......................... 9,000 2,000
----------- -----------
Tax provision................................. $ -- $ --
=========== ===========
</TABLE>
F-19
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
7. Benefit Plan
Phase2Media established a 401(k) plan that covers its eligible domestic
employees. The plan does not require a matching contribution by Phase2Media.
8. Significant Advertisers and Web Publishers
No advertiser accounted for 10 percent or more of revenue for the period from
March 30, 1999 (inception) to December 31, 1999 and the three months ended
March 31, 2000. At December 31, 1999 one advertiser represented 12% of accounts
receivable.
For the period from March 30, 1999 (inception) to December 31, 1999 and the
three months ended March 31, 2000, one commission-based web publisher accounted
for approximately 47% and 59% of revenue, respectively. No other web publisher
accounted for 10 percent or more of revenue. The loss of the largest
commission-based web publisher could have an adverse effect on Phase2Media's
operations.
9. Related Party Transactions
During the three months ended March 31, 2000 Phase2Media purchased
approximately $260,000 of advertising space from a stockholder. In addition,
Phase2Media derived approximately $160,000 of revenue from such stockholder.
10. Commitments
Operating Lease Commitments
Phase2Media leases office space and equipment under various noncancellable
operating leases expiring through 2002. Minimum rental commitments under such
operating leases are as follows:
<TABLE>
<CAPTION>
Fiscal years ending December 31,:
<S> <C>
2000......................................................... $1,071,000
2001......................................................... 1,141,000
2002......................................................... 1,144,000
2003......................................................... 1,125,000
2004......................................................... 1,123,000
Thereafter................................................... 226,000
----------
$5,830,000
==========
</TABLE>
Rent expense for the period from March 30, 1999 (inception) to December 31,
1999 and the three months ended March 31, 2000 was approximately $371,000 and
$222,000, respectively.
Letters of Credit
Phase2Media has two letters of credit outstanding: (i) $2,500,000 that
expires on December 31, 2000 and (ii) $313,000 that expires on February 28,
2006. Phase2Media is required to maintain certain cash balances as collateral.
At December 31, 1999 and March 31, 2000, other assets includes approximately
$54,000 and $86,000, respectively of such cash balances. The $2,500,000 letter
of credit is secured by substantially all of Phase2Media's assets.
F-20
<PAGE>
PHASE2MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the three month period ended March 31, 2000 is
unaudited)
11. Subsequent Event
On May 10, 2000, the Company amended the Series A Preferred whereby the
liquidation value of Series A Preferred is automatically convertible into
shares of common stock, upon a qualified initial public offering at 50% of the
IPO price per share. The difference between the fair market value of the common
stock issued upon the conversion and the carrying value of the Series A
Preferred Stock will be accounted for as a dividend.
F-21
<PAGE>
[PHASE2MEDIA LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Phase2Media in connection
with the sale of the common stock being registered hereby. All the amounts
shown are estimated, except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 15,180
NASD Filing Fee.................................................. 6,250
Nasdaq National Market Listing Fee............................... *
Blue Sky Fees and Expenses....................................... 12,500
Printing Expenses................................................ 150,000
Legal Fees and Expenses.......................................... 550,000
Accounting Fees and Expenses..................................... 200,000
Transfer Agent and Registrar Fees................................ 10,000
Miscellaneous.................................................... 356,070
----------
Total.......................................................... $1,300,000
==========
</TABLE>
- --------
* To be supplied by amendment.
Item 14. Indemnification of Directors and Officers
Section 145(a) of the General Corporation Law of the State of Delaware
("DGCL") provides that a Delaware corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he 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 enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that despite the adjudication of
liability, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for
II-1
<PAGE>
by Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and that the corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or enterprise, against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not
eliminate or limit the liability of a director: (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for
any transaction from which the director derived an improper personal benefit.
The Registrant's Amended and Restated Certificate of Incorporation and By-
Laws provide for indemnification to the fullest extent permitted by the DGCL.
Reference is made to the Amended and Restated Certificate of Incorporation and
By-Laws filed as Exhibits 3.1 and 3.2, respectively.
The Registrant intends to enter into indemnification agreements with its
current directors and executive officers. The Registrant intends to insure its
directors and officers against losses arising from any claim against them as
such for wrongful acts or omission, subject to certain limitations.
Item 15. Recent Sales of Unregistered Securities
Recently, the Registrant has issued unregistered securities to a limited
number of persons as described below:
In March 1999, the Registrant issued 6,750,000 shares of Class A Common Stock
to Richard E. Glassberg for a purchase price per share equal to the par value
of the shares.
In April 1999, the Registrant effected a share exchange with Richard E.
Glassberg pursuant to which the Registrant exchanged Mr. Glassberg's 6,750,000
shares of Class A Common Stock for 3,000,000 shares of Class A Common Stock and
re-issued the remaining 3,750,000 shares as common stock to five founding
employees of the Registrant for a purchase price of $0.0000003 per share.
In April 1999, the Registrant issued 8,250,000 shares of Common Stock to the
CKG Media.com, Inc. Stock Trust for an aggregate purchase price of $430,000 and
certain assets of the affiliates of the CKG Trust.
From May 1999 to April 2000, the Registrant granted stock options to purchase
an aggregate of 12,778,391 shares of common stock at exercise prices ranging
from $0.05 to $3.00 per share to employees, officers, directors and consultants
pursuant to the Registrant's Long-Term Equity Compensation Plan and 2000 Stock
Incentive Plan.
In May 1999, the Registrant issued a promissory note in the amount of
$1,000,000 and a warrant to purchase 2,115,000 shares of Common Stock at an
exercise price of $0.01 per share to Vector Capital II, L.P. In June 1999, the
Registrant issued another promissory note in the principal amount of $500,000
and a warrant to purchase an additional 2,032,500 shares of Class A Common
Stock at a purchase price of $0.01 per share to Vector Capital. In July 1999,
the Registrant issued another promissory note in the principal amount of
$500,000.
II-2
<PAGE>
In June 1999 the Registrant issued 30,000 warrants to purchase 30,000 shares
of its Common Stock for $2.50 per share to the landlord of its principal place
of business.
In August 1999, the Registrant issued an aggregate of 3,798 shares of Series
A Preferred Stock for aggregate consideration of $3,798,000 (including the
cancellation of $2,000,000 principal amount of indebtedness plus accrued
interest) and issued an aggregate of 11,668,300 shares of Series B Preferred
Stock for aggregate consideration of $422,000 in cash to Vector Capital II,
L.P. and affiliated investors.
In August 1999, the Registrant issued an aggregate of 9,750,000 shares of
Series C Preferred Stock to Vector Capital II, L.P., STV Partners, II, L.L.C.
and P2M, LLC for aggregate consideration of $3,800,000 in cash.
In October 1999, the Registrant issued 1,602 shares of Series A Preferred
Stock for consideration of $1,602,000 in cash and issued 4,921,700 shares of
Series B Preferred Stock for consideration of $178,000 in cash to Hachette
Filipacchi Interactions, S.A.
Effective October, 1999, the Registrant issued 35,000 warrants to Silicon
Valley Bank and 280,000 warrants to Vector Capital II, L.P. to purchase an
aggregate of 315,000 share of Common Stock at an exercise price of $.63 per
share.
In December 1999, the Registrant issued an aggregate of 3,600 shares of
Series A Preferred Stock for aggregate consideration of $3,600,000 in cash and
issued an aggregate of 6,320,000 shares of Series B Preferred Stock for
aggregate consideration of $400,000 in cash to Vector Capital II, L.P.,
Hachette Filipacchi Interactions, S.A. and four affiliates of Vector Capital.
In connection therewith, the Registrant also issued an aggregate of 450,000
warrants to purchase 450,000 shares of Common Stock at a purchase price of
$0.63 per share.
In December 1999, the Registrant issued 158,000 shares of Series C Preferred
Stock for consideration of $100,000 in cash to the John W. Danner Separate
Property Trust.
In January 2000, the Registrant issued an aggregate of 10,921,746 shares of
Series D Preferred Stock for aggregate consideration of $16,700,000 in cash to
Vector Capital II, L.P., Vector Member Fund II, L.P., Hachette Filipacchi
Interactions, S.A., STV Partners IX, LLC, P2M Investment Partnership, GE
Capital Equity Investments, Inc. and 11 other investors.
In January 2000, the Registrant issued an aggregate of 280,000 warrants to
purchase an aggregate of 280,000 shares of Common Stock at an exercise price of
$0.63 per share to Vector Capital II, L.P.
In February 2000, the Registrant issued an aggregate of 277,949 shares of
Series D Preferred Stock for aggregate consideration of $425,000 to Bayview
2000 I, LP, Bayview 2000 II, LP, P2M Acquisition LLC and three other investors.
In March 2000, the Registrant issued an aggregate of 163,500 shares of Series D
Preferred Stock for aggregate consideration of $250,000 to five investors.
Effective February 2000, the Registrant issued an aggregate of 650,000
warrants to Prodigy Communications Corporation to purchase 650,000 shares of
Common Stock. Of these warrants, 200,000 are exercisable for $6.00 per share.
The remaining 450,000 warrants are only exercisable if Prodigy Communications
Corporation achieves certain milestones, in which event the per share exercise
price is equal to a 15% discount from the then current market price of the
Registrant's Common Stock on the date such warrant first become exercisable.
II-3
<PAGE>
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales of common stock and preferred stock were made in
reliance upon the exemption from registration set forth in Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D promulgated thereunder for
transactions not involving a public offering, and all purchasers were
accredited investors as such term is defined in Rule 501(a) of Regulation D.
Issuances of options to Phase2Media's employees, directors and consultants were
made pursuant to Rule 701 promulgated under the Securities Act of 1933.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibit Index
<TABLE>
<CAPTION>
No. Description
--- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation, as amended.
3.2 Form of Amended and Restated Certificate of Incorporation to be in
effect upon the closing of the offering.*
3.3 By-Laws.
3.4 Form of Amended and Restated By-Laws to be in effect upon the closing of
the offering.*
4.1 Specimen common stock certificate.*
4.2 Warrant to purchase common stock, dated June 17, 1999, issued to SLG
Graybar Sublease, LLC.
4.3 Warrant to purchase common stock, dated October 28, 1999, issued to
Silicon Valley Bank.
4.4 Form of warrant to purchase common stock, dated December 23, 1999,
issued to holders of series A preferred stock and series B preferred
stock.
4.5 Warrant to purchase common stock, dated January 27, 2000, issued to
Vector Capital II, L.P.
4.6 Warrant to purchase common stock, dated February 14, 2000, issued to
Prodigy Communications Corporation.*
4.7 Second Amended and Restated Securityholders' Agreement, dated as of
January 19, 2000, by and among Phase2Media, Inc. and certain of its
securityholders.
4.8 Second Amended and Restated Registration Rights Agreement, dated as of
January 19, 2000, by and among Phase2Media, Inc. and certain of its
securityholders.
5.1 Opinion of Fulbright & Jaworski L.L.P.*
10.1 Long Term Equity Compensation Plan.
10.2 2000 Stock Incentive Plan.*
10.3 2000 Employee Stock Purchase Plan.*
10.4 Lease, dated June 28, 1999, between Phase2Media and SLG Graybar Sublease
LLC, as amended and modified.
10.5 Employment Agreement, dated August 16, 1999, between Phase2Media and
Richard E. Glassberg.
10.6 Exclusive Internet Advertising Services Agreement, dated February 1,
2000, between Phase2Media.com and Hachette Filipacchi Magazines, Inc.
10.7 Advertising Representative Agreement, dated March 28, 2000, between
Phase2Media and PlasmaNet, Inc. relating to FreeLotto.+
10.8 Investment Agreement, dated April 2, 1999, by and among Phase2Media,
Inc. and the other parties thereto.
10.9 Securities Purchase Agreement, dated August 16, 1999, by and among
Phase2Media, Inc. and certain of its securityholders.
10.10 Purchase Agreement, dated October 15, 1999, by and among Phase2Media,
Inc. and certain of its securityholders.
10.11 Second Closing Purchase Agreement, dated December 23, 1999, by and among
Phase2Media, Inc. and certain of its securityholders.
10.12 Subscription and Purchase Agreement, dated August 26, 1999, by and among
Phase2Media, Inc. and certain of its securityholders.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
10.13 Subscription and Purchase Agreement, dated January 19, 2000, by and among Phase2Media, Inc. and
certain of its securityholders.
10.14 Loan and Security Agreement, dated as of October 28, 1999, between Phase2Media and Silicon Valley
Bank.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).*
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential portions of this exhibit have been omitted pursuant to a
request for confidential treatment. The confidential portions have been
filed separately with the Securities and Exchange Commission.
(b) Financial Statement Schedules. Financial statement schedules have been
omitted because they are not applicable or because the information required to
be set forth therein is presented elsewhere in the financial statements or the
notes thereto.
All other schedules are omitted because they are not required or are not
applicable or the information is included in the financial statements or notes
thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
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 New York,
State of New York, on May 9, 2000.
Phase2Media, Inc.
/s/ Richard E. Glassberg
By: _________________________________
Richard E. Glassberg
President and chief executive
officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints each of Richard E. Glassberg and Richard S.
Nachmias as his true and lawful attorney-in-fact and agent, each acting alone,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this registration statement, including post-effective amendments, and to file
the same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto each said attorney-
in-fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, and hereby
ratifies and confirms all that any said attorney-in-fact and agent, each acting
alone, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard E. Glassberg Chief executive officer May 9, 2000
___________________________________________ and chairman of the board
Richard E. Glassberg of directors (principal
executive officer)
/s/ Richard S. Nachmias Chief financial officer May 9, 2000
___________________________________________ and secretary (principal
Richard S. Nachmias financial and accounting
officer)
/s/ Herve Digne Director May 9, 2000
___________________________________________
Herve Digne
/s/ Jonathan D. Eilian Director May 9, 2000
___________________________________________
Jonathan E. Eilian
/s/ Alexander R. Slusky Director May 9, 2000
___________________________________________
Alexander R. Slusky
/s/ Steven D. Smith Director May 9, 2000
___________________________________________
Steven D. Smith
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description
--- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation, as amended.
3.2 Form of Amended and Restated Certificate of Incorporation to be in
effect upon the closing of the offering.*
3.3 By-Laws.
3.4 Form of Amended and Restated By-Laws to be in effect upon the closing of
the offering.*
4.1 Specimen common stock certificate.*
4.2 Warrant to purchase common stock, dated June 17, 1999, issued to SLG
Graybar Sublease, LLC.
4.3 Warrant to purchase common stock, dated October 28, 1999, issued to
Silicon Valley Bank.
4.4 Form of warrant to purchase common stock, dated December 23, 1999,
issued to holders of series A preferred stock and series B preferred
stock.
4.5 Warrant to purchase common stock, dated January 27, 2000, issued to
Vector Capital II, L.P.
4.6 Warrant to purchase common stock, dated February 14, 2000, issued to
Prodigy Communications Corporation.*
4.7 Second Amended and Restated Securityholders' Agreement, dated as of
January 19, 2000, by and among Phase2Media, Inc. and certain of its
securityholders.
4.8 Second Amended and Restated Registration Rights Agreement, dated as of
January 19, 2000, by and among Phase2Media, Inc. and certain of its
securityholders.
5.1 Opinion of Fulbright & Jaworski L.L.P.*
10.1 Long Term Equity Compensation Plan.
10.2 2000 Stock Incentive Plan.*
10.3 2000 Employee Stock Purchase Plan.*
10.4 Lease, dated June 28, 1999, between Phase2Media and SLG Graybar Sublease
LLC, as amended and modified.
10.5 Employment Agreement, dated August 16, 1999, between Phase2Media and
Richard E. Glassberg.
10.6 Exclusive Internet Advertising Services Agreement, dated February 1,
2000, between Phase2Media.com and Hachette Filipacchi Magazines, Inc.
10.7 Advertising Representative Agreement, dated March 28, 2000, between
Phase2Media and PlasmaNet, Inc. relating to FreeLotto.+
10.8 Investment Agreement, dated April 2, 1999, by and among Phase2Media,
Inc. and the other parties thereto.
10.9 Securities Purchase Agreement, dated August 16, 1999, by and among
Phase2Media, Inc. and certain of its securityholders.
10.10 Purchase Agreement, dated October 15, 1999, by and among Phase2Media,
Inc. and certain of its securityholders.
10.11 Second Closing Purchase Agreement, dated December 23, 1999, by and among
Phase2Media, Inc. and certain of its securityholders.
10.12 Subscription and Purchase Agreement, dated August 26, 1999, by and among
Phase2Media, Inc. and certain of its securityholders.
10.13 Subscription and Purchase Agreement, dated January 19, 2000, by and
among Phase2Media, Inc. and certain of its securityholders.
10.14 Loan and Security Agreement, dated as of October 28, 1999, between
Phase2Media and Silicon Valley Bank.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).*
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential portions of this exhibit have been omitted pursuant to a request
for confidential treatment. The confidential portions have been filed
separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CKG MEDIA.com, INC.
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the Corporation is CKG MEDIA.com, INC.
SECOND: The registered office of the Corporation in the State of
Delaware is to be located at 1013 Centre Road, Wilmington, Delaware 19805. The
name of its registered agent at that address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is Twenty Thousand (20,000), consisting of (i)
Seven Thousand (7,000) shares of Class A common stock (the "Class A Common
Stock") having a par value of $0.01 per share; (ii) Five Thousand (5,000) shares
of
<PAGE>
common stock (the "Common Stock") having a par value of $0.01 per share; (iii)
Eight Thousand (8,000) share of preferred stock having a par value of $0.01 per
share. The preferred stock may be issued from time to time in one or more series
with such designations, preferences and relative, participating, optional or
other rights, qualifications, limitations or restrictions thereof as shall be
stated and expressed in the resolution or resolutions providing for the issuance
of such series adopted by the Board of Directors of the corporation from time to
time, pursuant to the authority herein given, without any further vote or action
on the part of the stockholders. A copy of such resolution or resolutions
adopted by the Board of Directors shall be set forth in a Certificate made,
executed, acknowledged and filed in the manner required by the General Corporate
Law of the State of Delaware in order to make such resolution or resolutions
effective. Each series shall consist of such number of shares as shall be stated
and expressed in such resolution or resolutions providing for the issuance of
the stock of such series. All shares of any one series of preferred stock shall
be alike in every particular way.
FIFTH: (a) Each share of the Class A Common Stock shall be entitled
to ten (10) votes per share. The Class A Common Stock shall be convertible into
shares of Common Stock at the ratio of 1-to-1 (i) after the occurrence of an
initial public offering involving the Corporation at the election of the holder
of the
-2-
<PAGE>
Class A Common Stock; or (ii) automatically on the effective date of the
Corporation's initial public offering if so required by the managing underwriter
of such public offering.
(b) Each share of Common Stock shall be entitled to one (1) vote per
share.
(c) Any matter for which the vote of the common stockholders is
required shall be subject to the vote of all holders of Class A Common Stock and
all holders of Common Stock, it being expressly understood and agreed that the
holders of Class A Common Stock and the holders of Common Stock shall have that
number of votes per share in connection with all matters subject to a
stockholder vote as set forth in this Article Fifth.
SIXTH: The name and the mailing address of the sole incorporator is:
Name Mailing Address
---- ---------------
Thomas C. Letsou, Esq. Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022
SEVENTH: Elections of directors need not be by ballot unless the by-
laws of the Corporation shall so provide.
EIGHTH: In furtherance and not in limitation of the powers conferred
upon the Board of Directors by law, the Board of Directors shall have power to
make, adopt, alter, amend and repeal from time to time by-laws of the
Corporation, subject to
-3-
<PAGE>
the right of the stockholders entitled to vote with respect thereto to alter and
repeal by-laws made by the Board of Directors.
NINTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the
-4-
<PAGE>
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
TENTH: The Corporation reserves the right to amend, alter, change
or repeal any provisions contained in this certificate in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
shareholders, directors and officers are granted subject to this reservation.
ELEVENTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
-5-
<PAGE>
TWELFTH: The personal liability of the directors of the Corporation
is hereby eliminated to the fullest extent permitted by paragraph (7) of
subsection b of Section 102 of the General Corporation Law of Delaware, as the
same may be amended and supplemented.
IN WITNESS WHEREOF, I have hereunto set my hand this 30th day of
March, 1999.
/s/ Thomas C. Letsou
----------------------------------
Thomas C. Letsou, Esq.
incorporator
-6-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CKG MEDIA.COM, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
CKG Media.com, Inc.
2. The certificate of incorporation of the Corporation is hereby amended
and restated by striking out all of Article Fourth thereof and by
substituting in lieu of said Article the following new Article Fourth:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is fifty five
million (55,000,000) shares, consisting of (i) five million
(5,000,000) shares of preferred stock, par value $.001 per share
(the "Preferred Stock"), (ii) forty two million five hundred
thousand (42,500,000) shares of common stock, par value $.001 per
share (the "Common Stock"), and (iii) seven million five hundred
thousand (7,500,000) shares of Class A common stock, par value
$.001 per share (the "Class A Common Stock"). The Preferred Stock
may be issued from time to time in one or more series with such
designations, preferences and relative, participating, optional
or other rights, qualifications, limitations or restrictions
thereof as shall be stated and expressed in the resolution or
resolutions providing for the issuance of such series adopted by
the Board of Directors of the corporation from time to time,
pursuant to the authority herein given, without any further vote
or action on the part of the stockholders. A copy of such
resolution or resolutions adopted by the Board of Directors shall
be set forth in a Certificate made, executed, acknowledged and
filed in the manner required by the General Corporate Law of the
State of Delaware in order to make such resolution or resolutions
effective. Each series shall consist of such number of shares as
shall be stated and expressed in such resolution or resolutions
providing for the issuance of the stock of such series. All
shares of any one series of Preferred Stock shall be alike in
every particular way."
<PAGE>
3. The amendment of the amended certificate of incorporation herein
certified has been duly adopted and written consent has been given in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
4. The effective time of the amendment herein certified shall be May 25,
1999.
Signed on May 24, 1999
/s/ Richard Glassberg
-----------------------------------------
Richard Glassberg
Chairman and Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CKG MEDIA.COM, INC.
(a Delaware corporation)
(pursuant to section 242)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
CKG Media.com, Inc.
2. The certificate of incorporation of the Corporation is hereby amended
and restated by striking out all of Article Fourth thereof and by
substituting in lieu of said Article of following new Article Fourth:
"FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is one hundred
fifteen million (115,000,000) shares, consisting of (i) twenty
eight million (28,000,000) shares of preferred stock, par value
$.001 per share (the "Preferred Stock"), (ii) sixty million
(60,000,000) shares of common stock, par value $.001 per share
(the "Common Stock"), and (iii) twenty seven million (27,000,000)
shares of Class A common stock, par value $.001 per share (the
"Class A Common Stock"). The Preferred Stock may be issued from
time to time in one or more series with such designations,
preferences and relative, participating, optional or other
rights, qualifications, limitations or restrictions thereof as
shall be stated and expressed in the resolution or resolutions
providing for the issuance of such series adopted by the Board of
Directors of the corporation from time to time, pursuant to the
authority herein given, without any further vote or action on the
part of the stockholders. A copy of such resolution or
resolutions adopted by the Board of Directors shall be set forth
in a Certificate made, executed, acknowledged and filed in the
manner required by the General Corporate Law of the State of
Delaware in order to make such resolution or resolutions
effective. Each series shall consist of such number of shares as
shall be stated and expressed in such resolution or resolutions
providing for the issuance of the stock of such series. All
shares of any one series of Preferred Stock shall be alike in
every particular way."
<PAGE>
The effective time of the amendment herein certified shall be August 10,
1999.
Signed on August 10, 1999.
/s/ Richard Glassberg
-------------------------------------
Richard Glassberg
Chairman and Chief Executive Officer
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CKG MEDIA.COM, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
CKG Media.com, Inc.
2. The certificate of incorporation is hereby amended and restated by
striking out all of Article Fifth thereof and by substituting in lieu
of said Article the following new Article Fifth:
"FIFTH: (a) Each share of the Class A Common Stock shall be
entitled to ten (10) votes per share. Upon the
earlier to occur of (a) the Closing of the
Corporation's initial public offering of equity
securities pursuant to Section 5 of the Securities
Act and (b) a "Liquidation Event" as hereinafter
defined, all issued and authorized shares of Class
A Common Stock shall automatically become issued
and authorized shares of Common Stock and all
options, warrants, convertible securities, or any
other derivative securities exercisable for or
convertible into shares of Class A Common Stock
shall automatically become exercisable for or
convertible into shares of Common Stock, and the
Company shall no longer be authorized to issue any
additional shares of Class A Common Stock except
as may be authorized by the stockholders of the
Company, subject to the provisions of Section 1.4
of the Securityholders' Agreement (the
"Securityholders Agreement"), dated as of
August 16, 1999, among the Corporation, Vector
Capital II, L.P., Richard E. Glassberg, Robert E.
Chmiel, R. Scott Ford, Thomas Mannion, Jason
Liebowitz, Matthew Spangler and each of the
parties listed on Schedule A attached thereto.
"Liquidation Event" shall mean (i) any
liquidation, dissolution or winding up of the
Corporation, whether
<PAGE>
voluntary or involuntary, or (ii) a transaction or
series of transactions with another private entity
resulting in a merger, purchase or consolidation
of the Corporation and within twelve (12) months
after the closing of such merger, purchase or
consolidation, Richard Glassberg is not the chief
executive officer of the surviving entity and the
Investors and the Founding Stockholders (as such
terms are defined in the Securityholders'
Agreement) do not, upon the closing of such
merger, purchase or consolidation, collectively
hold a controlling equity interest in the
surviving entity, or (iii) a transaction or series
of transactions with a public entity resulting in
a merger, purchase or consolidation of the
Corporation with such public entity involving all
or substantially all of the Corporation's assets,
or (iv) the consummation of an initial public
offering under Section 5 of the Securities Act of
1933, as amended, of the equity securities of the
surviving entity referred to in clause (ii)
immediately preceding, or (v) upon a "change in
control" in the Company (as defined in Section
1.4(d)(i) or 1.4 (d)(ii) of the Securityholders'
Agreement, but not as defined in Section
1.4(d)(iii) of the Securityholders' Agreement), or
(vi) the merger or consolidation by the
Corporation with or into any other corporation.
(b) Each share of Common Stock shall be entitled to
one (1) vote per share.
(c) Any matter for which the vote of the common
stockholders is required shall be subject to the
vote of all holders of Class A Common Stock and
all holders of Common Stock, it being expressly
understood and agreed that the holders of Class A
Common Stock and the holders of Common Stock shall
have that number of votes per share in connection
with all matters subject to a stockholder vote as
set forth in this Article Fifth."
3. The amendment of the amended certificate of incorporation herein
certified has been duly adopted and written consent has been given in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
<PAGE>
The effective time of the amendment herein certified shall be August 13,
1999.
Signed on August 13, 1999
/s/ Robert Chmiel
----------------------------------------
Robert Chmiel, President
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A REDEEMABLE PREFERRED STOCK
OF
CKG MEDIA.com, INC.
CKG Media.com, Inc. (d/b/a Phase2Media), a corporation organized and
existing under the General Corporation Law of the State of Delaware, (the
"Company" or the "Corporation"), does hereby certify that the Board of Directors
of the Corporation duly adopted a resolution by written consent of sole director
in lieu of a meeting dated as of August 13, 1999, and that such resolution has
not been amended, modified, or rescinded, and is now in full force and effect
providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, of certain shares of the Corporation's preferred stock, which
resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by Article Fourth of the Corporation's Certificate of Incorporation of
the Corporation, and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the rights, preferences and
designations of certain shares of the authorized and unissued shares of
preferred stock shall hereafter be as follows:
Section 1. Designation. One Hundred Fifty Thousand (150,000) shares,
having a par value of $.001 per share, of the Corporation's preferred stock are
hereby designated as Series A Preferred Stock (the "Series A Preferred Stock").
The rights, preferences, privileges, qualifications, limitations and
restrictions of the Series A Preferred Stock are set forth in Sections 2 through
6 of this Resolution. The rights, preferences, privileges and qualifications,
limitations and restrictions of the remaining shares of the Corporation's
preferred stock shall be determined by the Board of Directors, from time to time
after the date of the adoption of this Resolution, pursuant to the provisions of
Article Fourth of the Corporation's Certificate of Incorporation.
Section 2. Dividends. The holders of the Series A Preferred Stock are
entitled to receive cumulative dividends, payable solely in additional shares of
the Company's Series A Preferred Stock, at a rate equal to 9% per annum of the
"Liquidation Preference" of the Series A Preferred Stock as set forth in Section
5 below. The dividend is payable annually within ten (10) business days after
each December 31st of each year, commencing December 31, 1999 (each, a "Dividend
Payment Date"). Dividends shall be paid only with respect to shares of Series A
Preferred Stock actually issued and outstanding on a Dividend Payment Date and
to the holders of record as of the Dividend Payment Date. Dividends shall accrue
from the first day of each calendar year in which such dividend may be payable,
except with respect to the dividend
<PAGE>
payable with respect to the first Dividend Payment Date, in which event
dividends shall accrue from August 16, 1999. Each holder of Series A Preferred
Stock shall receive shares (or fractional shares, if appropriate) of Series A
Preferred Stock equal to 9% multiplied by the aggregate Liquidation Preference
of all of the Series A Preferred Stock owned by each such holder on the
applicable Dividend Payment Date; provided however, that with respect to the
-------- -------
dividend payable on the first Dividend Payment Date, such dividend shall be
calculated in the manner set forth in this sentence and shall also be multiplied
by a fraction, the numerator of which shall be the number of days that elapsed
commencing August 16, 1999, through and including December 31, 1999, and the
denominator of which shall be 365.
Section 3. Redemption Rights.
(a) Redemption in Connection with an Initial Public
-----------------------------------------------
Offering. All shares of Series A Preferred Stock that are issued and outstanding
- --------
shall be redeemable, in whole or in part, at the sole option of each holder, on
the date on which a registration statement on Form S-1 relating to an initial
public offering of the Company's equity securities is declared effective by the
Staff of the Securities and Exchange Commission under Section 5 of the
Securities Act of 1933, as amended and the rules and regulations promulgated
thereunder (the "Securities Act") and no stop order, withdrawal or suspension of
the effectiveness of such registration statement thereafter occurs (the "IPO
Date"). The Company shall give each holder of Series A Preferred Stock notice,
in accordance with the provisions of Section 3(e) below, of the IPO Date, as
soon as practicable, but in no event any later than upon the IPO Date.
In the event that any holder elects to exercise its
redemption rights pursuant to this Section 3(a), any such holder shall be
required to deliver a "Redemption Notice" (in accordance with, and as that term
is defined in, Section 3(c) below), within sixty (60) days subsequent to the
later to occur of the (x) IPO Date and (y) the date on which such holder is
given notice of the IPO Date (the "Redemption Period"). In the event that a
holder does not deliver a Redemption Notice during the Redemption Period, such
holder shall not be entitled to exercise its redemption right under this Section
3(a) except during each sixty (60) day period subsequent to each and every
successive twelve (12) month anniversary date of the IPO Date until such time as
such holder has had all of its shares of Series A Preferred Stock redeemed
hereunder. The per share redemption price of the Series A Preferred Stock shall
be the Liquidation Preference of the Series A Preferred Stock, plus any accrued
but unpaid dividends outstanding as of the date of the applicable Redemption
Notice. All accrued and unpaid dividends paid in connection with any redemption
in accordance with this Section 3(a) shall be in cash.
(b) Other Redemption Rights. In addition to Section 3(a)
-----------------------
above, each holder of the Series A Preferred Stock shall, at its sole option, be
entitled to redeem, in whole or in part, one-third of the Series A Preferred
Stock that it beneficially owns on each of the fourth anniversary date (the
"First Redemption Date"), the fifth anniversary date (the "Second Redemption
Date") and the sixth anniversary date (the "Final Redemption Date") of the
closing
2
<PAGE>
of the Securities Purchase Agreement (the "Securities Purchase Agreement"),
dated as of August 16, 1999, between the Company, Vector Capital II, L.P.
("Vector") and each of the parties listed on Schedule A and Schedule B attached
thereto. Each of the First Redemption Date, the Second Redemption Date and the
Final Redemption Date are sometimes hereinafter collectively referred to as a
"Redemption Date." In the event that a holder of Series A Preferred Stock does
not fully exercise its redemption rights on any Redemption Date, any such
unexercised redemption rights shall be cumulative, such that the holder shall be
entitled to exercise on each and every successive Redemption Date (each, a
"Successive Redemption Date") those redemption rights, in whole or in part, that
the holder previously had the right to effect but did not exercise, plus those
----
redemption rights first available to the holder on each such Successive
Redemption Date.
In the event that any holder elects to exercise its
redemption rights pursuant to this Section 3(b), such holder is required to
deliver a Redemption Notice in accordance with the provisions of Section 3(c)
below within thirty (30) days prior to a Redemption Date (each, a "Section 3(b)
Redemption Period"). In the event a holder does not deliver a Redemption Notice
with respect to all of its rights of redemption relative to a particular
Redemption Date within the Section 3(b) Redemption Period, the unexercised
redemption rights shall accumulate to the next successive Redemption Date as set
forth in the immediately preceding paragraph in this Section 3(b); provided
--------
however, that in the event that a holder does not deliver a Redemption Notice
- -------
with respect to its rights of redemption relative to the Final Redemption Date
within the Section 3(b) Redemption Period, the holder shall not be entitled to
exercise any additional redemption rights under this Section 3(b) except during
the Section 3(b) Redemption Period with respect to each and every successive
twelve (12) month anniversary date of the Final Redemption Date until such time
as such holder has had all of its shares of Series A Preferred Stock redeemed
hereunder. The per share redemption price of the Series A Preferred Stock for
all redemption rights provided for in this Section 3(b) shall be the Liquidation
Preference, plus any accrued but unpaid dividends outstanding as of the date of
the applicable Redemption Notice. All accrued and unpaid dividends paid in
connection with any redemption in accordance with this Section 3(b) shall be in
cash.
(c) Mechanics of Redemption. Any holder of Series A
-----------------------
Preferred Stock who wishes to exercise its redemption rights pursuant to
paragraphs (a) and/or (b) of this Section 3, must surrender the certificate
therefor at the principal executive office of the Corporation, and give written
notice, which may be via facsimile transmission, to the Corporation at its
principal executive office setting forth the number of shares of Series A
Preferred Stock that the holder elects to redeem (the "Redemption Notice"). No
Redemption Notice with respect to any shares of Series A Preferred Stock can be
given prior to the time that such shares of Series A Preferred Stock are
eligible for redemption in accordance with the provisions of Section 3(a) or (b)
above. Any such premature Redemption Notice shall automatically be null and
void. The Corporation shall, within ten (10) business days after receipt of an
appropriate and timely Redemption Notice (the "Redemption Deadline") deliver to
such holder of Series A Preferred Stock the Per Share Redemption Price
multiplied by the number of shares of Series A Preferred Stock that are being
3
<PAGE>
redeemed in United States currency by cash or delivery of a certified check or
bank draft payable to the order of the holder or by wire transfer to the holder.
Such redemption shall be deemed to have been made only after both the
certificate(s) for the shares of Series A Preferred Stock to be redeemed have
been surrendered and the Redemption Notice is received by the Corporation (the
"Redemption Documents"). In the event that the Redemption Notice is sent via
facsimile transmission, the Corporation shall be deemed to have received such
Redemption Notice on the first business day on which such facsimile Redemption
Notice is actually received, provided that the necessary certificates are
actually received by the Corporation within three (3) business days thereafter.
Any shares not redeemed shall continue to be entitled to dividends and other
rights, preferences, privileges and restrictions until such shares are redeemed.
In case fewer than the total number of shares represented by any certificate are
redeemed, a new certificate representing the number of unredeemed shares shall
be issued to the holder thereof without cost to such holder within 5 days after
surrender of the certificate representing the redeemed shares.
(d) No Impairment. The Corporation will not, by amendment
-------------
of its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all of the
provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the redemption rights of the
holders of the Series A Preferred Stock against impairment. The provisions of
this paragraph (d) may be waived by the affirmative vote of the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock
voting together as a single class and taken in advance of any action that would
conflict with this paragraph (d).
(e) Notices. Except as otherwise specified herein to the
-------
contrary, all notices, requests, demands and other communications required or
desired to be given hereunder shall only be effective if given in writing by
hand, by certified or registered mail, return receipt requested, postage
prepaid, or by U.S. express mail service, or by private overnight mail service
(e.g. Federal Express), or by facsimile transmission. Any such notice shall be
deemed to have been given (a) on the business day actually received if given by
hand or facsimile transmission, (b) on the business day immediately subsequent
to mailing, if sent by U.S. express mail service or private overnight mail
service, or (c) three (3) business days following the mailing thereof, if mailed
by certified or registered mail, postage prepaid, return receipt requested, and
all such notices shall be sent to the following addresses (or to such other
address or addresses as a party may have advised the other in the manner
provided herein):
4
<PAGE>
If to the Company:
Mr. Richard Glassberg
CKG Media.com, Inc.
420 Lexington Avenue
New York, NY 10170
with copies simultaneously by like means to:
Andrew M. Chonoles, Esq.
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
If to a holder of Series A Preferred Stock, to the address of
such holder as set forth in the Securities Purchase Agreement.
(f) Business Day. As used herein, the term "business day"
------------
shall mean any day other than a Saturday, Sunday or a day when the federal and
state banks located in the State of New York are required or permitted to close.
Section 4. Voting Rights. The holders of the Series A Preferred Stock
shall have only those voting rights provided by the Delaware General Corporation
Law (the "Delaware Law") and those voting rights expressly set forth in this
Section 4 and in Section 6(b) below and in Section 1.1 and Section 1.4 of the
Securityholders' Agreement. To the extent that under Delaware Law the vote of
the holders of the Series A Preferred Stock, voting separately as a class or
series as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at least a
majority of the shares of the Series A Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of a majority of
the shares of Series A Preferred Stock (except as otherwise may be required
under Delaware Law and the applicable provisions of the Securityholders'
Agreement) shall constitute the approval of such action by the class. Holders
of the Series A Preferred Stock shall be entitled to notice of (and copies of
proxy materials and other information sent to shareholders) all shareholder
meetings or written consents with respect to which they would be entitled to
vote, which notice would be provided pursuant to the Corporation's by-laws and
applicable statutes.
Section 5. Liquidation Preference. The holders of shares of Series A
Preferred Stock will be entitled to receive, in the event of (a) any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, or (b) a transaction or series of transactions with another private
entity resulting in a merger, purchase or consolidation of the Company and
within twelve (12) months after the closing of such merger, purchase or
consolidation, Richard Glassberg ("Glassberg") is not the chief executive
officer of the surviving entity and the
5
<PAGE>
Investors and the Founding Stockholders (as such terms are defined in the
Securityholders Agreement) do not, upon the closing of such merger, purchase or
consolidation, collectively hold a controlling equity interest in the surviving
entity, or (c) a transaction or series of transactions with a public entity
resulting in a merger, purchase or consolidation of the Company with such public
entity involving all or substantially all of the Company's assets, or(d) upon
the initial public offering under Section 5 of the Securities Act of 1933, as
amended, of the equity securities of the surviving entity referred to in clause
(b) immediately preceding, or (e) upon a "change in control" in the Company (as
defined in Section 1.4(d)(i) or 1.4 (d)(ii) of the Securityholders Agreement,
but not as defined in Section 1.4(d)(iii) of the Securityholders Agreement)
(each, a "Liquidation Event"), out of or to the extent of the net assets of the
Corporation legally available for such distribution, before any distributions
are made with respect to any Common Stock or any stock ranking junior to the
Series A Preferred Stock, and parri passu with the Company's Series B
----- -----
Convertible Preferred Stock (the "Liquidation Assets"), $1,000 per share (the
"Liquidation Preference"), plus any accrued but unpaid dividends as of the date
of such Liquidation Event, payable in cash (such dividends together with the
Liquidation Preference shall be called the "Liquidation Amount"), provided,
--------
however, that in the event of a Liquidation Event described in clause (b), (c),
- -------
(d) or (e) of this Section 5, each holder of shares of Series A Preferred Stock
shall have the option to retain their shares of Series A Preferred Stock and
defer their right to receive their respective Liquidation Amount.
In the event the Corporation has insufficient Liquidation Assets
to permit full payment to all holders of Series A Preferred Stock of their
respective Liquidation Amounts, the Corporation shall distribute the Liquidation
Assets allocable to the Series A Preferred Stock pro rata to each holder of
Series A Preferred Stock based upon their respective Liquidation Amounts (the
"Available Liquidation Amount"). After payment of the full amount of the
Liquidation Amount or the Available Liquidation Amount, as the case may be, to
each holder of Series A Preferred Stock, said holders will not be entitled to
any further participation in any distribution of assets by the Corporation.
Section 6. Restrictions and Limitations.
(a) Subject to Section 1.4 of the Securityholders'
Agreement, shares of Series A Preferred Stock acquired by the Corporation by
reason of purchase, conversion, redemption or otherwise shall be cancelled and
retired and shall become authorized but unissued shares of Series A Preferred
Stock, which may be reissued as part of a new series of preferred stock
hereafter created under Article Fourth of the Certificate of Incorporation.
(b) So long as shares of Series A Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock voting together as a separate class, amend the terms of this
Resolution. The holders of the outstanding shares of the Series A Preferred
Stock shall be entitled to vote as a separate class upon a proposed amendment of
the Certificate of Incorporation if the amendment would alter or change the
powers, preferences or special rights
6
<PAGE>
of the shares of Series A Preferred Stock so as to affect the holders of such
shares adversely.
(c) The Corporation shall not redeem or otherwise acquire
any shares of Series A Preferred Stock other than pursuant to Section 3 hereof
unless such alternative redemption or acquisition opportunity is made available
to all holders of Series A Preferred Stock on a pro rata basis after 20 days
prior written notice to such holder.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by
its Chief Executive Officer and attested by its Secretary this 13th day of
August, 1999.
CKG MEDIA.com, INC.
By:/s/ Richard E. Glassberg
-------------------------------------
Name: Richard E. Glassberg
Title: Chairman/CEO
Attest:
/s/ Robert Chmiel
- ----------------------------
Name: Robert Chmiel
Title: Sec.
<PAGE>
STAMP
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
CKG MEDIA.com, INC.
CKG Media.com, Inc. (d/b/a Phase2Media), a corporation organized and existing
under the General Corporation Law of the State of Delaware, (the "Company" or
the "Corporation"), does hereby certify that the Board of Directors of the
Corporation duly adopted a resolution by written consent of sole director in
lieu of a meeting dated as of August 13, 1999, and that such resolution has not
been amended, modified, or rescinded, and is now in full force and effect
providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, of certain shares of the Corporation's preferred stock, which
resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of Directors
by Article Fourth of the Corporation's Restated Certificate of Incorporation of
the Corporation, and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the rights, preferences and
designations of certain shares of the authorized and unissued shares of
preferred stock shall hereafter be as follows:
Section 1. Designation. Twenty-Three Million (23,000,000) shares, having a
par value of $.001 per share, of the Corporation's preferred stock are hereby
designated as Series B Convertible Preferred Stock (the "Series B Preferred
Stock"). The rights, preferences, privileges, and qualifications, limitations
and restrictions of the Preferred Stock are set forth in Sections 2 through 7 of
this Resolution. The rights, preferences, privileges and qualifications,
limitations and restrictions of the remaining shares of the Corporation's
preferred stock shall be determined by the Board of Directors, from time to time
after the date of the adoption of this Resolution, pursuant to the provisions of
Article Fourth of the Corporation's Restated Certificate of Incorporation.
Section 2. No Dividends. The holders of the Series B Preferred Stock shall
not be entitled to any dividends; provided, however, that no dividends shall
-------- -------
be declared or paid on the Common Stock or Class A Common Stock unless the same
amount and form of such dividends on the Common Stock and/or Class A Common
Stock is also declared or paid, as the case may be, on then-outstanding shares
of Series B Preferred Stock, on an as-converted to Common Stock or Class A
Common Stock basis.
<PAGE>
Section 3. Conversion. Subject to the provisions of this Section 3 below,
the holders of the Series B Preferred Stock shall have the right to convert each
of its shares of Series B Preferred Stock (the "Conversion Rights") into such
number of fully paid and nonassessable shares of the Company's common stock, par
value $.001 per share (the "Common Stock"), determined in accordance with the
provisions set forth in this Section 3.
(a) Right to Convert and Sell. The Series B Preferred Stock shall be
-------------------------
convertible by the holder thereof at any time and from time to time, in whole or
in part, at any time subsequent to the earlier of (i) the "Second Closing Date"
(as that term is defined in that certain Securities Purchase Agreement dated as
of August 16, 1999 by and among the Company, Vector Capital II, L.P. and each of
the parties listed on Schedule A and Schedule B to such Securities Purchase
Agreement (the "Purchase Agreement") or (ii) the expiration of the right of the
"Investors" (as that term is defined in the Purchase Agreement), or the waiver
of such right by the Investors, to effect a "Second Closing" (as that term is
defined in the Purchase Agreement) in accordance with the provisions of Section
6.17 of the Purchase Agreement. Each share of Series B Preferred Stock issued
in connection with the Initial Closing shall be convertible into such number of
fully paid and nonassessable shares of Common Stock or Class A Common Stock as
is obtained by dividing $.036166365 by the then-effective Conversion Price.
The Conversion Price per share of Series B Preferred Stock issued in connection
with the Initial Closing shall initially be $.036166365, subject to adjustment
from time to time. The "Initial Conversion Price" for each share of Series B
Preferred Stock issued at any "Supplemental Initial Closing" (as that term is
defined in the Purchase Agreement") and at the Second Closing shall be an amount
per share of Common Stock equal to the quotient obtained by dividing the
aggregate number of shares of Common Stock originally issuable upon conversion
of all shares of Series B Preferred Stock issued at any Supplemental Initial
Closing and at the Second Closing as specified in Section 3(c) below by the
aggregate purchase price paid for such shares of Series B Preferred Stock. The
number of shares of Common Stock or Class A Common Stock into which each share
of Series B Preferred Stock issued in connection with the Second Closing shall
be convertible shall be obtained by dividing the purchase price for such share
by the Initial Conversion Price for such share, provided, that the number of
--------
shares of Common Stock or Class A Common Stock so obtained shall be adjusted by
multiplying such number by a fraction, the numerator of which is such Initial
Conversion Price and the denominator of which is the Conversion Price (defined
below) in effect on the date of conversion. The Conversion Price for any share
of Series B Preferred Stock issued at any Supplemental Initial Closing and upon
the Second Closing shall initially be the Initial Conversion Price for such
shares, subject to adjustment from time to time. Notwithstanding anything set
forth herein to the contrary, in the event that a holder exercises its right to
convert any shares of Series B Preferred Stock pursuant to Section 3(a) hereof,
and at the time of such holder's exercise of such right, there are shares of the
Company's Class A Common Stock, par value $.001 per share, issued and
outstanding (the "Class A Common Stock"), the Series B Preferred Stock to be
converted shall be converted into shares of Class A Common Stock.
2
<PAGE>
(b) Automatic Conversion. All unconverted shares of Series B
--------------------
Preferred Stock shall automatically be converted into shares of the Company's
Common Stock upon (i) the Company's closing of a "Qualified Initial Public
Offering" as hereinafter defined, or (ii) upon the affirmative vote of holders
who beneficially own, either actually or on an as converted basis, at least
fifty percent (50%) of the shares of Common Stock or Class A Common Stock into
which the Series B Preferred Stock is convertible. For the avoidance of doubt,
only holders of Common Stock and Class A Common Stock who hold or on as an
converted basis are deemed to hold such shares as the result of an actual
conversion of Series B Preferred Stock shall be included in the vote referred to
in clause (ii) of the prior sentence. As used herein, the phrase "Qualified
Initial Public Offering" shall mean the first underwritten public offering and
sale of shares of the Company's Common Stock, on a firm commitment basis,
registered pursuant to Section 5 of the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, which offering and sale
results in (i) the listing for trading on a nationally recognized stock market,
or the reporting on a nationally recognized automated quotation system, of the
equity securities of the Company, (ii) the receipt by the Company of at least
Twenty Million Dollars ($20,000,000) in gross proceeds, and (iii) the aggregate
"Market Value," as that term is hereinafter defined, of the shares of Common
Stock issued and issuable upon conversion of the Series B Preferred Stock, plus
----
the aggregate Liquidation Preference of all of the issued and outstanding shares
of the Company's Series A Redeemable Preferred Stock (the "Series A Preferred
Stock") held by the Investors, is equal to at least five (5) times the aggregate
"Initial Purchase Price" and "Balance of the Purchase Price" (if any) actually
paid by the Investors for the "Preferred Stock"(as that term is defined in the
Purchase Agreement). As used herein, the term "Market Value" shall have the
meaning ascribed to it in that certain Securityholders' Agreement dated as of
August 16, 1999 by and among CKG Media.com, Inc. (d/b/a Phase2Media), Vector
Capital II, L.P., Richard E. Glassberg, Robert E. Chmiel, R. Scott Ford, Thomas
Mannion, Jason Liebowitz, Matthew Spangler and each of the parties listed on
Schedule A annexed thereto (the "Securityholders' Agreement").
(c) Shares Originally Issuable.
--------------------------
(i) In the event that the Investors effect the "Initial
Closing" (as that term is defined in the Purchase
Agreement) and the Second Closing, then the shares of
Series B Preferred Stock purchased by the Investors at
the Initial Closing (without taking into account any
shares issued at a Supplemental Initial Closing) shall
initially be convertible into 11,668,300. The shares of
Series B Preferred Stock purchased by the Investors at
any Supplemental Initial Closings (assuming that at such
Supplemental Initial Closing the Investors purchase all
of the shares eligible to be purchased at all
Supplemental Initial Closings) shall initially be
convertible into such number of shares of the Company's
Common Stock that equals an aggregate of
3
<PAGE>
11.125% of the Company's issued and outstanding Common
Stock and Class A Common Stock on a fully diluted basis
as of the "Initial Closing Date" (as that term is
defined in the Purchase Agreement). The number of shares
of Series B Preferred Stock purchased by the Investors
at the Second Closing (assuming that at such Second
Closing the Investors purchase all of the shares
eligible to be purchased at the Second Closing) shall
initially be convertible into such number of shares of
the Company's Common Stock that equals an aggregate
twelve and one-half percent (12.5%) of the Company's
issued and outstanding Common Stock on a fully diluted
basis as of the "Second Closing Date" (as that term is
defined in the Purchase Agreement). As used in this
Section 3, the term fully-diluted basis shall mean (i)
all issued and outstanding shares, including treasury
shares, of the Company's Common Stock and the Company's
Class A Common Stock; (ii) all shares of Common Stock or
Class A Common Stock issuable upon the conversion of
Series B Preferred Stock or upon the conversion of any
other convertible debt or equity securities of the
Company, and (iii) all shares of Common Stock or Class A
Common Stock issuable upon the execution of any
warrants, options, reserved for issuance or set aside in
the Option Plan or any other rights of any nature
whatsoever (whether or not vested) including but not
limited to any employee, consultant or director stock
option plan.
(ii) In the event that the Company fails to achieve the Gross
Margin Milestone, but the Investors nonetheless effect
the Second Closing for some or all of the Balance of the
Purchase Price, then the shares of Series B Preferred
Stock purchased at any such Second Closing shall be
convertible into such number of shares of Common Stock
based upon the "Second Closing Percentage" (as that term
is hereinafter defined) of the Company's issued and
outstanding Common Stock on a fully-diluted basis as of
the Second Closing. As used herein, the term Second
Closing Percentage shall mean the product of twelve and
one-half percent (12.5%) multiplied by a fraction, the
numerator of which is the actual aggregate sums paid by
the Investors at the Second Closing and the denominator
of which is the Balance of the Purchase Price.
4
<PAGE>
(iii) In the event that the Company achieves the Gross Margin
Milestone in accordance with the provisions of Section
6.16 of the Purchase Agreement, but the Investors
nevertheless fail to effect the Second Closing for at
least Two Million Eight Hundred Thousand Dollars
($2,800,000), the Company shall thereafter have the
right to exercise its redemption right set forth in
Section 5(a) below, in which event the Company shall
have the right to redeem for par 20% of the 11,668,300
shares of the Series B Preferred Stock issued at the
Initial Closing and 20% of any shares of Series B
Preferred Stock issued at any Supplemental Initial
Closing.
(d) Mechanics of Conversion. Any holder of Series B Preferred Stock
-----------------------
who wishes to exercise its Conversion Rights pursuant to this Section 3, must
surrender the certificate therefor at the principal executive office of the
Corporation, and give written notice, which may be via facsimile transmission,
to the Corporation at its principal executive office that it elects to convert
same (the "Conversion Notice"). No Conversion Notice with respect to any shares
of Series B Preferred Stock can be given prior to the time that such shares of
Series B Preferred Stock are eligible for conversion in accordance with the
provisions of Section 3(a) above. Any such premature Conversion Notice shall
automatically be null and void. The Corporation shall, within five (5) business
days after receipt of an appropriate and timely Conversion Notice, issue to such
holder of Series B Preferred Stock a certificate for the number of shares of
Common Stock to which the holder shall be entitled. Such conversion shall be
deemed to have been made only after both the certificate for the shares of
Series B Preferred Stock to be converted have been surrendered and the
Conversion Notice is received by the Corporation (the "Conversion Documents"),
and the person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock at and after such time. In the event that the Conversion Notice
is sent via facsimile transmission, the Corporation shall be deemed to have
received such Conversion Notice on the first business day on which such
facsimile Conversion Notice is actually received, provided that the necessary
certificates are actually received by the Corporation within three (3) business
days thereafter.
(e) Adjustments for Combinations or Subdivisions of Common Stock. In
------------------------------------------------------------
the event that the Corporation at any time or from time to time while shares of
Series B Preferred Stock are issued and outstanding shall effect a subdivision
of the outstanding shares of Common Stock or Class A Common Stock into a greater
number of shares of Common Stock or Class A Common Stock (by stock split,
reclassification or otherwise, other than by payment of a dividend in Common
Stock or Class A Common Stock or in any right to acquire Common Stock or Class A
Common Stock), or if the outstanding shares of Common Stock or Class A Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of
5
<PAGE>
shares of Common Stock, then the Conversion Price in effect immediately before
such event shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate.
(f) Adjustments for Reclassification and Reorganization. In the event
---------------------------------------------------
that the Common Stock issuable upon conversion of the Series B Preferred Stock
shall be changed into the same or a different number of shares of any other
class or classes of stock, whether by capital reorganization, reclassification
or otherwise (other than a subdivision or combination of shares provided for in
paragraph (e) of this Section 3), then concurrently with the effectiveness of
such reorganization or reclassification, the Series B Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series B Preferred Stock immediately before that change.
(g) Issuance of Additional Shares of Common Stock. In case the
---------------------------------------------
Company at any time or from time to time after the date of the Initial Closing
shall issue or sell Additional Shares of Common Stock or Class A Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 3(i) or 3(j) without consideration or for a consideration per share less
than the Conversion Price in effect immediately prior to such issuance or sale,
then, and in each such case, such Conversion Price shall be reduced,
concurrently with such issuance or sale, to a price (calculated to the nearest
.00000001 of a cent) determined by multiplying such Conversion Price by a
fraction
(A) the numerator of which shall be (i) the number of shares of Common
-
Stock and Class A Common Stock outstanding immediately prior to such issue
or sale plus (ii) the number of shares of Common Stock or Class A Common
--
Stock which the aggregate consideration received by the Company for the
total number of such Additional Shares of Common Stock so issued or sold
would purchase at the Conversion Price, and
(B) the denominator of which shall be the number of shares of Common
Stock and Class A Common Stock outstanding immediately after such issue or
sale,
provided that, for the purposes of this Section 3(g), (x) immediately
-------- -
after any Additional Shares of Common Stock are deemed to have been issued
pursuant to Section 3(i) or 3(j), such Additional Shares shall be deemed to
be outstanding, and (y) treasury shares shall not be deemed to be
-
outstanding.
(h) Dividends and Distributions. In case the Company at any time or
---------------------------
from time to time after the date hereof shall declare, order, pay or make a
dividend or other distribution (including, without limitation, any distribution
of other or additional stock or other securities or property or Options by way
of dividend or spin-off) on the Common Stock or the Class A Common Stock, other
than a dividend payable in Additional Shares of Common Stock,
6
<PAGE>
then, and in each such case adequate provision shall be made so that each holder
of Series B Preferred Stock shall receive a pro rata share of such dividend
based upon the maximum number of shares of Common Stock at the time issuable to
such holder.
(i) Treatment of Options and Convertible Securities. In case the
-----------------------------------------------
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities (other than any shares of Series B Preferred Stock to be
issued pursuant to the Purchase Agreement), then, and in each such case, the
maximum number of Additional Shares of Common Stock or Class A Common Stock (as
set forth in the instrument relating thereto, without regard to any provisions
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock or Class A Common Stock issued as
of the time of such issue, sale, grant or assumption or, in case such a record
date shall have been fixed, as of the close of business on such record date (or,
if the Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), provided that such Additional Shares of
--------
Common Stock or Class A Common Stock shall not be deemed to have been issued
unless the consideration per share (determined pursuant to Section 3(k)) of such
shares would be less than the Conversion Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be, and provided, further, that in any such case in
-------- -------
which Additional Shares of Common Stock are deemed to be issued
(i) no further adjustment of the Conversion Price shall be made upon
the subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock or Class A Common Stock issuable, upon
the exercise, conversion or exchange thereof (by change of rate or
otherwise), the Conversion Price computed upon the original issue, sale,
grant or assumption thereof (or upon the occurrence of the record date, or
date prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options, or
the rights of conversion or exchange under such Convertible Securities,
which are outstanding at such time;
7
<PAGE>
(iii) upon the expiration (or purchase by the Company and cancellation
or retirement) of any such Options which shall not have been exercised or
the expiration of any rights of conversion or exchange under any such
Convertible Securities which (or purchase by the Company and cancellation
or retirement of any such Convertible Securities the rights of conversion
or exchange under which) shall not have been exercised, the Conversion
Price computed upon the original issue, sale, grant or assumption thereof
(or upon the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration (or such cancellation or retirement, as the case may be), be
recomputed as if:
(x) in the case of Options for Common Stock or Class A Common
or Convertible Securities, the only Additional Shares of Common Stock
or Class A Common Stock issued or sold were the Additional Shares of
Common Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the
consideration actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or not exercised,
plus the consideration actually received by the Company upon such
exercise, or for the issue or sale of all such Convertible Securities
which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, and
(y) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue, sale,
grant or assumption of such Options, and the consideration received by
the Company for the Additional Shares of Common Stock or Class A
Common Stock deemed to have then been issued was the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (pursuant to
Section 3(k)) upon the issue or sale of such Convertible Securities
with respect to which such Options were actually exercised;
(iv) no readjustment pursuant to subdivision (ii) or (iii) above shall
have the effect of increasing the Conversion Price by an amount in excess
of the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities;
and
(v) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options,
8
<PAGE>
whereupon such adjustment shall be made in the manner provided in
subdivision (iii) above.
(j) Treatment of Stock Dividends. In case the Company at any time or
----------------------------
from time to time after the date hereof shall declare or pay any dividend on the
Common Stock or Class A Common Stock payable in Common Stock or Class A Common
Stock, then, and in each such case, Additional Shares of Common Stock or Class A
Common Stock shall be deemed to have been issued, immediately after the close of
business on the record date for the determination of holders of any class of
securities entitled to receive such dividend.
(k) Computation of Consideration. For the purposes of this Section 3,
----------------------------
(i) the consideration for the issue or sale of any Additional Shares of
Common Stock shall, irrespective of the accounting treatment of such
consideration,
(x) insofar as it consists of cash, be computed at the net amount of
cash received by the Company,
(y) insofar as it consists of property (including securities) other
than cash, be computed at the fair value thereof at the time of such
issue or sale, as determined in good faith by the Board of Directors of
the Company, and
(z) in case Additional Shares of Common Stock or Class A Common
Stock are issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers both, be
the portion of such consideration so received, computed as provided in
clauses (x) and (y) above, allocable to such Additional Shares of Common
Stock, all as determined in good faith by the Board of Directors of the
Company;
(ii) Additional Shares of Common Stock or Class A Common Stock deemed to
have been issued pursuant to Section 3(h), relating to Options and
Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing
(x) the total amount, if any, received and receivable by the Company
as consideration for the issue, sale, grant or assumption of the Options
or Convertible Securities in question, plus the minimum aggregate amount
of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration to protect against dilution)
payable to the Company upon the exercise in full of such Options or the
conversion or exchange of such Convertible Securities or, in the case of
Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
9
<PAGE>
Convertible Securities, in each case computing such consideration as
provided in the foregoing subdivision (i), by
(y) the maximum number of shares of Common Stock or Class A Common
Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
number to protect against dilution) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities;
and
(iii) Additional Shares of Common Stock or Class A Common Stock deemed
to have been issued pursuant to Section 3(j), relating to stock dividends,
etc., shall be deemed to have been issued for no consideration.
(l) Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
---------------------------------
shares) of Common Stock or Class A Common Stock issued or sold (or, pursuant to
Section 3(e), 3 (f), 3(g), 3(i), or 3(j) hereof, deemed to be issued) by the
Company after the date hereof, whether or not subsequently reacquired or retired
by the Company, other than
(a) shares issued upon the exercise of the Series B Preferred Stock,
(b) shares issued upon the exercise of options granted or to be granted
under the Company's stock option plans as in effect on the date of the Initial
Closing as contemplated by Section 2.4 of the Purchase Agreement, and
(c) such additional number of shares as may become issuable upon the
exercise of any of the securities referred to in the foregoing clauses (a) and
(b) by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities as in effect on the date hereof, in order to
reflect any subdivision or combination of Common Stock, by reclassification or
otherwise, or any dividend on Common Stock payable in Common Stock.
Convertible Securities: Any evidences of indebtedness, shares of stock
----------------------
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
(m) No Impairment. The Corporation will not, by amendment of its
-------------
Restated Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or
10
<PAGE>
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all of the provisions of this Section 3 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Series B Preferred Stock against
impairment. The provisions of this paragraph (m) may be waived by the
affirmative vote of the holders of at least a majority of the then outstanding
shares of Series B Preferred Stock voting together as a single class and taken
in advance of any action that would conflict with this paragraph (m).
(n) Notice of Adjustments. Upon the occurrence of each adjustment or
---------------------
readjustment of any Conversion Ratio pursuant to this Section 3, the Corporation
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series B Preferred Stock a notice setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Series B Preferred Stock, furnish to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
then in effect and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of such holder's shares.
(o) Notices of Record Date. If the Corporation shall propose at any
----------------------
time: (i) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock other than one as to which
adjustments of the Conversion Ratio will be made under paragraph (e) of this
Section 3; or (ii) to merge or consolidate with or into any other corporation,
or sell all or substantially all of its assets, or to liquidate, dissolve or
wind up; then, in connection with such event, the Corporation shall send to the
holders of the Series B Preferred Stock at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon the occurrence of such
event).
(p) Issue Taxes. The Corporation shall pay any and all issue and
-----------
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series B Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
- -------- -------
transfer taxes resulting from any transfer to a person other than the holder of
record on any record date if requested by any holder in connection with any such
conversion.
(q) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series B Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect
11
<PAGE>
the conversion of all then outstanding shares of the Series B Preferred Stock,
the Corporation will take such corporate action as may be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose, including, without limitation, engaging in
best efforts to obtain the requisite stockholder approval of any necessary
amendment to its Restated Certificate of Incorporation.
(r) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon the conversion of any share or shares of Series B Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series B Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fractional share of Common Stock, such fractional share shall be rounded either
up or down to the nearest whole share, as the Corporation shall decide, and if
such fractional share is rounded down, the Corporation shall pay cash to the
Series B Preferred Stockholder in an amount equal to any fractional percentage
rounded down multiplied by the then effective Conversion Price.
(s) Notices. Except as otherwise specified herein to the contrary,
-------
all notices, requests, demands and other communications required or desired to
be given hereunder shall only be effective if given in writing by hand, by
certified or registered mail, return receipt requested, postage prepaid, or by
U.S. express mail service, or by private overnight mail service (e.g. Federal
Express), or by facsimile transmission. Any such notice shall be deemed to have
been given (a) on the business day actually received if given by hand or
facsimile transmission, (b) on the business day immediately subsequent to
mailing, if sent by U.S. express mail service or private overnight mail service,
or (c) three (3) business days following the mailing thereof, if mailed by
certified or registered mail, postage prepaid, return receipt requested, and all
such notices shall be sent to the following addresses (or to such other address
or addresses as a party may have advised the other in the manner provided
herein):
If to the Company:
Mr. Richard E. Glassberg
CKG Media.com, Inc.
420 Lexington Avenue
New York, NY 10170
with copies simultaneously by like means to:
Andrew M. Chonoles, Esq.
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
12
<PAGE>
If to a holder of Series B Preferred Stock, to the address of such
holder as set forth in such the Purchase Agreement.
(t) Business Day. As used herein, the term "business day" shall
------------
mean any day other than a Saturday, Sunday or a day when the federal and state
banks located in the State of New York are required or permitted to close.
Section 4. Voting Rights. The holders of the Series B Preferred Stock shall
have only those voting rights provided by the Delaware General Corporation Law
(the "Delaware Law"), and those voting rights expressly set forth in this
Section 4 and in Section 7(b) below and in Section 1.1 and Section 1.4 of the
Securityholders' Agreement. To the extent that under Delaware Law the vote of
the holders of the Series B Preferred Stock, voting separately as a class or
series as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at least a
majority of the shares of the Series B Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of a majority of
the shares of Series B Preferred Stock (except as otherwise may be required
under Delaware Law and under the applicable provisions of the Securityholders'
Agreement) shall constitute the approval of such action by the class. To the
extent that under Delaware Law the holders of the Series B Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series B Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible using the record date for the taking of such vote of stockholders as
the date as of which the Conversion Price is calculated and conversion is
effected. Holders of the Series B Preferred Stock shall be entitled to notice of
(and copies of proxy materials and other information sent to shareholders) all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Corporation's
by-laws and applicable statutes.
Section 5. Right of Redemption.
(a) In the event that notwithstanding the Company's achieving the
Gross Margin Milestone in accordance with the provisions set forth in Section
6.17 of the Purchase Agreement, the Investors do not effect a Second Closing
under the Purchase Agreement, then the Company shall have the right, for the
period of 180 days subsequent to the date that the Second Closing was to have
occurred pursuant to the provisions of Section 1.1(b) of the Purchase Agreement,
to repurchase 20% of the Series B Preferred Stock purchased by each of the
Investors in the Initial Closing for an aggregate purchase price equal to the
par value of all of the Series B Preferred Stock being repurchased pursuant
to this Section 5(a) (the "Repurchase Price"), provided that prior to the
--------
Company's exercise of the right described above, the Investors shall have the
right to effect the Second Closing upon 10 days prior written notice. The
Company shall effect its repurchase right under this Section 5(a) by giving
written notice thereof to Vector Capital II, L.P., which written notice shall be
accompanied by a check in the amount of the Repurchase Price, and upon the
giving of said Repurchase Notice and the tendering of the
13
<PAGE>
Repurchase Price, the Company shall be automatically and irrevocably deemed to
have repurchased 20% of the Series B Preferred Stock purchased by the Investors
at the Initial Closing without any further action required on behalf of the
Company or the Investors. The Investors, upon receipt of the Repurchase Notice,
shall deliver to the Company a certificate or certificates representing the
repurchased securities. In the event the Investors deliver to the Company a
certificate or certificates representing more than the amount of Series B
Preferred Stock which the Company is repurchasing pursuant to the provisions of
this Section 5(a), then the Company shall reissue to the Investors without cost
to the Investors a new certificate representing such excess amount of Series B
Preferred Stock within five days after surrender of the certificate representing
the redeemed shares.
(b) In the event and to the extent that any holder of the Series B
Preferred Stock is also a holder of the Company's Series A Preferred Stock, and
such holder effects its right of redemption pursuant to Section 3(b) of the
Certificate of Designations, Preferences and Rights of the Company's Series A
Preferred Stock (the "Series A Certificate of Designation"), within 30 days
prior to each of the "First Redemption Date," the "Second Redemption Date," and
the "Final Redemption Date" (as each of those terms are defined in the Series A
Certificate of Designation), the Company shall have the right to redeem from
each such holder a portion of Series B Preferred Stock owned by the holder in an
amount equal to, on a pro rata basis, the amount of such holder's Series A
--- ----
Preferred Stock that is being redeemed pursuant to Section 3(b) of the Series A
Certificate of Designation (a "Section 3(b) Redemption"). By way of example, in
the event that a holder is redeeming one-third (1/3) of the Series A Preferred
Stock beneficially owned by such holder pursuant to a Section 3(b) Redemption,
in such event, the Company shall have the right to redeem one-third of the
Series B Preferred Stock beneficially owned by such holder in accordance with
the provisions of this Section 5(b). Any shares of Series B Preferred Stock
redeemed by the Company pursuant to this Section 5(b) shall be repurchased at a
per share price equal to the Liquidation Amount of the Series B Preferred Stock
as set forth in Section 6 below (the "Series B Repurchase Price"). The Company
shall effect any repurchase pursuant to this Section 5(b) by given written
notice thereof to Vector Capital II, L.P., (the "Series B Repurchase Notice"),
which written notice shall also be accompanied by a check or checks representing
the aggregate Series B Repurchase Price, and upon the giving of said Series B
Repurchase Notice, the Company shall automatically and irrevocably be deemed to
have repurchased the shares of Series B Preferred Stock set forth in the
Repurchase Notice without any further action required on behalf of the Company
or the holders of the Series B Preferred Stock. The holders of the Series B
Preferred Stock whose shares of Series B Preferred Stock are being redeemed
shall, upon receipt of the Series B Repurchase Notice, deliver to the Company a
certificate or certificates representing the repurchased securities. In the
event any such Series B Preferred Stockholder delivers to the Company a
certificate or certificates representing more than the amount of Series B
Preferred Stock which the Company is redeeming pursuant to the provisions of
this Section 5(b), then the Company shall reissue without cost to the Investors
to such holder a new certificate representing such excess amount of Series B
Preferred Stock within five days after surrender of the certificate representing
the redeemed shares.
14
<PAGE>
Notwithstanding anything set forth in this Section 5(b) to the
contrary, Company's right of redemption under this Section 5(b) shall
automatically terminate upon the closing of the Company's Qualified Initial
Public Offering.
Section 6. Liquidation Preference. The holders of shares of
Series B Preferred Stock will be entitled to receive, in the event of any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, out of or to the extent of the net assets of the Corporation
legally available for such distribution, before any distributions are made with
respect to any Common Stock or any stock ranking junior to the Series B
Preferred Stock, and pari passu with the Company's Series A Redeemable Preferred
---- -----
Stock (the "Liquidation Assets"), $.036166365 per share (the "Liquidation
Preference"), plus any accrued but unpaid dividends outstanding as of the date
of such Liquidation Event, payable in cash (such dividends together with the
Liquidation Preference shall be called the "Liquidation Amount"). In the event
the Corporation has insufficient Liquidation Assets to permit full payment to
all holders of Series B Preferred Stock of their respective Liquidation Amounts,
the Corporation shall distribute the Liquidation Assets allocable to the Series
B Preferred Stock pro rata to each holder of Series B Preferred Stock based upon
their respective Liquidation Amounts (the "Available Liquidation Amount"). After
payment of the full amount of the Liquidation Amount or the Available
Liquidation Amount, as the case may be, to each holder of Series B Preferred
Stock, said holders will not be entitled to any further participation in any
distribution of assets by the Corporation.
Notwithstanding anything set forth herein to the contrary, the
provisions of this Section 6 shall no longer be applicable subsequent to the
Company's closing of a Qualified Initial Public Offering.
Section 7. Restrictions and Limitations.
(a) Subject to Section 1.4 of the Securityholders' Agreement, Shares
of Series B Preferred Stock acquired by the Corporation by reason of purchase,
conversion, redemption or otherwise shall be retired and shall become authorized
but unissued shares of preferred stock, which may be reissued as Series B
Preferred Stock or as part of a new series of preferred stock hereafter created
under Article Fourth of the Restated Certificate of Incorporation.
(b) So long as shares of Series B Preferred Stock remain outstanding,
the Corporation shall not, without the affirmative vote of the holders of at
least a majority of the then outstanding shares of Series B Preferred Stock
voting together as a separate class, amend the terms of this Resolution. The
holders of the outstanding shares of the Preferred Stock shall be entitled to
vote as a separate class upon a proposed amendment of the Restated Certificate
of Incorporation if the amendment would alter or change the powers, preferences
or special rights of the shares of Series B Preferred Stock so as to affect the
holders of such shares adversely.
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be
signed by its Chief Executive Officer and attested by its Secretary this 13th
day of August, 1999.
CKG MEDIA.com, INC.
By: /s/ Richard S. Glassberg
-------------------------
Name: Richard S. Glassberg
Title: Chairman/Ceo
Attest:
/s/ Robert Chmiel
- ------------------------------------
Name: Robert Chmiel
Title: Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CKG MEDIA.com, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
CKG Media.com, Inc.
2. The certificate of incorporation of the Corporation is hereby amended
and restated by striking out all of Article Fourth thereof and by
substituting in lieu of said Article the following new Article Fourth:
"FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is one hundred
thirty five million (135,000,000) shares, consisting of (i)
thirty eight million (38,000,000) shares of preferred stock, par
value $.001 per share (the "Preferred Stock"), (ii) seventy
million (70,000,000) shares of common stock, par value $.001 per
share (the "Common Stock"), and (iii) twenty seven million
(27,000,000) shares of Class A common stock, par value $.001 per
share (the "Class A Common Stock"). The Preferred Stock may be
issued from time to time in one or more series with such
designations, preferences and relative, participating, optional
or other rights, qualifications, limitations or restrictions
thereof as shall be stated and expressed in the resolution or
resolutions providing for the issuance of such series adopted by
the Board of Directors of the corporation from time to time,
pursuant to the authority herein given, without any further vote
or action on the part of the stockholders. A copy of such
resolution or resolutions adopted by the Board of Directors shall
be set forth in a Certificate made, executed, acknowledged and
filed in the manner required by the General Corporate Law of the
State of Delaware in order to make such resolution or resolutions
effective. Each series shall consist of such number of shares as
shall be stated and expressed in such resolution or resolutions
providing for the issuance of the stock of such series. All
shares of any one series of Preferred Stock shall be alike in
every particular way."
<PAGE>
3. The amendment of the amended certificate of incorporation herein
certified has been duly adopted and written consent has been given in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
<PAGE>
The effective time of the amendment herein certified shall be August 25,
1999.
Signed on August 25, 1999
/s/ Richard Glassberg
-------------------------------------
Richard Glassberg
Chairman and Chief Executive Officer
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
CKG MEDIA.com, INC.
CKG Media.com, Inc. (d/b/a Phase2Media), a corporation organized and
existing under the General Corporation Law of the State of Delaware, (the
"Company" or the "Corporation"), does hereby certify that the Board of Directors
of the Corporation duly adopted the following resolution by unanimous written
consent of the directors in lieu of a meeting dated as of August 25, 1999, and
that such unanimous written consent has not been amended, modified, or
rescinded, and is now in full force and effect providing for the designations,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, of certain shares of the
Corporation's preferred stock, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by Article Fourth of the Corporation's Restated Certificate of
Incorporation of the Corporation, and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the rights, preferences
and designations of certain shares of the authorized and unissued shares of
preferred stock shall hereafter be as follows:
Section 1. Designation. Nine Million Seven Hundred and Fifty Thousand
(9,750,000) shares, having a par value of $.001 per share, of the Corporation's
preferred stock are hereby designated as Series C Convertible Preferred Stock
(the "Series C Preferred Stock"). The rights, preferences, privileges, and
qualifications, limitations and restrictions of the Preferred Stock are set
forth in Sections 2 through 6 of this Resolution. The rights, preferences,
privileges and qualifications, limitations and restrictions of the remaining
shares of the Corporation's preferred stock shall be determined by the Board of
Directors, from time to time after the date of the adoption of this Resolution,
pursuant to the provisions of Article Fourth of the Corporation's Restated
Certificate of Incorporation.
Section 2. No Dividends. The holders of the Series C Preferred Stock
shall not be entitled to any dividends; provided, however, that no dividends
-------- -------
shall be declared or paid on the Company's common stock, par value $.001 per
share ("Common Stock") or Class A Common Stock, par value .001 per share (the
"Class A Common Stock") or Series B Convertible Preferred Stock, par value $.001
per share ("Series B Preferred Stock") unless the same amount and form of such
dividends on the Common Stock and/or Class A Common Stock and/or Series B
Preferred Stock is also declared or paid, as the case may be, on then-
outstanding shares of Series C Preferred Stock, on an as-converted to Common
Stock basis.
<PAGE>
Section 3. Conversion. The holders of the Series C Preferred Stock shall
have the right at any time and from time to time, in whole or in part, at any
time after the Closing Date (as such term is defined in the Subscription and
Purchase Agreement dated as of August 26, 1999 by and between the Corporation
and the subscribers party thereto (the "Purchase Agreement")) to convert each of
its shares of Series C Preferred Stock (the "Conversion Rights") into such
number of fully paid and nonassessable shares of the Company's Common Stock,
determined in accordance with the provisions set forth in this Section 3.
(a) Automatic Conversion. All unconverted shares of Series C
--------------------
Preferred Stock shall automatically be converted into shares of the Company's
Common Stock upon (i) the Company's closing of a "Qualified Initial Public
Offering" as hereinafter defined, or (ii) upon the affirmative vote of holders
who beneficially own, either actually or on an as converted basis, at least
fifty percent (50%) of the shares of Common Stock into which the Series C
Preferred Stock is convertible. For the avoidance of doubt, only shares of
Common Stock beneficially owned by holders of Common Stock who hold, or on as an
converted basis are deemed to hold, such shares as the result of an actual
conversion of Series C Preferred Stock shall be included in the vote referred to
in clause (ii) of the prior sentence. As used herein, the phrase "Qualified
Initial Public Offering" shall have the same meaning as ascribed to such phrase
in the Company's Certificate of Designations, Preferences and Rights of the
Company's Series B Preferred Stock.
(b) Shares Originally Issuable. The 9,750,000 shares of Series
--------------------------
C Preferred Stock herein designated shall initially be convertible, on a
one-for-one basis, into 9,750,000 shares of the Company's Common Stock, which
number of shares is subject to adjustment as provided in this Section 3.
(c) Mechanics of Conversion. Any holder of Series C Preferred
-----------------------
Stock who wishes to exercise its Conversion Rights pursuant to this Section 3,
must surrender the certificate therefor at the principal executive office of the
Corporation, and give written notice, which may be via facsimile transmission,
to the Corporation at its principal executive office that it elects to convert
same (the "Conversion Notice"). No Conversion Notice with respect to any shares
of Series C Preferred Stock can be given prior to the time that such shares of
Series C Preferred Stock are eligible for conversion in accordance with the
provisions of Section 3(a) above. Any such premature Conversion Notice shall
automatically be null and void. The Corporation shall, within five (5) business
days after receipt of an appropriate and timely Conversion Notice, issue to such
holder of Series C Preferred Stock a certificate for the number of shares of
Common Stock to which the holder shall be entitled. Such conversion shall be
deemed to have been made only after both the certificate for the shares of
Series C Preferred Stock to be converted have been surrendered and the
Conversion Notice is received by the Corporation (the "Conversion Documents"),
and the person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock at and after such time. In the event that the Conversion
2
<PAGE>
Notice is sent via facsimile transmission, the Corporation shall be deemed to
have received such Conversion Notice on the first business day on which such
facsimile Conversion Notice is actually received, provided that the necessary
certificates are actually received by the Corporation within three (3) business
days thereafter.
(d) Adjustments for Combinations or Subdivisions of Common
------------------------------------------------------
Stock. In the event that the Corporation at any time or from time to time while
- -----
shares of Series C Preferred Stock are issued and outstanding shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise, other
than by payment of a dividend in Common Stock or Class A Common Stock or in any
right to acquire Common Stock or Class A Common Stock), or if the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the number of
shares of Common Stock issuable upon the conversion of the Series C Preferred
Stock shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate.
(e) Adjustments for Reclassification and Reorganization.
---------------------------------------------------
In the event that the Common Stock issuable upon conversion of the Series C
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares provided for in paragraph (d) of this Section 3), then concurrently with
the effectiveness of such reorganization or reclassification, the Series C
Preferred Stock shall be convertible into, in lieu of the number of shares of
Common Stock which the holders would otherwise have been entitled to receive, a
number of shares of such other class or classes of stock equivalent to the
number of shares of Common Stock that would have been subject to receipt by the
holders upon conversion of the Series C Preferred Stock immediately before that
change.
(f) Dividends and Distributions. In case the Company at
---------------------------
any time or from time to time after the date hereof shall declare, order, pay or
make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property by way
of dividend or spin-off) on the Common Stock including but not limited to
dividends payable in additional shares of Common Stock, then, and in each such
case adequate provision shall be made so that each holder of Series C Preferred
Stock shall receive a pro rata share of such dividend based upon the maximum
number of shares of Common Stock at the time issuable to such holder.
(g) No Impairment. The Corporation will not, by amendment
-------------
of its Restated Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issuance or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all of the provisions of this Section 3 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series C
3
<PAGE>
Preferred Stock against impairment. The provisions of this paragraph (g) may be
waived by the affirmative vote of the holders of at least a majority of the
then outstanding shares of Series B Preferred Stock voting together as a single
class and taken in advance of any action that would conflict with this paragraph
(g).
(h) Notice of Adjustments. Upon the occurrence of each
---------------------
adjustment or readjustment of the number of shares of Common Stock issuable upon
conversion of the Series C Preferred pursuant to this Section 3, the Corporation
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series C Preferred Stock a notice setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series C Preferred Stock, furnish to such holder a like certificate setting
forth (i) such adjustments and readjustments, and (ii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of such holder's shares, after giving effect to
any such adjustments or readjustment.
(i) Notices of Record Date. If the Corporation shall propose at
----------------------
any time: (i) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock other than one as to
which adjustments will be made under paragraph (d) of this Section 3; or (ii)
to merge or consolidate with or into any other corporation, or sell all or
substantially all of its assets, or to liquidate, dissolve or wind up; then, in
connection with such event, the Corporation shall send to the holders of the
Series C Preferred Stock at least twenty (20) days' prior written notice of the
date when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such event).
(j) Issue Taxes. The Corporation shall pay any and all issue and
-----------
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series C Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
- -------- -------
transfer taxes resulting from any transfer to a person other than the holder of
record on any record date if requested by any holder in connection with any such
conversion.
(k) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series C Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series C Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series C Preferred Stock, the Corporation will promptly take such corporate
action as may be necessary to increase its authorized but
4
<PAGE>
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose, including, without limitation, engaging in best efforts to
obtain the requisite stockholder approval of any necessary amendment to its
Restated Certificate of Incorporation.
(l) Fractional Shares. No fractional shares of Common Stock shall
-----------------
be issued upon the conversion of any share or shares of Series C Preferred
Stock. All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series C Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fractional share of Common Stock, such fractional share shall be rounded either
up or down to the nearest whole share, as the Corporation shall decide, and if
such fractional share is rounded down, the Corporation shall pay cash to the
Series C Preferred Stockholder in an amount equal to any fractional percentage
rounded down multiplied by the then price per share of Common Stock as
determined in good faith by the Company's Board of Directors.
(m) Notices. Except as otherwise specified herein to the contrary,
-------
all notices, requests, demands and other communications required or desired to
be given hereunder shall only be effective if given in writing by hand, by
certified or registered mail, return receipt requested, postage prepaid, or by
U.S. express mail service, or by private overnight mail service (e.g. Federal
Express), or by facsimile transmission. Any such notice shall be deemed to have
been given (a) on the business day actually received if given by hand or
facsimile transmission (b) on the business day immediately subsequent to
mailing, if sent by U.S. express mail service or private overnight mail
service, or (c) three (3) business days following the mailing thereof, if
mailed by certified or registered mail, postage prepaid, return receipt
requested, and all such notices shall be sent to the following addresses (or to
such other address or addresses as a party may have advised the other in the
manner provided herein):
If to the Company:
Mr. Richard E. Glassberg
CKG Media.com, Inc.
420 Lexington Avenue
New York, NY 10170
with copies simultaneously by like means to:
Andrew M. Chonoles, Esq.
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
5
<PAGE>
If to a holder of Series C Preferred Stock, to the address of
such holder as set forth in such Purchase Agreement.
(n) Business Day. As used herein, the term "business day"
------------
shall mean any day other than a Saturday, Sunday or a day when the federal and
state banks located in the State of New York are required or permitted to close.
Section 4. Voting Rights. The holders of the Series C Preferred Stock
shall have only those voting rights provided by the Delaware General Corporation
Law (the "Delaware Law"), and those voting rights expressly set forth in this
Section 4 and in Section 6(b) below. To the extent that under Delaware Law the
vote of the holders of the Series C Preferred Stock, voting separately as a
class or series as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at least a
majority of the shares of the Series C Preferred Stock represented at a duly
held meeting at which a quorum is present of by written consent of a majority of
the shares of Series C Preferred Stock (except as otherwise may be required
under Delaware Law) shall constitute the approval of such action by the class.
To the extent that under Delaware Law the holders of the Series C Preferred
Stock are entitled to vote on a matter with holders of Common Stock, voting
together as one class, each share of Series C Preferred Stock shall be entitled
to a number of votes equal to the number of shares of Common Stock into which it
is then convertible on the record date for the taking of such vote by
stockholders. Holders of the Series C Preferred Stock shall be entitled to
notice of (and copies of proxy materials and other information sent to
stockholders) all stockholder meetings or written consents with respect to which
they would be entitled to vote, which notice would be provided pursuant to the
Corporation's by-laws and applicable statutes.
Section 5. Liquidation Preference. The holders of shares of Series C
Preferred Stock will be entitled to receive, in the event a "Liquidation Event"
(as such term is defined in the Certificate of Designations, Preference and
Rights of the Series B Convertible Preferred Stock par value $.001 per share of
the Corporation) of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, out of or to the extent of the net assets of
the Corporation legally available for such distribution, before any
distributions are made with respect to any Class A Common Stock, Common Stock or
any stock ranking junior to the Series C Preferred Stock, (the "Liquidation
Assets"), $.3897 per share (the "Liquidation Preference"), plus any accrued but
unpaid dividends outstanding as of the date of such Liquidation Event, payable
in cash (such dividends together with the Liquidation Preference shall be called
the "Liquidation Amount"). In the event the Corporation has insufficient
Liquidation Assets to permit full payment to all holders of Series C Preferred
Stock of their respective Liquidation Amounts, the Corporation shall distribute
the Liquidation Assets allocable to the Series C Preferred Stock pro rata to
each holder of Series C Preferred Stock based upon their respective Liquidation
Amounts (the "Available Liquidation Amount"). After payment of the full amount
of the Liquidation Amount or the Available Liquidation Amount, as the case may
be, to each holder of Series C Preferred Stock, said holders will not be
entitled to any further participation in any distribution of assets by the
Corporation.
6
<PAGE>
Notwithstanding anything set forth herein to the contrary, the provisions
of this Section 5 shall no longer be applicable subsequent to the Company's
closing of a Qualified Initial Public Offering.
Section 6. Restrictions and Limitations.
(a) Subject to Section 1.4 of that certain First Amended and
Restated Securityholders' Agreement, dated as of August 26, 1999 by and among
the Company, Vector Capital II, L.P., Richard E. Glassberg, Robert E. Chmiel, R.
Scott Ford, Thomas Mannion, Jason Leibowitz and Mathew Spengler and each of the
parties listed on Schedule A and Schedule B amended hereto, the shares of Series
C Preferred Stock acquired by the Corporation by reason of purchase, conversion,
redemption or otherwise shall be retired and shall become authorized but
unissued shares of preferred stock, which may be reissued as Series C Preferred
Stock or as part of a new series of preferred stock hereafter created under
Article Fourth of the Restated Certificate of Incorporation.
(b) So long as shares of Series C Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote of the
holders of at least a majority of the then outstanding shares of Series C
Preferred Stock voting together as a separate class, (i) amend the terms of this
Certificate of Designation, Preferences and Rights, (ii) in any manner
authorize, create, designate, issue or sell any class or series of capital stock
(including any shares of treasury stock) or rights, options, warrants or other
security convertible into or exercisable or exchangeable for capital stock or
any debt security which by its terms is convertible or exchangeable for any
equity security or has any other equity participating feature or any security
that is a combination of debt and equity, which, in each case as to the equity
or convertible component thereof, as to the payment of dividends, distribution
of assets or redemption, is junior to the Company's Series A Redeemable
Preferred Stock, par value $.001 per share, and/or the Company's Series B
Preferred Stock. The holders of the outstanding shares of the Series C Preferred
Stock shall be entitled to vote as a separate class upon a proposed amendment,
alteration or repeal of any term or provision of the Restated Certificate of
Incorporation or the Corporation's by-laws, if the amendment, alteration or
repeal would alter or change the powers, preferences or special rights of the
shares of Series C Preferred Stock so as to affect the holders of such shares
adversely.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by
its Chief Executive Officer and attested by its Secretary this 25th day of
August, 1999.
CKG MEDIA.com, INC.
By: /s/ Richard Glassberg
-------------------------------
Attest:
/s/ Robert Chmeil
- -------------------------------
Secretary
8
<PAGE>
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
CKG MEDIA.com, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is CKG
Media.com, Inc.
2. The Corporation's Certificate of Designations, Preferences And Rights of
Series C Convertible Preferred Stock of the Corporation (the "Certificate
of Designations"), which was filed by the Secretary of State of Delaware on
August 25, 1999, is hereby corrected.
3. The inaccuracy to be corrected in section Six, subsection (b) of the
Certificate of Designations, which provides for certain approval rights to
the holders of the Series C Convertible Preferred Stock, is as follows:
(b) So long as shares of Series C Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote
of the holders of at least a majority of the then outstanding shares
of Series C Preferred Stock voting together as a separate class, (i)
amend the terms of this Certificate of Designation, Preferences and
Rights, (ii) in any manner authorize, create, designate, issue or sell
any class or series of capital stock (including any shares of treasury
stock) or rights, options, warrants or other security convertible into
or exercisable or exchangeable for capital stock or any debt security
which by its terms is convertible or exchangeable for any equity
security or has any other equity
<PAGE>
participating feature or any security that is a combination of debt
and equity, which, in each case as to the equity or convertible
component thereof, as to the payment of dividends, distribution of
assets or redemption, is junior to the Company's Series A Redeemable
Preferred Stock, par value $.001 per share, and/or the Company's
Series B Preferred Stock. The holders of the outstanding shares of the
Series C Preferred Stock shall be entitled to vote as a separate class
upon a proposed amendment, alteration or repeal of any term or
provision of the Restated Certificate of Incorporation or the
Corporation's by-laws, if the amendment, alteration or repeal would
alter or change the powers, preferences or special rights of the
shares of Series C Preferred Stock so as to affect the holders of such
shares adversely.
4. The portion of section Six, subsection (b) of the Certificate of
Designations is corrected in its entirety is as follows:
(b) So long as shares of Series C Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote
of the holders of at least a majority of the then outstanding shares
of Series C Preferred Stock voting together as a separate class, (i)
amend the terms of this Certificate of Designation, Preferences and
Rights, (ii) in any manner authorize, create, designate, issue or sell
any class or series of capital stock (including any shares of treasury
stock) or rights, options, warrants or other security convertible into
or exercisable or exchangeable for capital stock or any debt security
which by its terms is convertible or exchangeable for any equity
security or has any other equity participating feature or any security
that is a combination of debt and equity, which, in each case as to
the equity or convertible component thereof, as to the payment of
dividends, distribution of assets or redemption, is junior to the
Company's Series A Redeemable Preferred Stock, par value $.001 per
share, and/or the Company's Series B Preferred Stock and senior to the
Company's Series C Preferred Stock. The holders of the outstanding
shares of the Series C Preferred Stock shall be entitled to vote as a
separate class upon a proposed amendment, alteration or repeal of any
term or provision of the Restated Certificate of Incorporation or the
Corporation's by-laws, if the amendment, alteration or repeal would
alter or change the powers, preferences or special rights of the
shares of Series C Preferred Stock so as to affect the holders of such
shares adversely.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by
its Chief Executive Officer and attested by its Secretary this 25th day of
August, 1999.
CKG MEDIA.com, INC.
By: /s/ Richard Glassberg
-------------------------------
RICHARD GLASSBERG
Attest:
/s/ Robert Chmiel
- -------------------------------
ROBERT CHMIEL
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
CKG MEDIA.com, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is CKG
Media.com, Inc.
2. The Corporation's Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock of the Corporation (the "Certificate
of Designations"), is hereby amended by deleting section Three, subsection
(a) of the Certificate of Designations in its entirety and by substituting
in lieu of said section the following:
(a) Right to Convert and Sell. The Series B Preferred Stock shall be
-------------------------
convertible by the holder thereof at any time and from time to time,
in whole or in part, at any time subsequent to the earlier of (i) the
"Second Closing Date" (as that term is defined in that certain
Securities Purchase Agreement dated as of August 16, 1999 by and among
the Company, Vector Capital II, L.P. and each of the parties listed on
Schedule A and Schedule B to such Securities Purchase Agreement (the
"Purchase Agreement") or (ii) the expiration of the right of the
"Investors" (as that term is defined in the Purchase Agreement), or
the waiver of such right by the Investors, to effect a "Second
Closing" (as that term is defined in the Purchase Agreement) in
accordance with the provisions of Section 6.17 of the Purchase
Agreement. Each share of Series B Preferred Stock issued in
connection with the Initial Closing (including the Supplemental
Initial Closing) shall be convertible into such number of fully paid
and nonassessable shares of Common Stock or Class A Common Stock as is
obtained by dividing $.036166365 by the
<PAGE>
then-effective Conversion Price. The Conversion Price per share of
Series B Preferred Stock issued in connection with the Initial Closing
(including the Supplemental Initial Closing) shall initially be
$.036166365, subject to adjustment from time to time. The Conversion
Price for each share of Series B Preferred Stock issued at the Second
Closing (the "Second Closing Conversion Price") shall be an amount per
share of Common Stock equal to the quotient obtained by dividing the
aggregate purchase price paid for the Series B Preferred Stock by the
number of shares of Common Stock originally issuable upon conversion
of all shares of Series B Preferred Stock issued at the Second Closing
in accordance with Section 3(c) below. The number of shares of Common
Stock or Class A Common Stock into which each share of Series B
Preferred Stock issued in connection with the Second Closing shall be
convertible shall be obtained by dividing the purchase price for such
share by the Second Closing Conversion Price for such share, provided,
--------
that the number of shares of Common Stock or Class A Common Stock so
obtained shall be adjusted by multiplying such number by a fraction,
the numerator of which is such Second Closing Conversion Price and the
denominator of which is the Conversion Price (defined below) in effect
on the date of conversion. The Conversion Price for any share of
Series B Preferred Stock issued upon the Second Closing shall
initially be the Second Closing Conversion Price for such shares,
subject to adjustment in accordance with the provisions of this
Section 3 hereinbelow from time to time. Notwithstanding anything set
forth herein to the contrary, in the event that a holder exercises its
right to convert any shares of Series B Preferred Stock pursuant to
Section 3(a) hereof, and at the time of such holder's exercise of such
right, there are shares of the Company's Class A Common Stock, par
value $.001 per share, issued and outstanding (the "Class A Common
Stock"), the Series B Preferred Stock to be converted shall be
converted into shares of Class A Common Stock.
3. The Certificate of Designations is further amended by deleting section
Three, subsection (c)(i) of the Certificate of Designations in its entirety
and by substituting in lieu of said section the following:
(c) Shares Originally Issuable
--------------------------
(i) In the event that the Investors effect the "Initial Closing"
(as that term is defined in the Purchase Agreement) and the
Second Closing, then the shares of Series B Preferred Stock
purchased by the Investors at the Initial Closing (taking
into account any shares issued at a Supplemental Initial
Closing) shall initially be convertible into 16,590,000
shares of Common Stock or Class A Common Stock. The number
of shares of Series B Preferred Stock purchased by the
Investors at the Second Closing (assuming that at such
Second Closing the Investors purchase all of the shares
<PAGE>
eligible to be purchased at the Second Closing) shall
initially be convertible into such number of shares of the
Company's Common Stock or Class A Common Stock that equals
an aggregate twelve and one-half percent (12.5%) of the
Company's issued and outstanding Common Stock on a fully
diluted basis as of the "Second Closing Date" (as that term
is defined in the Purchase Agreement). As used in this
Section 3, the term fully-diluted basis shall mean (i) all
issued and outstanding shares, including treasury shares, of
the Company's Common Stock and the Company's Class A Common
Stock; (ii) all shares of Common Stock or Class A Common
Stock issuable upon the conversion of Series B Preferred
Stock or upon the conversion of any other convertible debt
or equity securities of the Company, and (iii) all shares of
Common Stock or Class A Common Stock issuable upon the
execution of any warrants, options, reserved for issuance or
set aside in the Option Plan or any other rights of any
nature whatsoever (whether or not vested) including but not
limited to any employee, consultant or director stock option
plan.
4. The Certificate of Designations has been duly adopted and written consent
has been given in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
12th day of October, 1999.
/s/ Richard E. Glassberg
-------------------------------
Richard E. Glassberg
Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CKG MEDIA.COM, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is CKG Media.com, Inc.
2. The certificate of incorporation of the Corporation is hereby
amended by striking out Article One hereof and by substituting in
lieu of said Article the following new Article:
"First: The name of the Corporation is Phase2Media, Inc."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted and written consent has been
given in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.
4. The effective time of the amendment herein certified shall be
December 14, 1999.
Signed on December 14, 1999
/s/ Richard Glassberg
--------------------------------
Richard Glassberg
Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A REDEEMABLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Phase2Media, Inc.
2. The Corporation's Certificate of Designations, Preferences and Rights of
Series A Redeemable Preferred Stock of the Corporation (the "Certificate of
Designations"), is hereby amended by deleting the last two sentences of
Section Two of the Certificate of Designations in its entirety hereby
inserting in lieu thereof the following two sentences: "Dividends shall
accrue on each share of Series A Preferred Stock from the first day of each
calendar year in which such dividend may be payable, except with respect to
the dividend payable with respect to the first Dividend Payment Date, in
which event dividends shall accrue from the date on which such share of
Series A Preferred Stock was originally issued to such holder of Series A
Preferred Stock. Each holder of Series A Preferred Stock shall receive
shares (or fractional shares, if appropriate) of Series A Preferred Stock
equal to 9% multiplied by the aggregate Liquidation Preference of all
Series A Preferred Stock owned by each such holder on the applicable
Dividend Payment Date; provided however, that with respect to the dividend
-------- -------
payable on each share of Series A Preferred Stock on the first Dividend
Payment Date, such dividend shall be calculated in the manner set forth in
this sentence, and shall also be multiplied by a fraction, the numerator of
which shall be the number of days that elapsed commencing on the date such
share of Series A Preferred Stock was originally issued to each holder of
Series A Preferred Stock, through and including December 31, 1999, and the
denominator of which shall be 365."
3. The Certificate of Designations has been duly adopted and written consent
has been given
<PAGE>
in accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, I have duly executed this certificate as of the 23rd
day of December, 1999.
/s/ Richard E. Glassberg
------------------------------
Richard E. Glassberg
Chief Executive Officer
3
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Phase2Media, Inc.
2. The Certificate of Amendment has been duly adopted and written consent
has been given in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
3. The Corporation's Certificate of Designations, Preferences and Rights of
Series B Convertible of the Corporation (the "Certificate of Designations"), is
hereby deleted in its entirety and hereby amended and restated as follows:
PHASE2MEDIA, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware, (the "Company" or the "Corporation"),
does hereby certify that the Board of Directors of the Corporation duly adopted
a resolution by unanimous written consent in lieu of a meeting dated as of
December 22, 1999, and that such resolution has not been amended, modified, or
rescinded, and is now in full force and effect providing for the designations,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, of certain shares of the
Corporation's preferred stock, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by Article Fourth of the Corporation's Restated Certificate of
Incorporation of the Corporation, and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the rights, preferences
and designations of certain shares of the authorized and unissued shares of
preferred stock shall hereafter be as follows:
Section 1. Designation. Twenty-Three Million (23,000,000) shares, having a
par value of $.001 per share, of the Corporation's preferred stock are hereby
designated as Series B
<PAGE>
Convertible Preferred Stock (the "Series B Preferred Stock"). The rights,
preferences, privileges, and qualifications, limitations and restrictions of
the Preferred Stock are set forth in Sections 2 through 7 of this Resolution.
The rights, preferences, privileges and qualifications, limitations and
restrictions of the remaining shares of the Corporation's preferred stock shall
be determined by the Board of Directors, from time to time after the date of the
adoption of this Resolution, pursuant to the provisions of Article Fourth of the
Corporation's Restated Certificate of Incorporation.
Section 2. No Dividends. The holders of the Series B Preferred Stock
shall not be entitled to any dividends; provided, however, that no dividends
-------- -------
shall be declared or paid on the Common Stock or Class A Common Stock unless
the same amount and form of such dividends on the Common Stock and/or Class A
Common Stock is also declared or paid, as the case may be, on then-outstanding
shares of Series B Preferred Stock, on an as-converted to Common Stock or Class
A Common Stock basis.
Section 3. Conversion. Subject to the provisions of this Section 3
below, the holders of the Series B Preferred Stock shall have the right to
convert each of its shares of Series B Preferred Stock (the "Conversion Rights")
into such number of fully paid and nonassessable shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), determined in accordance
with the provisions set forth in this Section 3.
(a) Right to Convert and Sell. The Series B Preferred Stock
-------------------------
shall be convertible by the holder thereof at any time and from time to time, in
whole or in part, at any time subsequent to the earlier of (i) the "Section
Closing Date" (as that term is defined in that certain Securities Purchase
Agreement dated as of August 16, 1999 by and among the Company, Vector Capital
II, L.P. and each of the parties listed on Schedule A and Schedule B to such
Securities Purchase Agreement (the "Purchase Agreement") or (ii) the expiration
of the right of the "Investors" (as that term is defined in the Purchase
Agreement), or the waiver of such right by the Investors, to effect a "Second
Closing" (as that term is defined in the Purchaser Agreement) in accordance with
the provisions of Section 6.17 of the Purchase Agreement. Each share of Series
B Preferred Stock issued in connection with the "Initial Closing" (as that term
is defined in the Purchase Agreement), including any "Supplemental Initial
Closing" (as that term is defined in the Purchase Agreement), shall be
convertible into such number of fully paid and nonassessable shares of Common
Stock or Class A Common Stock as is obtained by dividing $.036166365 by the
then-effective Conversion Price. The Conversion Price per share of Series B
Preferred Stock issued in connection with the Initial Closing (including the
Supplemental Initial Closing) shall initially be $.036166365 (the "Initial
Closing Conversion Price"), subject to adjustment from time to time. Each share
of Series B Preferred Stock issued in connection with the Second Closing shall
be convertible into fully paid and nonassessable shares of Common Stock or Class
A Common Stock as is obtained by dividing $.063291139 by the then-effective
Conversion Price. The Conversion Price for each share of Series B Preferred
Stock issued at the Second Closing shall initially be $.063291139 (the "Second
Closing Conversion Price"), subject to adjustment from time to time.
Notwithstanding anything set forth herein to the contrary, in the event that a
2
<PAGE>
holder exercises its right to convert any shares of Series B Preferred Stock
pursuant to Section 3(a) hereof (i.e., whether issued in connection with the
Initial Closing or the Second Closing), and at the time of such holder's
exercise of such right, there are shares of the Company's Class A Common Stock,
par value $.001 per share, issued and outstanding (the "Class A Common Stock"),
the Series B Preferred Stock to be converted shall be converted into shares of
Class A Common Stock.
(b) Automatic Conversion. All unconverted shares of Series B
--------------------
Preferred Stock shall automatically be converted into shares of the Company's
Common Stock upon (i) the Company's closing of a "Qualified Initial Public
Offering" as hereinafter defined, or (ii) upon the affirmative vote of holders
who beneficially own, either actually or on an as converted basis, at least
fifty percent (50%) of the shares of Common Stock or Class A Common Stock into
which the Series B Preferred Stock is convertible. For the avoidance of doubt,
only holders of Common Stock and Class A Common Stock who hold or on as an
converted basis are deemed to hold such shares as the result of an actual
conversion of Series B Preferred Stock shall be included in the vote referred to
in clause (ii) of the prior sentence. As used herein, the phrase "Qualified
Initial Public Offering" shall mean the first underwritten public offering and
sale of shares of the Company's Common Stock, on a firm commitment basis,
registered pursuant to Section 5 of the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, which offering and sale
results in (i) the listing for trading on a nationally recognized stock market,
or the reporting on a nationally recognized automated quotation system, of the
equity securities of the Company, (ii) the receipt by the Company of at least
Twenty Million Dollars ($20,000,000) in gross proceeds, and (iii) the aggregate
"Market Value," as that term is hereinafter defined, of the shares of Common
Stock issued and issuable upon conversion of the Series B Preferred Stock, plus
----
the aggregate Liquidation Preference of all of the issued and outstanding shares
of the Company's Series A Redeemable Preferred Stock (the "Series A Preferred
Stock") held by the Investors, is equal to at least five (5) times the aggregate
"Initial Purchase Price" and "Balance of the Purchase Price" (if any) actually
paid by the Investors for the "Preferred Stock" (as that term is defined in the
Purchase Agreement). As used herein, the term "Market Price" shall have the
meaning ascribed to it in that certain Securityholders' Agreement dated as of
August 16, 1999 by and among CKG Media.com, Inc. (d/b/a Phase2Media), Vector
Capital II, L.P., Richard E. Glassberg, Robert E. Chmiel, R. Scott Ford, Thomas
Mannion, Jason Liebowitz, Matthew Spangler and each of the parties listed on
Schedule A annexed thereto, as same may be amended from time to time (the
"Securityholders' Agreement").
(c) Shares Originally Issuable. The Shares of Series B
--------------------------
Preferred Stock purchased by the Investors at the Initial Closing (taking into
account all shares issued at the Supplemental Initial Closing) shall initially
be convertible into 16,590,000 shares of Common Stock or Class A Common Stock.
The number of shares of Series B Preferred Stock purchased by the Investors at
the Second Closing shall initially be convertible into 6,320,000 shares of the
Company's Common Stock or Class A Common Stock.
3
<PAGE>
(d) Mechanics of Conversion. Any holder of Series B Preferred
-----------------------
Stock who wishes to exercise its Conversion Rights pursuant to this Section 3,
must surrender the certificate therefor at the principal executive office of
the Corporation, and give written notice, which may be via facsimile
transmission, to the Corporation at its principal executive office that it
elects to convert same (the "Conversion Notice"). No Conversion Notice with
respect to any shares of Series B Preferred Stock can be given prior to the time
that such shares of Series B Preferred Stock are eligible for conversion in
accordance with the provisions of Section 3(a) above. Any such premature
Conversion Notice shall automatically be null and void. The Corporation shall,
within five (5) business days after receipt of an appropriate and timely
Conversion Notice, issue to such holder of Series B Preferred Stock a
certificate for the number of shares of Common Stock to which the holder shall
be entitled. Such conversion shall be deemed to have been made only after both
the certificate for the shares of Series B Preferred Stock to be converted have
been surrendered and the Conversion Notice is received by the Corporation (the
"Conversion Documents"), and the person entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock at and after such time. In the
event that the Conversion Notice is sent via facsimile transmission, the
Corporation shall be deemed to have received such Conversion Notice on the first
business day on which such facsimile Conversion Notice is actually received,
provided that the necessary certificates are actually received by the
Corporation within three (3) business days thereafter.
(e) Adjustments for Combinations or Subdivisions of Common
------------------------------------------------------
Stock. In the event that the Corporation at any time or from time to time while
- -----
shares of Series B Preferred Stock are issued and outstanding shall effect a
subdivision of the outstanding shares of Common Stock or Class A Common Stock
into a greater number of shares of Common Stock or Class A Common Stock (by
stock split, reclassification or otherwise, other than by payment of a dividend
in Common Stock or Class A Common Stock or in any right to acquire Common Stock
or Class A Common Stock), or if the outstanding shares of Common Stock or Class
A Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the "Conversion
Price" in effect immediately before such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate. Unless expressly set forth herein to the contrary, any reference in
this Certificate of Designations to "Conversion Price" shall automatically be
deemed to refer to (i) the Initial Closing Conversion Price with respect to any
and all shares of Series B Preferred Stock issued pursuant to the Initial
Closing (including the Supplemental Closing), or (ii) the Second Closing
Conversion Price with respect to any and all shares of Series B Preferred Stock
issued pursuant to the Second Closing, as the case may be.
(f) Adjustments for Reclassification and Reorganization. In
---------------------------------------------------
the event that the Common Stock issuable upon conversion of the Series B
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in paragraph (e) of this Section 3), then concurrently with the
4
<PAGE>
effectiveness of such reorganization or reclassification, the Series B Preferred
Stock shall be convertible into, in lieu of the number of shares of Common Stock
which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would have been subject to receipt by the holders
upon conversion of the Series B Preferred Stock immediately before that change.
(g) Issuance of Additional Shares of Common Stock. In case
---------------------------------------------
the Company at any time or from time to time after the date of the Initial
Closing shall issue or sell Additional Shares of Common Stock or Class A Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section 3(i) or 3(j) without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to such issuance or
sale, then, and in each such case, such Conversion Price shall be reduced,
concurrently with such issuance or sale, to a price (calculated to the nearest
.00000001 of a cent) determined by multiplying such Conversion Price by a
fraction
(A) The numerator of which shall be (i) the number of shares of
-
Common Stock and Class A Common Stock outstanding immediately prior to such
issue or sale plus (ii) the number of shares of Common Stock or Class A
--
Common Stock which the aggregate consideration received by the Company for
the total number of such Additional Shares of Common Stock so issued or
sold would purchase at the Conversion Price, and
(B) the denominator of which shall be the number of shares of
Common Stock and Class A Common Stock outstanding immediately after such
issue or sale,
provided that, for the purposes of this Section 3(g), (x) immediately after any
- -------- -
Additional Shares of Common Stock are deemed to have been issued pursuant to
Section 3(i) or 3(j), such Additional Shares shall be deemed to be outstanding,
and (y) treasury shares shall not be deemed to be outstanding.
-
(h) Dividends and Distributions. In case the Company at
---------------------------
any time or from time to time after the date hereof shall declare, order, pay or
make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off) on the Common Stock or the Class A
Common Stock, other than a dividend payable in Additional Shares of Common
Stock, then, and in each case adequate provision shall be made so that each
holder of Series B Preferred Stock shall receive a pro rata share of such
dividend based upon the maximum number of shares of Common Stock at the time
issuable to such holder.
(i) Treatment of Options and Convertible Securities. In
-----------------------------------------------
case the Company at any time or from time to time after the date hereof shall
issue, sell, grant or assume, or shall fix a record date for the determination
of holders of any class of securities entitled to receive, any Options or
Convertible Securities (other than any shares of Series B Preferred Stock to be
issued pursuant to the Purchase Agreement), then, and in each case, the maximum
5
<PAGE>
number of Additional Shares of Common Stock or Class A Common Stock (as set
forth in the instrument relating thereto, without regard to any provisions
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock or Class A Common Stock issued as
of the time of such issue, sale, grant or assumption or, in case such a record
date shall have been fixed, as of the close of business on such record date (or,
if the Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), provided that such Additional Shares of
--------
Common Stock or Class A Common Stock shall not be deemed to have been issued
unless the consideration per share (determined pursuant to Section 3(k)) of such
shares would be less than the Conversion Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be, and provided, further, that in any such case in
-------- -------
which Additional Shares of Common Stock are deemed to be issued
(i) no further adjustment of the Conversion Price shall be made
upon the subsequent issue or sale of Convertible Securities or shares of
Common Stock upon the exercise of such Options or the conversion or
exchange or such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock or Class A Common Stock issuable, upon
the exercise, conversion or exchange thereof (by change of rate or
otherwise), the Conversion Price computed upon the original issue, sale,
grant or assumption thereof (or upon the occurrence of the record date, or
date prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options, or
the rights of conversion or exchange under such Convertible Securities,
which are outstanding at such time;
(iii) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under
any such Convertible Securities which (or purchase by the Company and
cancellation or retirement of any such Convertible Securities the rights of
conversion or exchange under which) shall not have been exercised, the
Conversion Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration (or such cancellation or retirement, as the case may be),
be recomputed as if:
6
<PAGE>
(x) in the case of Options for Common Stock or Class A Common
Stock or Convertible Securities, the only Additional Shares of Common
Stock or Class A Common Stock issued or sold were the Additional
Shares of Common Stock, if any, actually issued or sold upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or not exercised,
plus the consideration actually received by the Company upon such
exercise, or for the issue or sale of all such Convertible Securities
which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, and
(y) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue, sale,
grant or assumption of such Options, and the consideration received by
the Company for the Additional Shares of Common Stock or Class A
Common Stock deemed to have then been issued was the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (pursuant to
Section 3(k)) upon the issue or sale of such Convertible Securities
with respect to which such Options were actually exercised;
(iv) no readjustment pursuant to subdivision (ii) or (iii) above shall
have the effect of increasing the Conversion Price by an amount in excess
of the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities;
and
(v) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (iii) above.
(j) Treatment of Stock Dividends. In case the Company at any
----------------------------
time or from time to time after the date hereof shall declare or pay any
dividend on the Common Stock or Class A Common Stock payable in Common Stock or
Class A Common Stock, then, and in each such case, Additional Shares of Common
Stock or Class A Common Stock shall be deemed to have been issued, immediately
after the close of business on the record date for the determination of holders
of any class of securities entitled to receive such dividend.
(k) Computation of Consideration. For the purposes of this
----------------------------
Section 3,
7
<PAGE>
(i) the consideration for the issue or sale of any Additional Shares of
Common Stock shall, irrespective of the accounting treatment of such
consideration,
(x) insofar as it consists of cash, be computed at the net amount of
cash received by the Company,
(y) insofar as it consists of property (including securities) other
than cash, be computed at the fair value thereof at the time of such issue
or sale, as determined in good faith by the Board of Directors of the
Company, and
(z) in case Additional Shares of Common Stock or Class A Common Stock
are issued or sold together with other stock or securities or other assets
of the Company for a consideration which covers both, be the portion of
such consideration so received, computed as provided in clauses (x) and (y)
above, allocable to such Additional Shares of Common Stock, all as
determined in good faith by the Board of Directors of the Company;
(ii) Additional Shares of Common Stock or Class A Common Stock deemed to
have been issued pursuant to Section 3(h), relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per share
determined by dividing
(x) the total amount, if any, received and receivable by the Company
as consideration for the issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such consideration to protect against dilution) payable to
the Company upon the exercise in full of such Options or the conversion or
exchange of such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities,
in each case computing such consideration as provided in the foregoing
subdivision (i), by
(y) the maximum number of shares of Common Stock or Class A Common
Stock (as set forth in the instruments relating thereto, without regard to
any provision contained therein for a subsequent adjustment of such number
to protect against dilution) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities; and
(iii) Additional Shares of Common Stock or Class A Common Stock deemed to
have been issued pursuant to Section 3(j), relating to stock dividends, etc.,
shall be deemed to have been issued for no consideration.
8
<PAGE>
(l) Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
---------------------------------
shares) of Common Stock or Class A Common Stock issued or sold (or, pursuant to
Section 3(e), 3(f), 3(g), 3(i) or 3(j) hereof, deemed to be issued) by the
Company after the date hereof, whether or not subsequently reacquired or retired
by the Company, other than
(a) shares issued upon the exercise of the Series B Preferred Stock,
(b) shares issued upon the exercise of options granted or to be
granted under the Company's stock option plans as in effect on the date of
the Second Closing as contemplated by Schedule 2.4 of the Second Closing
Purchase Agreement dated as of December 23, 1999 by and among the Company,
Vector Capital II, L.P., Hachette Filipacchi Interactions S.A., and each of
the parties listed on Schedule A annexed thereto (the "Second Closing
Purchase Agreement") and any warrants issued or to be issued by the Company
as set forth on Schedule 2.4 of the Second Closing Purchase Agreement, and
(c) such additional number of shares as may become issuable upon the
exercise of any of the securities referred to in the foregoing clauses (a)
and (b) by reason of adjustments required pursuant to anti-dilution
provisions applicable to such securities as in effect on the date hereof,
in order to reflect any subdivision or combination of Common Stock, by
reclassification or otherwise, or any dividend on Common Stock payable in
Common Stock.
Convertible Securities: Any evidences of indebtedness, shares of stock
----------------------
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
(m) No Impairment: The Corporation will not, by amendment of its
-------------
Restated Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all of the
provisions of this Section 3 and in the taking of all such actions as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock against impairment. The provisions of
this paragraph (m) may be waived by the affirmative vote of the holders of at
least a majority of the then outstanding shares of Series B Preferred Stock
voting together as a single class and taken in advance of any action that would
conflict with this paragraph (m).
9
<PAGE>
(n) Notice of Adjustments. Upon the occurrence of each
---------------------
adjustment or readjustment of any Conversion Ratio pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock a notice setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price then in effect and (iii) the number of shares of Common Stock
and the amount, if any, of other property which at the time would be received
upon the conversion of such holder's shares.
(o) Notices of Record Date. If the Corporation shall propose at
----------------------
any time: (i) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock other than one as to
which adjustments of the Conversion Ratio will be made under paragraph (e) of
this Section 3; or (ii) to merge or consolidate with or into any other
corporation, or sell all or substantially all of its assets, or to liquidate,
dissolve or wind up; then, in connection with such event, the Corporation shall
send to the holders of the Series B Preferred Stock at least twenty (20) days'
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon the
occurrence of such event).
(p) Issue Taxes. The Corporation shall pay any and all issue and
-----------
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series B Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
- -------- -------
transfer taxes resulting from any transfer to a person other than the holder of
record on any record date if requested by any holder in connection with any such
conversion.
(q) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series B Preferred Stock, the Corporation will take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose, including,
without limitation, engaging in best efforts to obtain the requisite stockholder
approval of any necessary amendment to its Restated Certificate of
Incorporation.
(r) Fractional Shares. No fractional shares of Common Stock
-----------------
shall be issued upon the conversion of any share or shares of Series B Preferred
Stock. All shares of
10
<PAGE>
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series B Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fractional share of Common Stock,
such fractional share shall be rounded either up or down to the nearest whole
share, as the Corporation shall decide, and if such fractional share is rounded
down, the Corporation shall pay cash to the Series B Preferred Stockholder in an
amount equal to any fractional percentage rounded down multiplied by the then
effective Conversion Price.
(s) Notices. Except as otherwise specified herein to the
-------
contrary, all notices, requests, demands and other communications required or
desired to be given hereunder shall only be effective if given in writing by
hand, by certified or registered mail, return receipt requested, postage
prepaid, or by U.S. express mail service, or by private overnight mail service
(e.g. Federal Express), or by facsimile transmission. Any such notice shall be
deemed to have been given (a) on the business day actually received if given
by hand or facsimile transmission, (b) on the business day immediately
subsequent to mailing, if sent by U.S. express mail service or private overnight
mail service, or (c) three (3) business days following the mailing thereof, if
mailed by certified or registered mail, postage prepaid, return receipt
requested, and all such notices shall be sent to the following addresses (or to
such other address or addresses as a party may have advised the other in the
manner provided herein):
If to the Company:
Mr. Richard E. Glassberg
CKG Media.com, Inc.
420 Lexington Avenue
New York, NY 10170
with copies simultaneously by like means to:
Andrew M. Chonoles, Esq.
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
If to a holder of Series B Preferred Stock, to the address of such
holder as set forth in such the Purchase Agreement.
(t) Business Day. As used herein, the term "business day" shall
------------
mean any day other than a Saturday, Sunday or a day when the federal and state
banks located in the State of New York are required or permitted to close.
11
<PAGE>
Section 4. Voting Rights. The holders of the Series B Preferred Stock
shall have only those voting rights provided by the Delaware General Corporation
Law (the "Delaware Law"), and those voting rights expressly set forth in this
Section 4 and in Section 7(b) below and in Section 1.1 and Section 1.4 of the
Securityholders' Agreement. To the extent that under Delaware Law the vote of
the holders of the Series B Preferred Stock, voting separately as a class or
series as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at least a
majority of the shares of the Series B Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of a majority of
the shares of Series B Preferred Stock (except as otherwise may be required
under Delaware Law and under the applicable provisions of the Securityholders'
Agreement) shall constitute the approval of such action by the class. To the
extent that under Delaware Law the holders of Series B Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series B Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible using the record date for the taking of such vote of stockholders as
the date as of which the Conversion Price is calculated and conversion is
effected. Holders of the Series B Preferred Stock shall be entitled to notice of
(and copies of proxy materials and other information sent to shareholders) all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Corporation's
by-laws and applicable statutes.
Section 5. Right of Redemption.
(a) In the event that notwithstanding the Company's achieving
the Gross Margin Milestone in accordance with the provisions set forth in
Section 6.17 of the Purchase Agreement, the Investors do not effect a Second
Closing under the Purchase Agreement, then the Company shall have the right, for
the period of 180 days subsequent to the date that the Second Closing was to
have occurred pursuant to the provisions of Section 1.1(b) of the Purchase
Agreement, to repurchase 20% of the Series B Preferred Stock purchased by each
of the Investors in the Initial Closing for an aggregate purchase price equal to
the par value of all of the Series B Preferred Stock being repurchased pursuant
to this Section 5(a) (the "Repurchase Price"), provided that prior to the
--------
Company's exercise of the right described above, the Investors shall have the
right to effect the Second Closing upon 10 days prior written notice. The
Company shall effect its repurchase right under this Section 5(a) by giving
written notice thereof to Vector Capital II, L.P., which written notice shall be
accompanied by a check in the amount of the Repurchase Price, and upon the
giving of said Repurchase Notice and the tendering of the Repurchase Price, the
Company shall be automatically and irrevocably deemed to have repurchased 20% of
the Series B Preferred Stock purchased by the Investors at the Initial Closing
without any further action required on behalf of the Company or the Investors.
The Investors, upon receipt of the Repurchase Notice, shall deliver to the
Company a certificate or certificates representing the repurchased securities.
In the event the Investors deliver to the Company a certificate or certificates
representing more than the amount of Series B Preferred Stock which the Company
is repurchasing pursuant to the provisions of this Section 5(a), then the
Company
12
<PAGE>
shall reissue to the Investors without cost to the Investors a new certificate
representing such excess amount of Series B Preferred Stock within five days
after surrender of the certificate representing the redeemed shares.
(b) In the event and to the extent that any holder of the Series B
Preferred Stock is also a holder of the Company's Series A Preferred Stock, and
such holder effects its right of redemption pursuant to Section 3(b) of the
Certificate of Designations, Preferences and Rights of the Company's Series A
Preferred Stock (the "Series A Certificate of Designation"), within 30 days
prior to each of the "First Redemption Date," the "Second Redemption Date," and
the "Final Redemption Date" (as each of those terms are defined in the Series A
Certificate of Designation), the Company shall have the right to redeem from
each such holder a portion of Series B Preferred Stock owned by the holder in an
amount equal to, on a pro rata basis, the amount of such holder's Series A
--- ----
Preferred Stock that is being redeemed pursuant to Section 3(b) of the Series A
Certificate of Designation (a "Section 3(b) Redemption"). By way of example, in
the event that a holder is redeeming one-third (1/3) of the Series A Preferred
Stock beneficially owned by such holder pursuant to a Section 3(b) Redemption,
in such event, the Company shall have the right to redeem one-third of the
Series B Preferred Stock beneficially owned by such holder in accordance with
the provisions of this Section 5(b). Any shares of Series B Preferred Stock
redeemed by the Company pursuant to this Section 5(b) shall be repurchased at a
per share price equal to the Liquidation Amount of the Series B Preferred Stock
as set forth in Section 6 below (the "Series B Repurchase Price"). The Company
shall effect any repurchase pursuant to this Section 5(b) by given written
notice thereof to Vector Capital II, L.P., (the "Series B Repurchase Notice"),
which written notice shall also be accompanied by a check or checks representing
the aggregate Series B Repurchase Price, and upon the giving of said Series B
Repurchase Notice, the Company shall automatically and irrevocably be deemed to
have repurchased the shares of Series B Preferred Stock set forth in the
Repurchase Notice without any further action required on behalf of the Company
or the holders of the Series B Preferred Stock. The holders of the Series B
Preferred Stock whose shares of Series B Preferred Stock are being redeemed
shall, upon receipt of the Series B Repurchase Notice, deliver to the Company a
certificate or certificates representing the repurchased securities. In the
event any such Series B Preferred Stockholder delivers to the Company a
certificate or certificates representing more than the amount of Series B
Preferred Stock which the Company is redeeming pursuant to the provisions of
this Section 5(b), then the Company shall reissue without cost to the Investors
to such holder a new certificate representing such excess amount of Series B
Preferred Stock within five days after surrender of the certificate representing
the redeemed shares.
Notwithstanding anything set forth in this Section 5(b) to the
contrary, Company's right of redemption under this Section 5(b) shall
automatically terminate upon the closing of the Company's Qualified Initial
Public Offering.
Section 6. Liquidation Preference. The holders of shares of Series B
Preferred Stock will be entitled to receive, in the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, out
of or to the extent of the net assets of the
13
<PAGE>
Corporation legally available for such distribution, before any distributions
are made with respect to any Common Stock or any stock ranking junior to the
Series B Preferred Stock, and pari passu with the Company's Series A Redeemable
---- -----
Preferred Stock (the "Liquidation Assets"), $.036166365 per share with respect
to any and all shares of Series B Preferred Stock purchased at the Initial
Closing (the "Initial Closing Liquidation Preference"), and $.063291139 with
respect to any and all shares of Series B Preferred Stock purchased at the
Second Closing (the "Second Closing Liquidation Preference"). Unless otherwise
expressly set forth herein to the contrary, any reference hereinafter to
"Liquidation Preference" shall automatically be deemed to refer to (i) the
Initial Closing Liquidation Preference with respect to any and all shares of
Series B Preferred Stock issued pursuant to the Initial Closing (including the
Supplemental Closing), or (ii) the Second Closing Liquidation Preference with
respect to any and all shares of Series B Preferred Stock issued pursuant to the
Second Closing, as the case may be. The Liquidation Preference, plus any accrued
but unpaid dividends outstanding as of the date of such Liquidation Event,
payable in cash, as shall be hereinafter referred to as the "Liquidation
Amount." In the event the Corporation has insufficient Liquidation Assets to
permit full payment to all holders of Series B Preferred Stock of their
respective Liquidation Amounts, the Corporation shall distribute the Liquidation
Assets allocable to the Series B Preferred Stock pro rata to each holder of
Series B Preferred Stock based upon their respective Liquidation Amounts (the
"Available Liquidation Amount"). After payment of the full amount of the
Liquidation Amount or the Available Liquidation Amount, as the case may be, to
each holder of Series B Preferred Stock, said holders will not be entitled to
any further participation in any distribution of assets by the Corporation.
Notwithstanding anything set forth herein to the contrary, the provisions
of this Section 6 shall no longer be applicable subsequent to the Company's
closing of a Qualified Initial Public Offering.
Section 7. Restrictions and Limitations.
(a) Subject to Section 1.4 of the Securityholders' Agreement,
Shares of Series B Preferred Stock acquired by the Corporation by reason of
purchase, conversion, redemption or otherwise shall be retired and shall become
authorized but unissued shares of preferred stock, which may be reissued as
Series B Preferred Stock or as part of a new series of preferred stock hereafter
created under Article Fourth of the Restated Certificate of Incorporation.
(b) So long as shares of Series B Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote of the
holders of at least a majority of the then outstanding shares of Series B
Preferred Stock voting together as a separate class, amend the terms of this
Resolution. The holders of the outstanding shares of the Preferred Stock shall
be entitled to vote as a separate class upon a proposed amendment of the
Restated Certificate of Incorporation if the amendment would alter or change the
powers, preferences or special rights of the shares of Series B Preferred Stock
so as to affect the holders of such shares adversely.
14
<PAGE>
IN WITNESS WHEREOF, I have duly executed this certificate as of the 23rd
day of December, 1999.
/s/ Richard E. Glassberg
-------------------------------
Richard E. Glassberg
Chief Executive Officer
15
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Phase2Media, Inc.
2. The Corporation's Certificate of Designations, Preferences and Rights of
Series C Convertible Preferred Stock of the Corporation (the "Certificate
of Designations"), is hereby amended by deleting the number "Nine Million
Seven Hundred and Fifty Thousand (9,750,000)" in the first sentence in
Section One of the Certificate of Designations and inserting in lieu of
said number, the number "Nine Million Nine Hundred Eight Thousand
(9,908,000)".
3. The Certificate of Designations is further amended by deleting the number
"9,750,000" in each place where such number appears in the first and only
sentence in Section 3(b) of the Certificate of Designations and inserting
in lieu of said number in each place where such number appears, the number
"9,908,000".
4. The Certificate of Designations has been duly adopted and written consent
has been given in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, I have duly executed this certificate as of the 28th
day of December, 1999.
/s/ Richard E. Glassberg
--------------------------------
Richard E. Glassberg
Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PHASE2MEDIA, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Phase2Media, Inc.
2. The certificate of incorporation of the Corporation is hereby amended
and restated by striking out all of Article Fourth thereof and by
substituting in lieu of said Article the following new Article Fourth:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is one hundred ninety
million (190,000,000) shares, consisting of (i) fifty million
(50,000,000) shares of preferred stock, par value $.001 per share (the
"Preferred Stock"), (ii) one hundred million (100,000,000) shares of
common stock, par value $.001 per share (the "Common Stock"), and
(iii) forty million (40,000,000) shares of Class A common stock, par
value $.001 per share (the "Class A Common Stock"). The Preferred
Stock may be issued from time to time in one or more series with such
designations, preferences and relative, participating, optional or
other rights, qualifications, limitations or restrictions thereof as
shall be stated and expressed in the resolution or resolutions
providing for the issuance of such series adopted by the Board of
Directors of the corporation from time to time, pursuant to the
authority herein given, without any further vote or action on the part
of the stockholders. A copy of such resolution or resolutions adopted
by the Board of Directors shall be set forth in a Certificate made,
executed, acknowledged and filed in the manner required by the General
Corporate Law of the State of Delaware in order to make such
resolution or resolutions effective. Each series shall consist of such
number of shares as shall be stated and expressed in such resolution
or resolutions providing for the issuance of the stock of such series.
All shares of any one series of Preferred Stock shall be alike in
every particular way."
3. Article Fifth of the certificate of incorporation of the Corporation
is hereby
<PAGE>
amended by:
(a) inserting the words "as the same may be amended from time to time"
after the word "thereto" at the end of the second sentence of
subsection (a) of such Article;
(b) deleting the word "a" after "(ii)" and prior to the word
"transaction"and inserting in lieu thereof the word "any" in the third
sentence of subsection (a) of such Article;
(c) deleting the word "and" after the word "Corporation" and prior to
the word "within" and inserting in lieu thereof the phrase "but only
if" in the third sentence of subsection (a) of such Article;
(d) deleting the words "and the Investors and the Founding" after the
word "entity" and prior to the word "Stockholders" and inserting in
lieu thereof the word "or" in the third sentence of subsection (a) of
such Article; and
(e) deleting the words "terms are" after the word "such" and prior to
the word "defined" and inserting in lieu thereof the words "term is"
in the third sentence of subsection (a) of such Article.
4. The amendment of the amended certificate of incorporation herein
certified has been duly adopted and written consent has been given in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, I have duly executed this certificate as of the 19th
day of January, 2000.
/s/ Richard E. Glassberg
------------------------------------
Richard E. Glassberg
Chief Executive Officer
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES D CONVERTIBLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
Phase2Media, Inc., f/k/a to CKG Media.com, Inc. (d/b/a Phase2Media), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, (the "Company" or the "Corporation"), does hereby certify
that the Board of Directors of the Corporation duly adopted a resolution at a
meeting held on January 19, 2000, and that such resolution has not been amended,
modified, or rescinded, and is now in full force and effect providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of certain shares
of the Corporation's preferred stock, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by Article Fourth of the Corporation's Certificate of Incorporation of
the Corporation, and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the rights, preferences and
designations of certain shares of the authorized and unissued shares of
preferred stock shall hereafter be as follows:
Section 1. Designation. Ten Million Nine Hundred Twenty-One Thousand Seven
Hundred and Forty-Six (10,921,746) shares, having a par value of $.001 per
share, of the Corporation's preferred stock are hereby designated as Series D
Convertible Preferred Stock (the "Series D Preferred Stock"). The rights,
preferences, privileges, and qualifications, limitations and restrictions of the
Preferred Stock are set forth in Sections 2 through 7 of this Resolution. The
rights, preferences, privileges and qualifications, limitations and restrictions
of the remaining shares of the Corporation's preferred stock shall be determined
by the Board of Directors, from time to time after the date of the adoption of
this Resolution, pursuant to the provisions of Article Fourth of the
Corporation's Certificate of Incorporation.
Section 2. No Dividends. The holders of the Series D Preferred Stock shall
not be entitled to any dividends; provided, however, that no dividends shall be
-------- -------
declared or paid on the Corporation's Common Stock, Class A Common Stock, Series
B Preferred Stock and /or Series C Preferred Stock unless the same amount and
form of such dividends is also declared or paid, as the case may be, on then-
outstanding shares of Series D Preferred Stock, on an as-converted to Common
Stock or Class A Common Stock basis.
<PAGE>
Section 3. Conversion. Subject to the provisions of this Section 3 below,
holders of the Series D Preferred Stock shall have the right to convert each of
their shares of Series D Preferred Stock (the "Conversion Rights") into such
number of fully paid and nonassessable shares of the Company's common stock, par
value $.001 per share (the "Common Stock"), determined in accordance with the
provisions set forth in this Section 3.
(a) Right to Convert and Sell. The Series D Preferred Stock
-------------------------
shall be convertible by the holder thereof at any time and from time to time, in
whole or in part, at any time. Each share of Series D Preferred Stock issued in
connection with a "Closing", as that term is defined in that certain
Subscription and Purchase Agreement with respect to the Series D Preferred Stock
dated as of January 19, 2000 by and among the Company, GE Capital Equity
Investments, Inc. and the Investors listed on Schedule A annexed thereto (the
"Purchase Agreement"), shall be convertible into such number of fully paid and
nonassessable shares of Common Stock or Class A Common Stock as is obtained by
dividing $1.529059820 by the then-effective Conversion Price. The Conversion
Price per share of Series D Preferred Stock issued in connection with the
Closing shall initially be $1.529059820 (the "Original Conversion Price"),
subject to adjustment from time to time. Notwithstanding anything set forth
herein to the contrary, in the event that a holder exercises its right to
convert any shares of Series D Preferred Stock pursuant to Section 3(a) hereof,
and at the time of such holder's exercise of such right, there are shares of the
Company's Class A Common Stock, par value $.001 per share, issued and
outstanding (the "Class A Common Stock"), the Series D Preferred Stock to be
converted shall be converted into shares of Class A Common Stock.
(b) Automatic Conversion. All unconverted shares of Series D
--------------------
Preferred Stock shall automatically be converted into shares of the Company's
Common Stock upon (i) the Company's closing of a "Qualified Initial Public
Offering" as hereinafter defined, or (ii) upon the affirmative vote of holders
who beneficially own, at least two-thirds of the shares of the Series D
Preferred Stock issued and outstanding. As used herein, the phrase "Qualified
Initial Public Offering" shall mean the first underwritten public offering and
sale of shares of the Company's Common Stock, on a firm commitment basis,
registered pursuant to Section 5 of the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, which offering and sale
results in (i) the listing for trading on a nationally recognized stock market,
or the reporting on a nationally recognized automated quotation system, of the
equity securities of the Company, (ii) the receipt by the Company of at least
Twenty Million Dollars ($20,000,000) in gross proceeds, and (iii) the "Market
Price," as that term is hereinafter defined, per share, of the shares of Common
Stock issued and issuable upon conversion of the Series D Preferred Stock, is
equal to at least two (2) times the Original Conversion Price, subject to
adjustment as herein provided. As used herein, the term "Market Price" shall
have the meaning ascribed to it in that certain Second Amended and Restated
Securityholders' Agreement (the "Securityholders' Agreement") dated as of
January 19, 2000 by and among the Company, Vector Capital II, L.P., Hachette
Filipacchi Interactions S.A., STV Partners II, L.L.C., P2M, LLC, GE Capital
Equity Investments, Inc., Richard E. Glassberg, Robert E. Chmiel, R. Scott Ford,
Thomas Mannion, Jason Liebowitz, Matthew Spengler and each of the parties listed
on Schedule I, Schedule II,
2
<PAGE>
Schedule III, Schedule IV, Schedule V and Schedule VI attached thereto, as the
same may be amended from time to time.
(c) Shares Originally Issuable. The 10,921,746 shares of Series
--------------------------
D Preferred Stock purchased at the Initial Closing (as that term is defined in
the Purchase Agreement) shall initially be convertible into 10,921,746 shares of
Common Stock (the "Initial Shares"). Accordingly, upon the Closing, each share
of Series D Preferred Stock shall be convertible into Common Stock or Class A
Common Stock on a one-for-one basis, subject to adjustments.
(d) Mechanics of Conversion. Any holder of Series D Preferred
-----------------------
Stock who wishes to exercise its Conversion Rights pursuant to this Section 3,
must surrender the certificate therefor at the principal executive office of the
Corporation, and give written notice, which may be via facsimile transmission,
to the Corporation at its principal executive office that it elects to convert
same (the "Conversion Notice"). The Corporation shall, within five (5) business
days after receipt of an appropriate and timely Conversion Notice, issue to such
holder of Series D Preferred Stock a certificate for the number of shares of
Common Stock or Class A Common Stock to which the holder shall be entitled. Such
conversion shall be deemed to have been made only after both the certificate for
the shares of Series D Preferred Stock to be converted have been surrendered and
the Conversion Notice is received by the Corporation (the "Conversion
Documents"), and the person entitled to receive the shares of Common Stock or
Class A Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Common Stock or Class A Common
Stock at and after such time. In the event that the Conversion Notice is sent
via facsimile transmission, the Corporation shall be deemed to have received
such Conversion Notice on the first business day on which such facsimile
Conversion Notice is actually received, provided that the necessary certificates
are actually received by the Corporation within three (3) business days
thereafter.
(e) Adjustments for Combinations or Subdivisions of Common
------------------------------------------------------
Stock. In the event that the Corporation at any time or from time to time while
- -----
shares of Series D Preferred Stock are issued and outstanding shall effect a
subdivision of the outstanding shares of Common Stock or Class A Common Stock
into a greater number of shares of Common Stock or Class A Common Stock (by
stock split, reclassification or otherwise, other than by payment of a dividend
in Common Stock or Class A Common Stock or in any right to acquire Common Stock
or Class A Common Stock), or if the outstanding shares of Common Stock or Class
A Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Conversion
Price in effect immediately before such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate.
(f) Adjustments for Reclassification and Reorganization. In the
---------------------------------------------------
event that the Common Stock issuable upon conversion of the Series D Preferred
Stock shall be changed into the same or a different number of shares of any
other class or classes of stock,
3
<PAGE>
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for in paragraph (c) of this
Section 3), then concurrently with the effectiveness of such reorganization or
reclassification, the Series D Preferred Stock shall be convertible into, in
lieu of the number of shares of Common Stock which the holders would otherwise
have been entitled to receive, a number of shares of such other class or classes
of stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Series D Preferred
Stock immediately before that change.
(g) Issuance of Additional Shares of Common Stock. In case the
---------------------------------------------
Company at any time or from time to time after the date of the Closing shall
issue or sell Additional Shares of Common Stock or Class A Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 3(i) or 3(j)) without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to such issuance or
sale, then, and in each such case, such Conversion Price shall be reduced,
concurrently with such issuance or sale, to a price (calculated to the nearest
.00000001 of a cent) determined by multiplying such Conversion Price by a
fraction
(A) the numerator of which shall be (i) the number of shares of
-
Common Stock and Class A Common Stock outstanding immediately prior to such
issue or sale plus (ii) the number of shares of Common Stock or Class A
--
Common Stock which the aggregate consideration received by the Company for
the total number of such Additional Shares of Common Stock so issued or
sold would purchase at the Conversion Price, and
(B) the denominator of which shall be the number of shares of Common
Stock and Class A Common Stock outstanding immediately after such issue or
sale,
provided that, for the purposes of this Section 3(g), (x) immediately after any
- -------- -
Additional Shares of Common Stock are deemed to have been issued pursuant to
Section 3(i) or 3(j), such Additional Shares shall be deemed to be outstanding,
and (y) treasury shares shall not be deemed to be outstanding.
-
(h) Dividends and Distributions. In case the Company at any time
---------------------------
or from time to time after the date hereof shall declare, order, pay or make a
dividend or other distribution (including, without limitation, any distribution
of other or additional stock or other securities or property or Options by way
of dividend or spin-off) on the Common Stock or the Class A Common Stock, other
than a dividend payable in Additional Shares of Common Stock, then, and in each
such case adequate provision shall be made so that each holder of Series D
Preferred Stock shall receive a pro rata share of such dividend based upon the
maximum number of shares of Common Stock at the time issuable to such holder.
(i) Treatment of Options and Convertible Securities. In case the
-----------------------------------------------
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to re-
4
<PAGE>
ceive, any Options or Convertible Securities (other than any shares of Series D
Preferred Stock to be issued pursuant to the Purchase Agreement), then, and in
each such case, the maximum number of Additional Shares of Common Stock or Class
A Common Stock (as set forth in the instrument relating thereto, without regard
to any provisions contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock or Class A
Common Stock issued as of the time of such issue, sale, grant or assumption or,
in case such a record date shall have been fixed, as of the close of business on
such record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), provided that such
Additional Shares of Common Stock or Class A Common Stock shall not be deemed to
have been issued unless the consideration per share (determined pursuant to
Section 3(k)) of such shares would be less than the Conversion Price in effect
on the date of and immediately prior to such issue, sale, grant or assumption or
immediately prior to the close of business on such record date (or, if the
Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), as the case may be, and provided, further,
-------- -------
that in any such case in which Additional Shares of Common Stock are deemed to
be issued
(i) no further adjustment of the Conversion Price shall be made upon
the subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock or Class A Common Stock issuable, upon
the exercise, conversion or exchange thereof (by change of rate or
otherwise), the Conversion Price computed upon the original issue, sale,
grant or assumption thereof (or upon the occurrence of the record date, or
date prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options, or
the rights of conversion or exchange under such Convertible Securities,
which are outstanding at such time;
(iii) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under
any such Convertible Securities which (or purchase by the Company and
cancellation or retirement of any such Convertible Securities the rights of
conversion or exchange under which) shall not have been exercised, the
Conversion Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based
5
<PAGE>
thereon, shall, upon such expiration (or such cancellation or retirement,
as the case may be), be recomputed as if:
(x) in the case of Options for Common Stock or Class A Common
Stock or Convertible Securities, the only Additional Shares of Common
Stock or Class A Common Stock issued or sold were the Additional
Shares of Common Stock, if any, actually issued or sold upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or not exercised,
plus the consideration actually received by the Company upon such
exercise, or for the issue or sale of all such Convertible Securities
which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, and
(y) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue, sale,
grant or assumption of such Options, and the consideration received by
the Company for the Additional Shares of Common Stock or Class A
Common Stock deemed to have then been issued was the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (pursuant to
Section 3(k)) upon the issue or sale of such Convertible Securities
with respect to which such Options were actually exercised;
(iv) no readjustment pursuant to subdivision (ii) or (iii) above shall
have the effect of increasing the Conversion Price by an amount in excess
of the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities;
and
(v) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (iii) above.
(j) Treatment of Stock Dividends. In case the Company at any time
----------------------------
or from time to time after the date hereof shall declare or pay any dividend on
the Common Stock or Class A Common Stock payable in Common Stock or Class A
Common Stock, then, and in each such case, Additional Shares of Common Stock or
Class A Common Stock shall be deemed to have been issued, immediately after the
close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend.
6
<PAGE>
(k) Computation of Consideration. For the purposes of this
----------------------------
Section 3,
(i) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of such
consideration,
(x) insofar as it consists of cash, be computed at the net
amount of cash received by the Company,
(y) insofar as it consists of property (including securities)
other than cash, be computed at the fair value thereof at the time of
such issue or sale, as determined in good faith by the Board of
Directors of the Company, and
(z) in case Additional Shares of Common Stock or Class A Common
Stock are issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers both, be
the portion of such consideration so received, computed as provided in
clauses (x) and (y) above, allocable to such Additional Shares of
Common Stock, all as determined in good faith by the Board of
Directors of the Company;
(ii) Additional Shares of Common Stock or Class A Common Stock deemed
to have been issued pursuant to Section 3(h), relating to Options and
Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing
(x) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the exercise in
full of such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case computing
such consideration as provided in the foregoing subdivision (i), by
(y) the maximum number of shares of Common Stock or Class A
Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such number to protect against dilution) issuable upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities; and
7
<PAGE>
(iii) Additional Shares of Common Stock or Class A Common Stock
deemed to have been issued pursuant to Section 3(j), relating to stock
dividends, etc., shall be deemed to have been issued for no consideration.
(l) Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including
---------------------------------
treasury shares) of Common Stock or Class A Common Stock issued or sold (or,
pursuant to Section 3(e), 3 (f), 3(g), 3(i), or 3(j) hereof, deemed to be
issued) by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company, other than
(a) shares issued upon the conversion of the Series D Preferred
Stock, the Company's Series B Convertible Preferred Stock and the Company's
Series C Convertible Preferred Stock,
(b) shares issued or issuable upon the exercise of options granted
or to be granted under the Company's stock option plans as may be in effect
from time to time in an amount, subject to the provisions of Section 4 of
the Securityholders' Agreement, not to exceed (i) the amount of available
options set forth on Schedule 4(d) to the Purchase Agreement, plus (ii) an
additional 3,250,000 options,
(c) shares issued or issuable upon the exercise of warrants that
have been agreed to as of the date of the Purchase Agreement as set forth on
Schedule 4(d) to the Purchase Agreement, and
(d) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing clauses
(a) and (b) by reason of adjustments required pursuant to anti-dilution
provisions applicable to such securities as in effect on the date hereof,
in order to reflect any subdivision or combination of Common Stock, by
reclassification or otherwise, or any dividend on Common Stock payable in
Common Stock.
Convertible Securities: Any evidences of indebtedness, shares of stock
----------------------
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
(m) No Impairment. The Corporation will not, by amendment of
-------------
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all of the
8
<PAGE>
provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series D Preferred Stock against impairment. The provisions of
this paragraph (m) may be waived by the affirmative vote of the holders of at
least a two-thirds majority of the then outstanding shares of Series D Preferred
Stock voting together as a single class and taken in advance of any action that
would conflict with this paragraph (m).
(n) Notice of Adjustments. Upon the occurrence of each adjustment or
---------------------
readjustment of any Conversion Ratio pursuant to this Section 3, the Corporation
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series D Preferred Stock a notice setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Series D Preferred Stock, furnish to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
then in effect and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of such holder's shares.
(o) Notices of Record Date. If the Corporation shall propose at any
----------------------
time: (i) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock other than one as to which
adjustments of the Conversion Ratio will be made under paragraph (e) of this
Section 3; or (ii) to merge or consolidate with or into any other corporation,
or sell all or substantially all of its assets, or to liquidate, dissolve or
wind up; then, in connection with such event, the Corporation shall send to the
holders of the Series D Preferred Stock at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon the occurrence of such
event).
(p) Issue Taxes. The Corporation shall pay any and all issue and
-----------
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series D Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
- -------- -------
transfer taxes resulting from any transfer to a person other than the holder of
record on any record date if requested by any holder in connection with any such
conversion.
(q) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series D Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series D Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series D
Preferred Stock, the Corporation
9
<PAGE>
will take such corporate action as may be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to its Certificate of Incorporation.
(r) Fractional Shares. No fractional shares of Common Stock shall
-----------------
be issued upon the conversion of any share or shares of Series D Preferred
Stock. All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series D Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fractional share of Common Stock, such fractional share shall be rounded either
up or down to the nearest whole share, as the Corporation shall decide, and if
such fractional share is rounded down, the Corporation shall pay cash to the
Series D Preferred Stockholder in an amount equal to any fractional percentage
rounded down multiplied by the then effective Conversion Price.
(s) Notices. Except as otherwise specified herein to the
-------
contrary, all notices, requests, demands and other communications required or
desired to be given hereunder shall only be effective if given in writing by
hand, by certified or registered mail, return receipt requested, postage
prepaid, or by U.S. express mail service, or by private overnight mail service
(e.g. Federal Express), or by facsimile transmission. Any such notice shall be
deemed to have been given (a) on the business day actually received if given by
hand or facsimile transmission, (b) on the business day immediately subsequent
to mailing, if sent by U.S. express mail service or private overnight mail
service, or (c) three (3) business days following the mailing thereof, if mailed
by certified or registered mail, postage prepaid, return receipt requested, and
all such notices shall be sent to the following addresses (or to such other
address or addresses as a party may have advised the other in the manner
provided herein):
If to the Company:
Mr. Richard E. Glassberg
Phase2Media, Inc.
420 Lexington Avenue
New York, NY 10170
with copies simultaneously by like means to:
Clifford A. Brandeis, Esq.
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
10
<PAGE>
If to a holder of Series D Preferred Stock, to the address of such
holder as set forth in the Purchase Agreement.
(t) Business Day. As used herein, the term "business day" shall
------------
mean any day other than a Saturday, Sunday or a day when the federal and state
banks located in the State of New York are required or permitted to close.
Section 4. Voting Rights. The holders of the Series D Preferred Stock shall
vote on all matters that are subject to the vote of the common stockholders of
the Company on an as-converted to Common Stock basis. Each share of Series D
Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which it is then convertible using the record date
for the taking of such vote of stockholders as the date as of which the
Conversion Price is calculated and conversion is effected. Holders of the Series
D Preferred Stock shall be entitled to notice of (and copies of proxy materials
and other information sent to shareholders) all stockholder meetings or written
consents with respect to which they would be entitled to vote, which notice
would be provided pursuant to the Corporation's by-laws and applicable statutes.
The holders of the Series D Preferred Stock shall also have those voting rights
provided by the Delaware General Corporation Law (the "Delaware Law"), and those
voting rights expressly set forth in this Section 4 and in Section 7(b) below
and in Section 1.1 and Section 1.4 of the Securityholders' Agreement. To the
extent that under Delaware Law the vote of the holders of the Series D Preferred
Stock, voting separately as a class or series as applicable, is required to
authorize a given action of the Corporation, the affirmative vote or consent,
given at a duly held meeting or by written consent, of the holders of at least a
two-thirds majority of the shares of the Series D Preferred Stock issued and
outstanding (except as otherwise may be required under Delaware Law or as may
otherwise be provided under the applicable provisions of the Securityholders'
Agreement) shall constitute the approval of such action by the class.
Section 5. Liquidation Preference. The holders of shares of Series D
Preferred Stock will be entitled to receive, in the event of any (a)
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or (b) transaction or series of transactions with another private
entity resulting in a merger, purchase or consolidation of the Company but only
if within twelve (12) months after the closing of such merger, purchase or
consolidation, Richard Glassberg ("Glassberg") is not the chief executive
officer of the surviving entity or the Stockholders (as such term is defined in
the Securityholders' Agreement) do not, upon the closing of such merger,
purchase or consolidation, collectively hold a controlling equity interest in
the surviving entity, or (c) a transaction or series of transactions with a
public entity resulting in a merger, purchase or consolidation of the Company
with such public entity involving all or substantially all of the Company's
assets, or (d) "change in control" in the Company (as defined in Section
1.4(d)(i) or 1.4 (d)(ii) of the Securityholders Agreement, but not as defined in
Section 1.4(d)(iii) of the Securityholders Agreement) (each, a "Liquidation
Event") out of or to the extent of the net assets of the Corporation legally
available for such distribution, before any distributions are made with respect
to any Common Stock or any Class A Common Stock or any
11
<PAGE>
stock ranking junior to the Series D Preferred Stock, and pari passu with the
---- -----
Company's Series A Redeemable Preferred Stock and Series B Convertible Preferred
Stock (the "Liquidation Assets"), $1.529059820 per share (the "Liquidation
Preference"), plus any accrued but unpaid dividends outstanding as of the date
of such Liquidation Event, payable in cash (such dividends together with the
Liquidation Preference shall be called the "Liquidation Amount"). In the event
the Corporation has insufficient Liquidation Assets to permit full payment to
all holders of Series D Preferred Stock of their respective Liquidation Amounts,
the Corporation shall distribute the Liquidation Assets allocable to the Series
D Preferred Stock pro rata to each holder of Series D Preferred Stock based upon
their respective Liquidation Amounts pari passu with the respective Liquidation
---- -----
Amounts payable to the holders of the Company's Series A Redeemable Preferred
Stock and the Company's Series B Convertible Preferred Stock (the "Available
Liquidation Amount"). After payment of the full amount of the Liquidation Amount
or the Available Liquidation Amount, as the case may be, to each holder of
Series D Preferred Stock, and after the payment of any amounts that the
Corporation is obligated to pay to any preferred securities that are junior in
preference to the Series D Preferred Stock, the holders of the Series D
Preferred Stock shall thereafter be entitled to further participation pari passu
---- -----
and pro rata with all the holders of Common Stock and Class A Common Stock, on
an as converted to Common Stock basis, in any distribution of assets by the
Corporation; provided however that the per share proceeds actually received by
each holder of Series D Preferred Stock from any further participation with the
holders of Common Stock and Class A Common Stock in any distribution of assets
by the Corporation, when aggregated with the Liquidation Amount actually
received by each such holder of Series D Preferred Stock, shall in no event
exceed three (3) times the Original Conversion Price.
Section 6. Restrictions and Limitations.
(a) Subject to Section 1.4 of the Securityholders' Agreement, Shares
of Series D Preferred Stock acquired by the Corporation by reason of purchase,
conversion, redemption or otherwise shall be retired and shall become authorized
but unissued shares of preferred stock, which may be reissued as Series D
Preferred Stock or as part of a new series of preferred stock hereafter created
under Article Fourth of the Certificate of Incorporation.
(b) So long as shares of Series D Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote of the
holders of at least a two-thirds majority of the then outstanding shares of
Series D Preferred Stock voting together as a separate class, amend the terms of
this Resolution. The holders of the outstanding shares of the Series D Preferred
Stock shall be entitled to vote as a separate class upon a proposed amendment of
the Certificate of Incorporation if the amendment would alter or change the
powers, preferences or special rights of the shares of Series D Preferred Stock
so as to affect the holders of such shares adversely.
12
<PAGE>
IN WITNESS WHEREOF, I have duly executed this certificate as of the 19th
day of January, 2000.
/s/ Richard E. Glassberg
------------------------
Richard E. Glassberg
Chief Executive Officer
13
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A REDEEMABLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Phase2Media, Inc.
2. Section Four of the Corporation's Certificate of Designations, Preferences
and Rights of Series A Redeemable Preferred Stock of the Corporation (the
"Certificate of Designations"), is hereby amended by:
(a) inserting the words "Second Amended and Restated" after the word "the"
and prior to the word "Securityholders" at the end of the first sentence of
such Section; and
(b) inserting the words "(the "Securityholders' Agreement") dated as of
January 19, 2000 between the Company, Vector, Hachette Filipacchi
Interactions, S.A., STV Partners, L.L.C., P2M, LLC, GE Capital Equity
Investments, Inc., Richard E. Glassberg, Robert E. Chmiel, R. Scott Ford,
Thomas Mannion, Jason Liebowitz, Matthew Spengler and each of the parties
listed on Schedule I, Schedule II, Schedule II, Schedule IV, Schedule V and
Schedule VI as the same may be amended from time to time." after the word
"Agreement" at the end of the first sentence of such Section.
3. Section Five of the Certificate of Designations, is hereby amended by:
(a) deleting the word "a" after "(b)" and prior to the word
"transaction" and inserting in lieu thereof the word "any" in the first
sentence of such Section;
(b) deleting the word "and" after the word "Company" and prior to the word
"within" and
<PAGE>
inserting in lieu thereof the phrase "but only if" in the first sentence of
such Section;
(c) deleting the words "and the Investors and the Founding" after the word
"entity" and prior to the word "Stockholders" and inserting in lieu thereof
the word "or" in the first sentence of such Section; and
(d) deleting the words "terms are" after the word "such" and prior to the
word "defined" and inserting in lieu thereof the words "term is" in the
first sentence of such Section.
4. The Certificate of Amendment has been duly adopted and written consent has
been given in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, I have duly executed this certificate as of the 19th
day of January, 2000.
/s/ Richard E. Glassberg
-------------------------------
Richard E. Glassberg
Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Phase2Media, Inc.
2. The Corporation's Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock of the Corporation (the "Certificate
of Designations"), is hereby amended by inserting the words "as the same
may be amended from time to time" after the word "thereto" and prior to the
parenthesis in the last sentence of Section 3(b).
3. The Certificate of Designations is further amended by deleting Section Four
of the Certificate of Designations in its entirety and inserting in lieu of
said Section the following:
"The holders of the Series B Preferred Stock shall vote on all matters that
are subject to the vote of the common stockholders of the Company on an as-
converted to Common Stock basis. Each share of Series B Preferred Stock
shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for
the taking of such vote of stockholders as the date as of which the
Conversion Price is calculated and conversion is effected. Holders of the
Series B Preferred Stock shall be entitled to notice of (and copies of
proxy materials and other information sent to shareholders) all stockholder
meetings or written consents with respect to which they would be entitled
to vote, which notice would be provided pursuant to the Corporation's by-
laws and applicable statutes. The holders of the Series B Preferred Stock
shall also have those voting rights provided by the Delaware General
Corporation Law (the "Delaware Law"), and those voting rights expressly set
forth in this
<PAGE>
Section 4 and in Section 7(b) below and in Section 1.1 and Section 1.4 of
the Securityholders' Agreement. To the extent that under Delaware Law the
vote of the holders of the Series B Preferred Stock, voting separately as a
class or series as applicable, is required to authorize a given action of
the Corporation, the affirmative vote or consent, given at a duly held
meeting or by written consent, of the holders of at least a majority of the
shares of the Series B Preferred Stock issued and outstanding (except as
otherwise may be required under Delaware Law or as may otherwise be
provided under the applicable provisions of the Securityholders' Agreement)
shall constitute the approval of such action by the class."
4. The Certificate of Amendment has been duly adopted and written consent has
been given in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, I have duly executed this certificate as of the 19th
day of January, 2000.
/s/ Richard E. Glassberg
-----------------------------
Richard E. Glassberg
Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Phase2Media, Inc.
2. The Corporation's Certificate of Designations, Preferences and Rights of
Series C Convertible Preferred Stock of the Corporation (the "Certificate
of Designations"), is hereby amended by deleting Section Four of the
Certificate of Designations in its entirety and inserting in lieu of said
Section the following:
"The holders of the Series C Preferred Stock shall vote on all matters that
are subject to the vote of the common stockholders of the Company on an as-
converted to Common Stock basis. Each share of Series C Preferred Stock
shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for
the taking of such vote of stockholders as the date as of which the
Conversion Price is calculated and conversion is effected. Holders of the
Series C Preferred Stock shall be entitled to notice of (and copies of
proxy materials and other information sent to shareholders) all stockholder
meetings or written consents with respect to which they would be entitled
to vote, which notice would be provided pursuant to the Corporation's by-
laws and applicable statutes. The holders of the Series C Preferred Stock
shall also have those voting rights provided by the Delaware General
Corporation Law (the "Delaware Law"), and those voting rights expressly set
forth in this Section 4 and in Section 6(b) below and in Section 1.1 of the
Securityholders' Agreement. To the extent that under Delaware Law the vote
of the holders of the Series C Preferred Stock, voting separately as a
class or series as applicable, is required to authorize a given action of
the Corporation, the affirmative vote or consent, given at a
<PAGE>
duly held meeting or by written consent, of the holders of at least a
majority of the shares of the Series C Preferred Stock issued and
outstanding (except as otherwise may be required under Delaware Law or as
may otherwise be provided under the applicable provisions of the
Securityholders' Agreement) shall constitute the approval of such action by
the class."
3. The Certificate of Designations is further amended by deleting the word
"hereto," after the word "amended" and prior to the word "the" in the first
sentence of Section 6(a) and inserting in lieu thereof the words "thereto,
as the same may be amended from time to time".
4. The Certificate of Amendment has been duly adopted and written consent has
been given in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, I have duly executed this certificate as of the 19th
day of January, 2000.
/s/ Richard E. Glassberg
--------------------------------
Richard E. Glassberg
Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES D CONVERTIBLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Phase2Media, Inc.
2. The Corporation's Certificate of Designations, Preferences and Rights of
Series D Convertible Preferred Stock of the Corporation (the "Certificate
of Designations"), is hereby amended by deleting the number "Ten Million
Nine Hundred Twenty-One Thousand Seven Hundred and Forty-Six (10,921,746)"
and inserting in lieu thereof the number "Eleven Million One Hundred Ninety
Nine Thousand Six Hundred Ninety Five (11,199,695)" after the word
"Designation" and prior to the word "shares" in the first sentence of
Section 1.
3. The Certificate of Designations is further amended by amending Section 3(c)
as follows:
(a) deleting the number "10,921,746" and inserting in lieu thereof the
number "11,199,695" in each of the two places where such number appears
in the first sentence of such Section; and
(b) deleting the word "Initial" after the word "the" and prior to the word
"Closing" in the first sentence of such Section.
4. The Certificate of Amendment has been duly adopted and written consent has
been given in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, I have duly executed this certificate as of the 8th day
of February, 2000.
/s/ Richard E. Glassberg
--------------------------------
Richard E. Glassberg
Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES D CONVERTIBLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Phase2Media, Inc.
2. The Corporation's Certificate of Designations, Preferences and Rights of
Series D Convertible Preferred Stock of the Corporation (the "Certificate
of Designations"), is hereby amended by deleting the number "Eleven Million
One Hundred Ninety Nine Thousand Six Hundred Ninety Five (11,199,695)" and
inserting in lieu thereof the number "Eleven Million Three Hundred Sixty
Three Thousand One Hundred Ninety Five (11,363,195)" after the word
"Designation" and prior to the word "shares" in the first sentence of
Section 1.
3. The Certificate of Designations is further amended by amending Section 3(c)
by deleting the number "11,199,695" and inserting in lieu thereof the
number "11,363,195" in each of the two places where such number appears in
the first sentence of such Section.
4. The Certificate of Amendment has been duly adopted and written consent has
been given in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, I have duly executed this certificate as of the
30th day of March, 2000.
/s/ Richard E. Glassberg
------------------------------
Richard E. Glassberg
Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A REDEEMABLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Phase2Media, Inc.
2. The Certificate of Amendment (the "Certificate of Amendment") has
been duly adopted and written consent has been given in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.
3. The Corporation's Certificate of Designations, Preferences and
Rights of Series A Redeemable Preferred Stock of the Corporation (the
"Certificate of Designations"), is hereby deleted in its entirety and hereby
amended as follows:
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A REDEEMABLE PREFERRED STOCK
OF
PHASE2MEDIA, INC.
Phase2Media, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware, (the "Company" or the
"Corporation"), does hereby certify that the Board of Directors of the
Corporation duly adopted a resolution by unanimous written consent of directors
in lieu of a meeting dated as of May 9, 2000, and that such resolution has not
been amended, modified, or rescinded, and is now in full force and effect
providing for the designations, preferences
<PAGE>
and relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of certain shares of the Corporation's
preferred stock, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by Article Fourth of the Corporation's Certificate of Incorporation of
the Corporation, and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the rights, preferences and
designations of certain shares of the authorized and unissued shares of
preferred stock shall hereafter be as follows:
Section 1. Designation. One Hundred Fifty Thousand (150,000) shares,
having a par value of $.001 per share, of the Corporation's preferred stock are
hereby designated as Series A Preferred Stock (the "Series A Preferred Stock").
The rights, preferences, privileges, qualifications, limitations and
restrictions of the Series A Preferred Stock are set forth in Sections 2 through
6 of this Resolution. The rights, preferences, privileges and qualifications,
limitations and restrictions of the remaining shares of the Corporation's
preferred stock shall be determined by the Board of Directors, from time to time
after the date of the adoption of this Resolution, pursuant to the provisions of
Article Fourth of the Corporation's Certificate of Incorporation.
Section 2. Dividends. The holders of the Series A Preferred Stock are
entitled to receive cumulative dividends, payable solely in additional shares of
the Company's Series A Preferred Stock, at a rate equal to 9% per annum of the
"Liquidation Preference" of the Series A Preferred Stock as that term is defined
in Section 5 below. The dividend is payable annually within ten (10) business
days after each December 31st of each year, commencing December 31, 1999 (each,
a "Dividend Payment Date"). Dividends shall accrue on each share of Series A
Preferred Stock from the first day of each calendar year in which such dividend
may be payable, except with respect to the dividend payable with respect to the
first Dividend Payment Date, in which event dividends shall accrue from the date
on which such share of Series A Preferred Stock was originally issued to such
holder of Series A Preferred Stock. Each holder of Series A Preferred Stock
shall receive shares (or fractional shares, if appropriate) of Series A
Preferred Stock equal to 9% multiplied by the aggregate Liquidation Preference
of all Series A Preferred Stock owned by each such holder on the applicable
Dividend Payment Date; provided however that with respect to the dividend
payable on each share of Series A Preferred Stock on the first Dividend Payment
Date, such dividend shall be calculated in the manner set forth in this
sentence, and shall also be multiplied by a fraction, the numerator of which
shall be the number of days that elapsed commencing on the date such share of
Series A Preferred Stock was originally issued to each holder of Series A
Preferred Stock, through and including December 31, 1999, and the denominator of
which shall be 365.
Section 3. Conversion and Redemption Rights.
(a) Automatic Conversion. All shares of Series A Preferred
Stock that have not already been redeemed in accordance with the provisions of
Section 3(j) below, shall automatically, immediately prior to the Company's
closing of a "Qualified Initial Public Offering", convert into fully paid
non-assessable shares of the Company's common stock, par value $.001 per share
(the
2
<PAGE>
"Common Stock"), at the price and in the manner set forth in Section 3(b)
below. As used herein, the term "Qualified Initial Public Offering" shall mean
the first underwritten public offering and sale of shares of the Company's
Common Stock, on a firm commitment basis, registered pursuant to Section 5 of
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, which offering and sale results in (i) the listing for
trading on a nationally recognized stock market, or the reporting on a
nationally recognized automated quotation system, of the equity securities of
the Company, (ii) the receipt by the Company of at least Twenty Million Dollars
($20,000,000) in gross proceeds, and (iii) the "Market Price," as that term is
hereinafter defined, per share, of the shares of Common Stock issued and
issuable upon conversion of the Series D Preferred Stock, is equal to at least
two (2) times the Original Conversion Price of the Series D Preferred Stock,
subject to appropriate, equitable adjustment for any stock splits, stock
dividends, reclassifications or stock combinations effected by the Company after
the date of the filing of this Certificate of Amendment. As used herein, the
term "Market Price" shall mean the initial price per share at which the
Company's Common Stock is offered to the public in the Qualified Initial Public
Offering.
(b) Conversion Price. In accordance with the provisions of
Section 3(a) above, the Series A Preferred Stock shall convert into such number
of whole shares (rounding up or down to the nearest share in accordance with the
provisions of Section 3(i) below) of Common Stock as determined by dividing (x)
the aggregate "Liquidation Preference" (as that term is defined in Section 5
below) of the shares of Series A Preferred Stock being converted, plus all
accrued and unpaid dividends applicable to such shares that are being converted
(the accrued and unpaid dividends to be calculated as of and including the date
immediately preceding the effective date of the Qualified Initial Public
Offering), by (y) the "Conversion Price", as such term is defined in the
immediately following sentence. The term "Conversion Price" shall mean fifty
percent (50%) of the initial price per share that the Company's Common Stock is
offered to the public in the Qualified Initial Public Offering.
(c) Mechanics of Conversion. Upon any conversion of the Series
A Preferred Stock pursuant to this Section 3, each holder of Series A Preferred
Stock must surrender all of their Series A Preferred Stock certificates at the
principal executive office of the Corporation. The Corporation shall, within
five (5) business days after receipt of all certificates from the holder
thereof, issue to such holder of Series A Preferred Stock a certificate for the
number of shares of Common Stock to which the holder shall be entitled. Such
issuance of Common Stock shall only be made with respect to each holder after
all the certificates for the shares of Series A Preferred Stock that are
automatically being converted for such holder pursuant to Section 3(a) have been
surrendered, provided, however, that upon the automatic conversion of the Series
A Preferred Stock in accordance with Section 3(a) above, all holders of Series A
Preferred Stock shall thereafter be treated for all purposes as record holders
of such shares of Common Stock into which their shares of Series A Preferred
Stock shall have automatically converted. Notwithstanding anything set forth
herein to the contrary, in the event that a holder of Series A Preferred Stock
cannot deliver their original certificate(s) evidencing their ownership thereof
because same has been lost or destroyed, such holder may, in lieu thereof,
deliver an original, notarized affidavit of lost certificate in form and
3
<PAGE>
substance acceptable to the Company, which delivery of such affidavit, when
received by the Company, shall satisfy such holder's requirement hereunder to
deliver any Series A Preferred certificate(s) that are the subject of such
affadavit.
(d) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all of the
provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion or redemption rights
of the holders of the Series A Preferred Stock against impairment. The
provisions of this paragraph (l) may be waived by the affirmative vote of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock voting together as a single class and taken in advance of any
action that would conflict with this paragraph (d).
(e) Notice of Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Ratio pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a notice setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price then in effect and (iii) the number of shares of Common Stock
and the amount, if any, of other property which at the time would be received
upon the conversion of such holder's shares.
(f) Notices of Record Date. If the Corporation shall propose
at any time: (i) to effect any stock split, stock dividend, stock combinations,
reclassification or recapitalization of its Common Stock outstanding involving a
change in the Common Stock; or (ii) to merge or consolidate with or into any
other corporation, or sell all or substantially all of its assets, or to
liquidate, dissolve or wind up; then, in connection with such event, the
Corporation shall send to the holders of the Series A Preferred Stock at least
twenty (20) days' prior written notice of the date when the same shall take
place.
(g) Issue Taxes. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series A Preferred Stock pursuant
hereto; provided, however, that the Corporation shall not be obligated to pay
any transfer taxes resulting from any transfer to a person other than the holder
of record on any record date if requested by any holder in connection with any
such conversion.
(h) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such
4
<PAGE>
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred Stock, the Corporation will take such corporate action
as may be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to its Certificate of
Incorporation.
(i) Fractional Shares. No fractional shares of Common Stock
shall be issued upon the conversion of any share or shares of Series A Preferred
Stock. All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series A Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fractional share of Common Stock, such fractional share shall be rounded either
up or down to the nearest whole share, as the Corporation shall decide, and if
such fractional share is rounded down, the Corporation shall pay cash to the
Series A Preferred Stockholder in an amount equal to any fractional percentage
rounded down multiplied by two (2) times the Conversion Price.
(j) Redemption Right. In addition to the conversion of the
Series A Preferred Stock as set forth in this Section 3, each holder of the
Series A Preferred Stock shall, at its sole option, be entitled to redeem, in
whole or in part, one-third of the Series A Preferred Stock that it beneficially
owns on each of the fourth anniversary date (the "First Redemption Date"), the
fifth anniversary date (the "Second Redemption Date") and the sixth anniversary
date (the "Final Redemption Date") of the closing of the Securities Purchase
Agreement (the "Securities Purchase Agreement"), dated as of August 16, 1999,
between the Company, Vector Capital II, L.P. ("Vector") and each of the parties
listed on Schedule A and Schedule B attached thereto. Each of the First
Redemption Date, the Second Redemption Date and the Final Redemption Date are
sometimes hereinafter collectively referred to as a "Redemption Date." In the
event that a holder of Series A Preferred Stock does not fully exercise its
redemption rights on any Redemption Date, any such unexercised redemption rights
shall be cumulative, such that the holder shall be entitled to exercise on each
and every successive Redemption Date (each, a "Successive Redemption Date")
those redemption rights, in whole or in part, that the holder previously had the
right to effect but did not exercise, plus those redemption rights first
available to the holder on each such Successive Redemption Date. The redemption
right provided for in this Section 3(j) shall not be applicable to any shares of
Common Stock issued upon the conversion of Series A Preferred Stock pursuant to
this Section.
In the event that any holder elects to exercise its redemption
rights pursuant to this Section 3(j), such holder is required to deliver a
Redemption Notice in accordance with the provisions of Section 3(k) below within
thirty (30) days prior to a Redemption Date (each, a "Section 3(j) Redemption
Period"). In the event a holder does not deliver a Redemption Notice with
respect
5
<PAGE>
to all of its rights of redemption relative to a particular Redemption
Date within the Section 3(j) Redemption Period, the unexercised redemption
rights shall accumulate to the next successive Redemption Date as set forth in
the immediately preceding paragraph in this Section 3(j); provided however, that
in the event that a holder does not deliver a Redemption Notice with respect to
its rights of redemption relative to the Final Redemption Date within the
Section 3(j) Redemption Period, the holder shall not be entitled to exercise any
additional redemption rights under this Section 3(j) except during the Section
3(j) Redemption Period with respect to each and every successive twelve (12)
month anniversary date of the Final Redemption Date until such time as such
holder has had all of its shares of Series A Preferred Stock redeemed hereunder.
The per share redemption price of the Series A Preferred Stock for all
redemption rights provided for in this Section 3(j) shall be the Liquidation
Preference, plus any accrued but unpaid dividends outstanding as of the date of
the applicable Redemption Notice. All accrued and unpaid dividends paid in
connection with any redemption in accordance with this Section 3(j) shall be in
cash.
(k) Mechanics of Redemption. Any holder of Series A Preferred
Stock who wishes to exercise its redemption rights pursuant to paragraph (j) of
this Section 3, must surrender the certificate therefor at the principal
executive office of the Corporation, and give written notice, which may be via
facsimile transmission, to the Corporation at its principal executive office
setting forth the number of shares of Series A Preferred Stock that the holder
elects to redeem (the "Redemption Notice"). No Redemption Notice with respect to
any shares of Series A Preferred Stock can be given prior to the time that such
shares of Series A Preferred Stock are eligible for redemption in accordance
with the provisions of Section 3(j) above. Any such premature Redemption Notice
shall automatically be null and void. The Corporation shall, within ten (10)
business days after receipt of an appropriate and timely Redemption Notice (the
"Redemption Deadline") deliver to such holder of Series A Preferred Stock the
Per Share Redemption Price multiplied by the number of shares of Series A
Preferred Stock that are being redeemed in United States currency by cash or
delivery of a certified check or bank draft payable to the order of the holder
or by wire transfer to the holder. Such redemption shall be deemed to have been
made only after both the certificate(s) for the shares of Series A Preferred
Stock to be redeemed have been surrendered and the Redemption Notice is received
by the Corporation (the "Redemption Documents"). In the event that the
Redemption Notice is sent via facsimile transmission, the Corporation shall be
deemed to have received such Redemption Notice on the first business day on
which such facsimile Redemption Notice is actually received, provided that the
necessary certificates are actually received by the Corporation within three (3)
business days thereafter. Any shares not redeemed shall continue to be entitled
to dividends and other rights, preferences, privileges and restrictions until
such shares are redeemed. In case fewer than the total number of shares
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed shares shall be issued to the holder thereof without cost
to such holder within 5 days after surrender of the certificate representing the
redeemed shares.
(l) Notices. Except as otherwise specified herein to the
contrary, all notices, requests, demands and other communications required or
desired to be given hereunder shall only be effective if given in writing by
hand, by certified or registered mail, return receipt requested,
6
<PAGE>
postage prepaid, or by U.S. express mail service, or by private overnight mail
service (e.g. Federal Express), or by facsimile transmission. Any such notice
shall be deemed to have been given (a) on the business day actually received if
given by hand or facsimile transmission, (b) on the business day immediately
subsequent to mailing, if sent by U.S. express mail service or private overnight
mail service, or (c) three (3) business days following the mailing thereof, if
mailed by certified or registered mail, postage prepaid, return receipt
requested, and all such notices shall be sent to the following addresses (or to
such other address or addresses as a party may have advised the other in the
manner provided herein):
If to the Company:
Mr. Richard Glassberg
Phase2Media, Inc.
420 Lexington Avenue
New York, NY 10170
with copies simultaneously by like means to:
Clifford A. Brandeis, Esq.
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
If to a holder of Series A Preferred Stock, to the address of
such holder as set forth in the Securities Purchase Agreement.
(n) Business Day. As used herein, the term "business day"
shall mean any day other than a Saturday, Sunday or a day when the federal and
state banks located in the State of New York are required or permitted to close.
Section 4. Voting Rights. The holders of the Series A Preferred Stock
shall have only those voting rights provided by the Delaware General Corporation
Law (the "Delaware Law") and those voting rights expressly set forth in this
Section 4 and in Section 6(b) below and in Section 1.1 and Section 1.4 of the
Second Amended and Restated Securityholders' Agreement (the "Securityholders'
Agreement") dated as of January 19, 2000 between the Company, Vector, Hachette
Filipacchi Interactions, S.A., STV Partners, L.L.C., P2M, LLC, GE Capital Equity
Investments, Inc., Richard E. Glassberg, Robert E. Chmiel, R. Scott Ford, Thomas
Mannion, Jason Liebowitz, Matthew Spengler and each of the parties listed on
Schedule I, Schedule II, Schedule II, Schedule IV, Schedule V and Schedule VI as
the same may be amended from time to time. To the extent that under Delaware Law
the vote of the holders of the Series A Preferred Stock, voting separately as a
class or series as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at least a
majority of the shares of the Series A Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of a
7
<PAGE>
majority of the shares of Series A Preferred Stock (except as otherwise may be
required under Delaware Law and the applicable provisions of the
Securityholders' Agreement) shall constitute the approval of such action by the
class. Holders of the Series A Preferred Stock shall be entitled to notice of
(and copies of proxy materials and other information sent to shareholders) all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Corporation's
by-laws and applicable statutes.
Section 5. Liquidation Preference. The holders of shares of Series A
Preferred Stock will be entitled to receive, in the event of (a) any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, or (b) any transaction or series of transactions with another
private entity resulting in a merger, purchase or consolidation of the Company
but only if within twelve (12) months after the closing of such merger, purchase
or consolidation, Richard Glassberg ("Glassberg") is not the chief executive
officer of the surviving entity or the "Stockholders" (as such term is defined
in that certain Second Amended and Restated Securityholders' Agreement dated as
of January 19, 2000 by and among the Company, Vector Capital II, L.P., Hachette
Filipacchi Interactions S.A., STV Partners II, L.L.C., P2M, LLC, GE Capital
Equity Investments, Inc., Richard E. Glassberg, Robert E. Chmiel, R. Scott Ford,
Thomas Mannion, Jason Liebowitz, Matthew Spengler and each of the parties listed
on Schedule I, Schedule II, Schedule III, Schedule IV, Schedule V and Schedule
VI attached thereto, as the same may be amended from time to time (the
"Securityholders' Agreement")) do not, upon the closing of such merger, purchase
or consolidation, collectively hold a controlling equity interest in the
surviving entity, or (c) a transaction or series of transactions with a public
entity resulting in a merger, purchase or consolidation of the Company with such
public entity involving all or substantially all of the Company's assets, or(d)
upon the initial public offering under Section 5 of the Securities Act of 1933,
as amended, of the equity securities of the surviving entity referred to in
clause (b) immediately preceding (other than a Qualified Initial Public
Offering), or (e) upon a "change in control" in the Company (as defined in
Section 1.4(d)(i) or 1.4 (d)(ii) of the Securityholders Agreement, but not as
defined in Section 1.4(d)(iii) of the Securityholders Agreement) (each, a
"Liquidation Event"), out of or to the extent of the net assets of the
Corporation legally available for such distribution, before any distributions
are made with respect to any Common Stock or any stock ranking junior to the
Series A Preferred Stock, and parri passu with the Company's Series B
Convertible Preferred Stock (the "Liquidation Assets"), $1,000 per share (the
"Liquidation Preference"), plus the value of any accrued but unpaid dividends as
of the date of such Liquidation Event, payable in cash (such dividends together
with the Liquidation Preference shall be called the "Liquidation Amount"),
provided, however, that in the event of a Liquidation Event described in clause
(b), (c), (d) or (e) of this Section 5, each holder of shares of Series A
Preferred Stock shall have the option to retain their shares of Series A
Preferred Stock and defer their right to receive their respective Liquidation
Amount.
In the event the Corporation has insufficient Liquidation
Assets to permit full payment to all holders of Series A Preferred Stock of
their respective Liquidation Amounts, the Corporation shall distribute the
Liquidation Assets allocable to the Series A Preferred Stock pro rata to each
holder of Series A Preferred Stock based upon their respective Liquidation
Amounts (the
8
<PAGE>
"Available Liquidation Amount"). After payment of the full amount of the
Liquidation Amount or the Available Liquidation Amount, as the case may be, to
each holder of Series A Preferred Stock, said holders will not be entitled to
any further participation in any distribution of assets by the Corporation.
Section 6. Restrictions and Limitations.
(a) Subject to Section 1.4 of the Securityholders' Agreement,
shares of Series A Preferred Stock acquired by the Corporation by reason of
purchase, conversion, redemption or otherwise shall be cancelled and retired and
shall become authorized but unissued shares of Series A Preferred Stock, which
may be reissued as part of a new series of preferred stock hereafter created
under Article Fourth of the Certificate of Incorporation.
(b) So long as shares of Series A Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock voting together as a separate class, amend the terms of this
Resolution. The holders of the outstanding shares of the Series A Preferred
Stock shall be entitled to vote as a separate class upon a proposed amendment of
the Certificate of Incorporation if the amendment would alter or change the
powers, preferences or special rights of the shares of Series A Preferred Stock
so as to affect the holders of such shares adversely.
(c) The Corporation shall not redeem or otherwise acquire any
shares of Series A Preferred Stock other than pursuant to Section 3(j) hereof
unless such alternative redemption or acquisition opportunity is made available
to all holders of Series A Preferred Stock on a pro rata basis after 20 days
prior written notice to such holder.
9
<PAGE>
IN WITNESS WHEREOF, I have duly executed this Certificate as of the
10th day of May, 2000.
/s/ Richard E. Glassberg
-----------------------------------
Richard E. Glassberg
Chief Executive Officer
10
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BY-LAWS
of
CKG MEDIA.COM, INC.
(a Delaware corporation)
ARTICLE I
Stockholders
------------
Section 1. Place of Meetings. Meetings of stockholders of CKG Media.com,
-----------------
Inc. (the "Corporation") shall be held at such place, either within or without
the State of Delaware, as shall be designated from time to time by the Board of
Directors.
Section 2. Annual Meetings. Annual meetings of stockholders will be held
---------------
at such time as shall be designated from time to time by the Board of Directors.
At each annual meeting the stockholders shall elect a Board of Directors by
plurality vote and transact such other business as may properly be brought
before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders may be
----------------
called by the Board of Directors, the President or any two officers of the
Corporation.
-1-
<PAGE>
Section 4. Notice of Meetings. Written notice of each meeting of the
------------------
stockholders stating the place, date and hour of the meeting shall be given by
or at the direction of the Board of Directors or such other person or persons
calling such meeting to each stockholder entitled to vote at the meeting at
least ten, but not more than sixty, days prior to the meeting. Notice of any
special meeting shall state in general terms the purpose or purposes for which
the meeting is called.
Section 5. Quorum; Adjournments of Meetings. The holder(s) of a majority
--------------------------------
of the issued and outstanding shares of the capital stock of the Corporation
entitled to vote at a meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at such meeting; but, if
there be less than a quorum, the holders of a majority of the stock so present
or represented may adjourn the meeting to another time, or place, from time to
time until a quorum shall be present, whereupon the meeting may be held, as
adjourned, without further notice, except as required by law, and any business
may be transacted thereat which might have been transacted at the meeting as
originally called.
Section 6. Voting. At any meeting of the stockholders every registered
------
owner of shares entitled to vote may vote in person or by proxy and, except as
otherwise provided by statute, in the Certificate of Incorporation or these By-
Laws, shall have one vote for each such share standing in his name on the books
of the Corporation. Except as otherwise required by statute, the Certificate of
Incorporation or these By-Laws, all corporate action, other than the election of
directors, to be taken by vote of the stockholders shall be authorized by a
majority of
-2-
<PAGE>
the votes cast at such meeting by the holders of shares entitled to vote
thereon, a quorum being present.
Section 7. Inspectors of Election. The Board of Directors, or, if the
----------------------
Board shall not have made the appointment, the Chairman presiding at any meeting
of stockholders, shall have the power to appoint one or more persons to act as
inspectors of election at the meeting or any adjournment thereof, but no
candidate for the office of director shall be appointed as an inspector at any
meeting for the election of directors.
Section 8. Chairman of Meetings. The Chairman of the Board, or if none,
--------------------
the President, shall preside at all meetings of the stockholders. In the absence
of such officer, a majority of the members of the Board of Directors present in
person at such meeting may appoint any other officer or director to act as
Chairman of the meeting.
Section 9. Secretary of Meetings. The Secretary of the Corporation shall
---------------------
act as secretary of all meetings of the stockholders. In the absence of the
Secretary, the Chairman of the meeting shall appoint any other person to act as
secretary of the meeting.
-3-
<PAGE>
ARTICLE II
Board of Directors
------------------
Section 1. Number of Directors. The number of directors which shall
-------------------
constitute the Board of Directors shall be not less than one (1) nor more than
ten (10). The Board of Directors shall initially consist of one (1) member;
provided, however, that the number of directors may from time to time be
increased or decreased by the Board of Directors or by the stockholders.
Section 2. Vacancies. Whenever any vacancy shall occur in the Board of
---------
Directors by reason of death, resignation, increase in the number of directors
or otherwise, it may be filled, first in accordance with the provisions of the
First Amended and Restated Securityholders' Agreement, dated as of August 26,
1999, between the Corporation, Vector Capital II, L.P., Richard E. Glassberg,
Robert E. Chmiel, R. Scott Ford, Thomas Mannion, Jason Liebowitz, Matthew
Spengler, and each of the parties listed on Schedule A and Schedule B attached
thereto (as such agreement may be further amended, supplemented or otherwise
modified from time to time the "Securityholders' Agreement"); and thereafter to
the extent provided in the Securityholders' Agreement, by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director, for the balance of the term, or, if the Board has not filled such
vacancy or if there are no remaining directors, it may be filled by the
stockholders.
Section 3. First Meeting. The first meeting of each newly elected Board
-------------
of Directors, of which no notice shall be necessary, shall be held immediately
following the annual meeting of
-4-
<PAGE>
stockholders or any adjournment thereof at the place the annual meeting of
stockholders was held at which such directors were elected, or at such other
place as a majority of the members of the newly elected Board who are then
present shall determine, for the election or appointment of officers for the
ensuing year and the transaction of such other business as may be brought before
such meeting.
Section 4. Regular Meetings. Regular meetings of the Board of Directors,
----------------
other than the first meeting, may be held without notice at such times and
places as the Board of Directors may from time to time determine.
Section 5. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by order of the Chairman, the President or any two directors.
Notice of the time and place of each special meeting shall be given by or at the
direction of the person or persons calling the meeting or by telephoning,
telegraphing or delivering personally the same at least twenty-four hours before
the meeting to each director. Except as otherwise specified in the notice
thereof, or as required by statute, the Certificate of Incorporation or these
By-Laws, any and all business may be transacted at any special meeting.
Section 6. Place of Conference Call Meeting. Any meeting at which one
--------------------------------
or more of the members of the Board of Directors or of a committee designated by
the Board of Directors shall participate by means of conference telephone or
similar communications equipment shall be
-5-
<PAGE>
deemed to have been held at the place designated for such meeting, provided that
at least one member is at such place while participating in the meeting.
Section 7. Organization. Every meeting of the Board of Directors shall be
------------
presided over by the Chairman of the Board or the President. In the absence of
any of such officers, a presiding officer shall be chosen by a majority of the
directors present. The Secretary of the Corporation shall act as secretary of
the meeting, but, in his absence, the presiding officer may appoint any person
to act as secretary of the meeting.
Section 8. Quorum; Vote. A majority of the directors then in office (but
------------
in no event less than two-thirds of the total number of directors) shall
constitute a quorum for the transaction of business, but less than a quorum may
adjourn any meeting to another time or place from time to time until a quorum
shall be present, whereupon the meeting may be held, as adjourned, without
further notice. Except as otherwise required by statute, the Certificate of
Incorporation or these By-Laws, all matters coming before any meeting of the
Board of Directors shall be decided by the vote of a majority of the directors
present at the meeting, a quorum being present.
Section 9. Removal of Directors. Any one or more of the directors shall
--------------------
be subject to removal with or without cause at any time by the stockholders.
Section 10. Committees of Directors. The Board of Directors may, by
-----------------------
resolution passed by a majority of the Board, designate one or more committees,
each committee to consist
-6-
<PAGE>
of one or more 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 of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all of 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 be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
Agreement of Merger or Consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the By-laws of the Corporation; and,
unless the resolution or the Certificate of Incorporation expressly so provides,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
-7-
<PAGE>
ARTICLE III
Notices
-------
Section 1. General. Whenever, under the provisions of the statutes or
-------
of the Certificate of Incorporation or of these By-laws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but notice to such director or stockholder, at his address as
it appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail or with an overnight courier service. Notice
to directors may also be given personally or by telephone, telegram, telex or
facsimile.
Section 2. Waiver of Notice. Whenever any notice is required to be given
----------------
under the provision of the statutes or of the Certificate of Incorporation or of
these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE IV
Officers
--------
Section 1. General. The Board of Directors shall elect the officers of
-------
the Corporation, which shall include a President, a secretary and a treasurer
and such other or additional officers (including, without limitation, a Chairman
of the Board, one or more Managing Directors, one or
-8-
<PAGE>
more Vice-Chairmen of the Board, a Chief Executive Officer, a Chief Operating
Officer, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and
Assistant Treasurers) as the Board of Directors may designate.
Section 2. Term of Office; Removal and Vacancy. Each officer shall hold
-----------------------------------
his office until the meeting of the Board of Directors following the next annual
meeting of stockholders and until his successor has been elected and qualified,
or until his earlier resignation or removal. Any officer of agent shall be
subject to removal with or without cause at any time by the Board of Directors.
Vacancies in any office, whether occurring by death, resignation, removal or
otherwise, may be filled by the Board of Directors.
Section 3. Powers and Duties. Each of the officers of the Corporation
-----------------
shall, unless otherwise ordered by the Board of Directors, have such powers and
duties as generally pertain to their respective offices as well as such powers
and duties as from time to time may be conferred upon him by the Board of
Directors. Unless otherwise ordered by the Board of Directors after the adoption
of these By-Laws, the Chairman, or if none, the President, shall be the chief
executive officer of the Corporation.
Section 4. Power to Vote Stock. Unless otherwise ordered by the Board of
-------------------
Directors, either the Chairman or President shall have full power and authority
on behalf of the Corporation to attend and to vote at any meeting of
stockholders of any Corporation in which the Corporation may hold stock, and may
exercise on behalf of the Corporation any and all of the rights and
-9-
<PAGE>
powers incident to the ownership of such stock at any such meeting and shall
have power and authority to execute and deliver proxies, waivers and consents on
behalf of the Corporation in connection with the exercise by the Corporation of
the rights and powers incident to the ownership of such stock. The Board of
Directors, from time to time, may confer like powers upon any other person or
persons.
ARTICLE V
Capital Stock
-------------
Section 1. Certificates of Stock. Certificates representing shares of
---------------------
stock of the Corporation shall be in such form complying with the statute as the
Board of Directors may from time to time prescribe and shall be signed by the
Chairman of the Board, or a Vice-Chairman of the Board or the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary.
Section 2. Transfer of Stock. Shares of capital stock of the Corporation
-----------------
shall be transferable on the books of the Corporation only by the holder of
record thereof, in person or by duly authorized attorney, upon surrender and
cancellation of certificates for a like number of shares, with an assignment or
power of transfer endorsed thereon or delivered therewith, duly executed, and
with such proof of the authenticity of the signature and of authority to
transfer, and of payment of transfer taxes, as the Corporation or its agents may
require.
-10-
<PAGE>
Section 3. Ownership of Stock. The Corporation shall be entitled to
------------------
treat the holder of record of any share or shares of stock as the owner thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not
expressly provided by law.
ARTICLE VI
Miscellaneous
-------------
Section 1. Corporate Seal. The seal of the Corporation shall be circular
--------------
in form and shall contain the name of the Corporation and the year and State of
incorporation.
Section 2. Fiscal Year. The Board of Directors shall have power to fix,
-----------
and from time to time to change, the fiscal year of the Corporation.
ARTICLE VII
Amendment
---------
The Board of Directors shall have the power to adopt, amend or repeal the
By-Laws of the Corporation subject to the power of the stockholders to amend or
repeal the By-Laws made or altered by the Board of Directors.
-11-
<PAGE>
ARTICLE VIII
Indemnification
---------------
The Corporation shall indemnify, to the extent permitted by the General
Corporation Law of Delaware as amended from time to time, (a) each of its
present and former officers and directors, and (b) each of its present or former
officers, directors, agents or employees who are serving or have served at the
request of the Corporation as an officer, director or partner (or in any similar
position) of another Corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending or completed action, suit or proceeding, whether by or
in the right of the Corporation by a third party or otherwise, to which such
person is made a party or threatened to be made a party by reason of such office
in the Corporation or in another Corporation, partnership, joint venture, trust
or other enterprise. Such indemnification shall inure to the benefit of the
heirs, executors and administrators of any indemnified person. To the extent
permitted by the General Corporation Law of Delaware, under general or specific
authority granted by the Board of Directors, (a) the Corporation by specific
action of the Board of Directors may furnish such indemnification to its agents
and employees with respect to their activities on behalf of the Corporation; (b)
the Corporation by specific action of the Board of Directors may furnish such
indemnification to each present or former officer, director, employee or agent
of a constituent Corporation absorbed in a consolidation or merger with the
Corporation and to each officer, director, agent or employee who is or was
serving at the request of such constituent Corporation as an officer, director,
agent or employee of an other
-12-
<PAGE>
Corporation, partnership, joint venture, trust or other enterprise; and (c) the
Corporation may purchase and maintain indemnification insurance on behalf of any
of the officers, directors, agents or employees whom it is required or permitted
to indemnify as provided in this Article.
-13-
<PAGE>
EXHIBIT 4.2
NEITHER THIS WARRANT NOR ANY SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "SECURITIES ACT") OR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT WITH RESPECT THERETO UNDER
THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION
ISSUED BY THE COUNSEL OF CKG MEDIA.COM, INC. THAT SUCH REGISTRATION AND
QUALIFICATION IS NOT REQUIRED UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS
OR AN EXEMPTION THEREFROM.
COMMON STOCK
PURCHASE WARRANT CERTIFICATE
Dated: June 17, 1999
Thirty Thousand (30,000) Warrants
To Purchase Up To Thirty Thousand (30,000)
Shares of Common Stock, $.001 Par Value Per Share, of CKG Media.com, Inc.
CKG MEDIA.com, Inc., (d/b/a Phase2Media) a Delaware corporation and its
successors, and assigns (the "Company"), hereby issues to SLG Graybar Sublease,
LLC and its permissible successors and assigns (the "Warrant Holder" or
"Holder") these warrants (the "Warrants" or the "Warrant") and certifies that,
for value received, Holder shall, on the terms and subject to the conditions
hereof, be entitled to purchase from the Company, from time to time in
accordance with the provisions hereof, until five (5) years from the date hereof
(the "Expiration Date") up to an aggregate of Thirty Thousand (30,000) shares
(the "Shares" or "Warrant Shares") of the Company's Common Stock, par value .001
per share (the "Securities") at an exercise price equal to $2.50 per share (the
"Per Share Exercise Price").
1. Vesting and Exercise of Warrant. (a) Subject to the provisions of
-------------------------------
Section 11 below, this Warrant shall vest on the earlier of (i) the delivery of
the "Premises" (as that term is defined in the lease, dated as of June 17, 1999,
between the Company and SLG Graybar
<PAGE>
Sublease, LLC ("SLG") (the "Lease")) by SLG to the Company in accordance with
the terms of the Lease, or (ii) the expiration or waiver of the Company's
cancellation rights pursuant to Insert 16A to the Lease. Upon the vesting of
this Warrant in accordance with the provisions of the immediately preceding
sentence, this Warrant shall be exercisable in whole or in part at any time and
from time to time on or before the Expiration Date.
(b) Subsequent to the Vesting of this Warrant in accordance with the
provisions of Section 1(a) above, upon presentation and surrender of this Common
Stock Purchase Warrant Certificate ("Warrant Certificate" or this
"Certificate"), with the attached Form of Election to Purchase duly executed, at
the principal office of the Company at 420 Lexington Avenue, Suite 2102-3, New
York, NY 10170, together with payment to the Company in the amount of the Per
Share Exercise Price multiplied by the number of Warrant Shares being purchased
(the "Aggregate Exercise Price") this Warrant shall be deemed to be exercised.
The Aggregate Exercise Price may be paid at the election of the Holder, as
follows (or any combination of the following): (i) in United States currency by
cash or delivery of a certified check or bank draft payable to the order of the
Company or by wire transfer to the Company, (ii) by cancellation of such number
of the Shares otherwise issuable to the Holder upon such exercise as shall be
specified in such Form of Election to Purchase such that the excess of the
aggregate "Current Market Price" (as hereinbelow defined) of such specified
number of Shares on the date of exercise over the portion of the Per Share
Exercise Price attributable to such Shares shall equal the Per Share Exercise
Price attributable to the Shares to be issued upon such exercise, in which case
such amount shall be deemed to have been paid to the Company and the number of
Shares issuable upon such exercise shall be reduced by such specified number, or
(iii) by surrender to the Company for cancellation certificates representing
Shares of the Company owned by the Holder (properly endorsed for transfer in
blank with signature guaranteed) having a Current Market Price on the date of
exercise equal to the aggregate Per Share Exercise Price with respect to the
number of Shares being exercised. As used herein, the term "Current Market
Price" shall mean, on any date specified herein, the average of the daily
"Market Price" (as that term is defined hereinbelow) during the ten (10)
consecutive trading days commencing fifteen (15) trading days before such date
of exercise, except that, if on any such date the Shares are not listed or
admitted for trading on any national securities exchange or quoted on the over-
the-counter market, the Current Market Price shall be the Market Price on such
date. As used herein, the term "Market Price" shall mean, on any date specified
herein, the amount per Share, equal to (a) the last reported sale price of such
Share, regular way, on such date or, in case no such sale takes place on such
date, the average of the closing bid and asked prices thereof, regular way, on
such date, in either case as officially reported on the principal national
securities exchange on which such Shares are then listed or admitted for
trading, or (b) if such Shares are not then listed or admitted for trading on
any national securities exchange but is designated as a National Market System
security by The Nasdaq Stock Market, the last reported trading price per Share
on such date, or (c) if there shall have been no trading on such date or if the
Shares are not designated as a National Market System security by The Nasdaq
Stock Market but has been designated as a Smallcap security by The Nasdaq Stock
Market or is quoted on The Nasdaq Stock Market's (or any successor market's)
over-the-counter market or on its electronic bulletin
2
<PAGE>
board, the average of the closing bid and asked prices per Share on such date as
shown by The Nasdaq Stock Market's (or any successor market's) automated
quotation system, over-the-counter market or electronic bulletin board, as the
case may be, or (d) if such Shares are not then listed or admitted for trading
on any national exchange or quoted on The Nasdaq Stock Market, over-the-counter
market, or electronic bulletin board, the fair value thereof (as of a date which
is within twenty (20) days of the date as of which the determination is to be
made) determined in good faith by the Board of Directors of the Company;
provided, however that in the event that the Holder in good faith disagrees with
- -------- -------
the determination made by the Company's Board of Directors, and the Holder and
the Company cannot agree on an appropriate value with respect to the Shares
within five (5) days thereafter, then the determination of the appropriate value
of the Shares shall be made by an independent investment banking firm agreed
upon by the Company and Holder. In the event that the Company and Holder cannot
agree upon an independent investment banking firm, then each of the Company and
Holder shall choose an independent investment banking firm and the two
independent investment banking firms shall designate a third independent
investment banking firm that shall make such determination. Any independent
investment banking firm shall take all relevant factors into account in making
such determination, including but not limited to appropriate discounts for
minority interests and lack of liquidity. The Company and the Holder shall share
equally all costs and expenses of any nature whatsoever in connection with
obtaining such valuation of the Shares, including but not limited to any fees
and disbursements of any independent investment banking firm contacted or
retained hereunder. Upon receipt of the Aggregate Exercise Price, the Company,
or the Company's transfer agent, as the case may be, shall deliver to the
Warrant Holder hereof, certificates of the Securities which in the aggregate
represent the number of Warrant Shares being purchased. All or less than all of
the Warrants represented by this Certificate may be exercised and, in case of
the exercise of less than all, the Company, upon surrender hereof, will deliver
to the Warrant Holder a new Warrant Certificate or Certificates of like tenor
and dated the date hereof entitling said Warrant Holder to purchase the number
of Warrant Shares represented by this Certificate which have not been exercised.
2. Exchange and Transfer. Upon presentation and surrender to the Company
---------------------
of this Certificate at any time prior to the exercise hereof, this certificate
may be exchanged, alone or with other Certificates of like tenor registered in
the name of the same Warrant Holder, for another Certificate or Certificates
(collectively, the "New Certificate(s)") of like tenor in the name of such
Warrant Holder. The New Certificate(s) shall be exercisable for the aggregate
number of Warrant Shares as the Certificate or Certificates surrendered. All
references herein to Certificate or Certificates shall be deemed to include any
New Certificate(s).
2.1 When Exercise Effective. Each exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
"Business Day" (as hereinbelow defined) on which the Certificate, Form of
Election to Purchase Shares and the Aggregate Exercise Price (if the Warrant is
being exercised in accordance with the provisions of Section 1(b)(i) and/or
Section 1(b)(iii) above) shall have been received by the Company as provided in
Section 2. At such time, the Holder or Holders in whose name or names any
certificate or
3
<PAGE>
certificates for Shares shall be issuable upon the exercise of the Warrant shall
be deemed to have become the holder or holders of record thereof for all
purposes. As used herein, the term "Business Day" shall mean any day other than
Saturday or Sunday or a day on which commercial banking institutions in the City
of New York are authorized by law to be closed. In the event that the Expiration
Date is not a Business Day, the Expiration Date shall automatically be deemed to
be the next succeeding Business Day immediately subsequent to such date.
2.2 Delivery of Stock Certificates, etc.; Charges, Taxes and Expenses. As
-----------------------------------------------------------------
soon as practicable after each exercise of this Warrant, in whole or in part,
and in any event within five (5) Business Days thereafter, the Company shall
cause to be issued in the name of and delivered to the Holder hereof, a
certificate or certificates for the number of Shares (or other securities as the
case may be) to which the Holder shall be entitled upon such exercise plus, in
lieu of issuance of any fractional share to which the Holder would otherwise be
entitled, if any, a check for the amount of cash equal to the same fraction
multiplied by the Current Market Price per share on the date of exercise.
3. Rights and Obligations of Warrant Holder of this Certificate. The
------------------------------------------------------------
Holder of this Certificate shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or in equity; provided,
however, that in the event any certificate representing Shares or other
securities is issued to the Holder hereof upon exercise of some or all of the
Warrants, such Holder shall, for all purposes, be deemed to have become the
Holder of record of such Shares in accordance with Section 2.1 above. The rights
of the Holder of this Certificate are limited to those expressed herein and the
Holder of this Certificate, by his or its acceptance hereof, consents to and
agrees to be bound by and to comply with all the provisions of this Certificate,
including without limitation all the obligations imposed upon the Warrant Holder
hereof by Section 6. In addition, the Warrant Holder of this Certificate, by
accepting the same, agrees that the Company may deem and treat the person in
whose name this Certificate is registered on the books of the Company as the
absolute, true and lawful owner for all purposes whatsoever, and the Company
shall not be affected by any notice to the contrary.
4. Shares. (a) The Company covenants and agrees that all Shares
------
issuable upon the exercise of this Warrant Certificate will, upon delivery, be
duly and validly authorized and issued, fully-paid and non-assessable, and free
from all stamp-taxes, liens, and charges with respect to the purchase thereof.
(b) The Company covenants and agrees that it will at all times
reserve and keep available an authorized number of Shares and other applicable
Securities sufficient to permit the exercise in full of all outstanding options,
warrants and rights, including the Warrants.
5. Legended Certificates. All certificates representing Shares issuable
---------------------
upon the exercise of Warrants shall bear restrictive legends substantially in
the form of the bold face language appearing on Page 1 of this Warrant
Certificate to the effect that the Shares represented by such certificate have
not been registered under the Securities Act of 1933, as amended and the
4
<PAGE>
rules and regulations promulgated thereunder (the "Securities Act"), or
qualified under any state securities laws and the Shares may not be sold or
transferred in the absence of such registration and qualification or an
exemption thereof.
6. Disposition of Warrants or Shares. The Holder of this Warrant
---------------------------------
Certificate, by his acceptance thereof, agrees that (a) no public distribution
of Warrants or Shares will be made in violation of the provisions of the
Securities Act, and (b) during such period as delivery of a prospectus with
respect to Warrants or Shares is required by the Securities Act, no public
distribution of Warrants or Shares will be made in a manner or on terms
different from those set forth in, or without delivery of, a prospectus then
meeting the requirements of Section 10 of the Securities Act and in compliance
with all applicable state securities laws. The Holder of this Certificate and
each transferee hereof further agrees that if any distribution of any of the
Warrants or Shares is proposed to be made by them otherwise than by delivery of
a prospectus meeting the requirements of Section 10 of the Securities Act, such
action shall be taken only after receipt by the Company of an opinion of
Company's counsel, to the effect that the proposed distribution will not be in
violation of the Securities Act or of applicable state law. Furthermore, it
shall be a condition to the transfer of the Warrants that any transferee thereof
deliver to the Company his or its written agreement to accept and be bound by
all of the terms and conditions contained in this Warrant Certificate.
7. "Piggyback" Registration.
------------------------
(a) At any time after the effective date of a registration statement
relating to the initial public offering of the Company's securities under
Section 5 of the Securities Act, the Company shall thereafter determine to
proceed with the actual preparation and filing of a registration statement under
the Securities Act in connection with the proposed offer and sale of any of its
securities by the Company solely on behalf of any of the Company's security
holders and not for the Company's own account (other than a registration
statement on Form S-4, S-8 or other successor or comparable form), the Company
shall give written notice of its determination (the "Piggyback Notice") to all
Holders of "Registrable Securities" (as that term is hereinafter defined) at
least thirty (30) days prior to filing such registration statement. As used
herein, the term Registrable Securities shall mean all Warrant Shares that have
actually been issued or that are issuable upon the exercise of this Warrant.
Upon the written request from the holder of any Registrable Securities within
twenty (20) days after the giving of the Piggyback Notice, the Company shall,
except as herein provided, cause such Registrable Securities to be included in
such registration statement, all to the extent required to permit the sale or
other disposition by the prospective seller or sellers of the Registrable
Securities to be so registered; provided, however, that nothing herein shall
-------- -------
prevent the Company from, at any time, abandoning or delaying any such Company
initiated registration. If any registration pursuant to this Section 7 shall be
underwritten in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this Section 7 be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriter(s). In the event that in the good faith judgment
of a managing underwriter of such public offering that the
5
<PAGE>
inclusion of all of the Registrable Securities originally covered by a request
for registration would materially adversely affect the successful marketing of
the securities offered by the Company, the number of shares of Registrable
Securities otherwise to be included in the underwritten public offering may be
eliminated or reduced pro rata among all selling security holders requesting
such registration (including any selling security holder not subject to this
agreement) as required by the managing underwriter. To the extent only a portion
of the Registrable Securities are included in the underwritten public offering,
those Registerable Securities that are excluded from the underwritten public
offering shall be withheld from the market by the holders thereof for a period,
not to exceed 270 days, which the managing underwriter reasonably determines is
necessary to effect the underwritten public offering.
There shall not be any limit to the number of piggyback registrations may
be requested by the holders of Registrable Securities.
(b) (i) Each holder of Registrable Securities agrees, by acquisition
of such Registrable Securities, if timely requested in writing by the managing
underwriter in an underwritten public offering, not to make any short sale of,
loan, grant any option for the purchase of or effect any public sale or
distribution, including a sale pursuant to Rule 144 (or any successor provision
having similar effect) under the Securities Act of any registrable securities or
any other equity security of the Company (or any security convertible into or
exchangeable or exercisable for any equity security of the Company) (except as
part of such underwritten registration), during the nine business days (as such
term is used in Regulation M under the Securities Exchange Act of 1934, as
amended) prior to, and during the time period reasonably requested by the
managing underwriter not to exceed 90 days, beginning on the effective date of
the applicable registration statement.
(ii) The Company agrees that (i) if timely requested in writing
by the managing underwriter in an underwritten public offering, not to make any
short sale of, loan, grant any option for the purchase of or effect any public
sale or distribution of any of the Company's equity securities (or any security
convertible into or exchangeable or exercisable for any of the Company's equity
securities) during the nine business days (as such term is used in Regulation M
under the Securities Exchange Act) prior to, and during the time period
reasonably requested by the managing underwriter not to exceed 90 days,
beginning on the effective date of the applicable registration statement (except
as part of such underwritten registration pursuant to registrations on Form S-4
or S-8 or any successor form to such forms), and (ii) it will cause each holder
of equity securities (or any security convertible into or exchangeable or
exercisable for any of its equity securities) of the Company purchased from the
Company at any time after the date of this Agreement (other than in a registered
public offering) to so agree.
(c) Whenever the Company is required by the provisions of Section 7
hereof to effect the registration of Registrable Securities under the Securities
Act, the Company shall:
(i) prepare and file with the Securities and Exchange Commission
(the
6
<PAGE>
"SEC") a registration statement with respect to the Registrable Securities, and
use its best efforts to cause such registration statement to become and remain
effective as promptly as practicable for such period as may be reasonably
necessary to effect the sale of such Registrable Securities, not to exceed nine
(9) months;
(ii) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective for such period
as may be reasonably necessary to effect the sale of the Registrable Securities,
not to exceed nine (9) months;
(iii) furnish to any Holder participating in such registration (a
"Participating Holder") such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
such Participating Holder may reasonably request in order to facilitate the
public offering of the Participating Holder's securities;
(iv) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such state securities or
blue sky laws of such jurisdiction, except that the Company shall not for any
purpose be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction wherein it
is not so qualified;
(v) notify the Participating Holders, promptly after it shall
receive notice thereof, of the time when such registration statement or a
supplement to any prospectus forming a part of such registration statement has
become effective;
(vi) prepare and file with the SEC, any amendments or
supplements to such registration statement or prospectus which are required
under the Securities Act or the rules and regulations thereunder in connection
with the distribution of the Warrant Shares by the Participating Holders;
(vii) prepare and promptly file with the SEC and promptly notify
the Participating Holders of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
Registrable Securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus or any
other prospectuses then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which whey were made,
not misleading;
(d) advise the Participating Holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Division of Enforcement of the SEC suspending the effectiveness of such
registration statement or the initiation or
7
<PAGE>
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued; and
(e) indemnify and hold harmless each Participating Holder against any
and all losses, claims, damages or liabilities to which such Participating
Holder shall become subject, under the Securities Act or otherwise, that arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or prospectus thereunder
or any amendment or supplement thereto, or any related preliminary prospectus,
or arise out of or are based upon 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; provided, however, that no such
-------- -------
indemnification shall be available to any Participating Holder with respect to,
and to the extent there is liability attributable to, written information
provided by a Participating Holder to the Company for use in such registration
statement or prospectus.
(f) All fees, costs and expenses of and incidental to the
registration of Registrable Securities (as specified in this Section 7(f)) in
connection with any registration hereunder, shall be borne by the Company if
registration is requested pursuant to Section 7 hereof; provided, however, that
-------- -------
Participating Holders shall bear their pro rata share of the underwriting
discount and commissions and transfer taxes. The costs and expense of
registration to be borne by the Company shall include all registration, filing
fees, printing expenses, fees and disbursements of counsel and accountants for
the Company, and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdiction in which
the securities to be offered are to be registered and qualified. Any other
expenses actually incurred by the Participating Holders (including but not
limited to any fees and disbursements of counsel, accountants or other advisors
retained by Participating Holders) not included above shall be borne in all
cases by the Participating Holders.
8. Anti-Dilution. If the Company at any time or from time to time while
-------------
this Warrant Certificate is outstanding shall declare or pay, without
consideration, any dividend on the Shares payable in Shares, or shall effect a
subdivision of the outstanding Shares into a greater number of Shares (by stock
split, reclassification or otherwise other than by the payment of a dividend in
Shares or in any right to acquire Shares), or if the outstanding Shares shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of Shares, then the number of Shares issuable upon the exercise of this Warrant
Certificate and the Per Share Exercise Price shall be appropriately adjusted
such that immediately after the occurrence of any such event, the proportionate
number of Shares issuable immediately prior to the occurrence of such event
shall be the number of Shares issuable subsequent to the occurrence of such
event.
9. Consolidation, Merger. In the event that the Company, after the date
---------------------
hereof (a) shall consolidate with or merge into any other person or entity and
shall not be the continuing or surviving corporation of such consolidation or
merger, or (b) shall permit any other person or entity to consolidate with or
merge into the Company and the Company shall be the continuing or surviving
person or entity but, in connection with such consolidation or merger, the
Shares or
8
<PAGE>
other securities shall be changed into or exchanged for stock or other
securities of any other person or entity or cash or any other property, then,
and in the case of each such transaction, proper provision shall be made so
that, upon the basis and the terms and in the manner provided in this Warrant,
the Holders of this Warrant, upon the exercise hereof at any time after the
consummation of such transaction, shall be entitled to receive (at the aggregate
Per Share Exercise Price in effect at the time of such consummation for all
Shares or other securities issuable upon such exercise immediately prior to such
consummation), in lieu of the Shares or other securities issuable upon such
exercise prior to such consummation, the securities, cash or other property to
which such Holder would actually have been entitled as a stockholder upon such
consummation if such Holder had exercised this Warrant immediately prior
thereto, subject to adjustments (subsequent to such consummation) as nearly
equivalent as possible to the adjustments provided for elsewhere in this Warrant
Certificate.
10. Notices. Except as otherwise specified herein to the contrary, all
-------
notices, requests, demands and other communications required or desired to be
given hereunder shall only be effective if given in writing by hand, by
certified or registered mail, return receipt requested, postage prepaid, or by
U.S. express mail service, or by private overnight mail service (e.g. Federal
Express). Any such notice shall be deemed to have been given (a) on the
business day actually received if given by hand, (b) on the business day
immediately subsequent to mailing, if sent by U.S. express mail service or
private overnight mail service, or (c) three (3) business days following the
mailing thereof, if mailed by certified or registered mail, postage prepaid,
return receipt requested, and all such notices shall be sent to the following
addresses (or to such other address or addresses as a party may have advised the
other in the manner provided in this Section 10):
If to the Company:
CKG MEDIA.com, Inc.
420 Lexington Avenue
New York, NY 10170
Facsimile no. (917) 368-7227
Attention: Richard Glassberg
with copies simultaneously by like means to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
Facsimile no.: (212) 223-6433
Attention: Andrew M. Chonoles, Esq.
9
<PAGE>
If to the Warrant Holder:
SLG Graybar Sublease, LLC
c/o SL Green Realty Corp.
420 Lexington Avenue, 19/th/ floor
New York, NY 10170
Facsimile no.: (212) 216-1785
Attn.: Marc Holliday
with copies simultaneously by like means to:
Brown & Wood, LLP
One World Trade Center
New York, NY 10048
Facsimile No. (212) 839-5598
Attn.: Michael Taylor, Esq.
11. Cancellation of Warrant. Notwithstanding anything contained herein to
-----------------------
the contrary, in the event that the Company exercises its cancellation rights
pursuant to Insert 16A to the Lease, this Warrant shall automatically be
rendered null and void and of no further force and effect.
12. Governing Law. This Warrant Certificate and all rights and
-------------
obligations hereunder shall be deemed to be made under and governed by the
substantive laws of the State of New York without giving effect to such States
conflicts of laws provisions.
13. Successors and Assigns. This Warrant Certificate shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
14. Headings. The headings of various sections of this Warrant
--------
Certificate have been inserted for reference only and shall not be a part of
this Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or by facsimile, by one of its officers thereunto
duly authorized.
CKG MEDIA.com, Inc.
Dated as of June 17, 1999
By: /s/ Richard S. Glassberg
-------------------------------
Name: Richard S. Glassberg
Title: Chairman/CEO
11
<PAGE>
EXHIBIT 4.3
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Issuer: CKG Media.com, Inc., a Delaware corporation
Number of Shares: 35,000, subject to adjustment
Class of Stock: Common Stock, $0.001 par value per share
Exercise Price: $0.63 per share, subject to adjustment
Issue Date: October 28, 1999
Expiration Date: October 28, 2006
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and
for other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase from CKG Media.com, Inc., a Delaware corporation (the
"Company"), Thirty-Five Thousand (35,000) shares of the Company's common stock,
par value $0.001 per share ("Common Stock"), for a purchase price per share of
Sixty Three Cents ($0.63 )(the "Exercise Price"). The number of shares of
Common Stock for which this Warrant is at any time and from time to time
exercisable (the "Shares") and the Exercise Price for the Shares each is subject
to adjustment pursuant to the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1 Method of Exercise. Holder may exercise this Warrant by
------------------
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
----------
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Exercise Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
----------------
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Exercise Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 Intentionally Omitted.
---------------------
<PAGE>
1.4 Fair Market Value. If the Shares are traded in a public market,
-----------------
the fair market value of the Shares shall be the average closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the ten (10) trading days immediately before Holder
delivers its Notice of Exercise to the Company. If the Shares are not traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors by ten percent (10%) or more, then all fees and expenses
of such investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrant. On receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
-----------------------------------------------------------
1.7.1. "Acquisition". For the purpose of this Warrant,
-------------
"Acquisition" means any sale, transfer, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
"Acquisition" shall not be deemed to include any issuance of securities by the
Company for financing purposes or in connection with capital raising efforts.
1.7.2. Assumption of Warrant. Upon the closing of any
---------------------
Acquisition, the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Exercise Price shall
be adjusted accordingly.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its Common Stock payable in Common Stock or other securities, or
subdivides the outstanding
-2-
<PAGE>
Common Stock into a greater amount of Common Stock, or, if the Shares are
securities other than Common Stock, subdivides the Shares in a transaction that
increases the amount of Common Stock into which the Shares are convertible, then
upon exercise of this Warrant, for each Share acquired, Holder shall receive,
without cost to Holder, the total number and kind of securities to which Holder
would have been entitled had Holder owned the Shares of record as of the date
the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Exercise Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding shares of
---------------------------------
the class or series of securities issuable upon exercise or conversion of this
Warrant are combined or consolidated, by reclassification or otherwise, into a
lesser number of shares, the Exercise Price shall be proportionately increased.
2.4 No Impairment. The Company shall not, by amendment of its
-------------
Certificate of Incorporation or By-laws or through a reorganization, transfer of
assets, consolidation, merger, dissolution, issue, or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed under this Warrant or the
Registration Rights Agreement (defined below) by the Company, but shall at all
times in good faith assist in carrying out of all the provisions of this Warrant
and in taking all such action as may be necessary or appropriate to protect
Holder's rights under this Warrant against impairment.
2.5 Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder an amount
computed by multiplying the fractional interest by the fair market value of a
full Share.
2.6 Certificate as to Adjustments. Upon each adjustment as provided
-----------------------------
in this Warrant of the number of Shares or the Exercise Price, the Company at
its expense shall promptly compute such adjustment, and furnish Holder with a
certificate of its Chief Financial Officer setting forth such adjustment and the
facts upon which such adjustment is based. The Company shall, upon
-3-
<PAGE>
written request, furnish Holder a certificate setting forth the number of Shares
and/or the Exercise Price in effect upon the date thereof and the series of
adjustments leading to such number of Shares and/or Exercise Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1 Representations and Warranties. The Company hereby represents
------------------------------
and warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of this
Warrant, and all securities, if any, issuable upon conversion of the Shares,
shall, upon issuance, be duly authorized, validly issued, fully paid and
nonassessable, and free of any liens and encumbrances except for restrictions on
transfer provided for herein or under applicable federal and state securities
laws.
(b) The authorized capital stock of the Company consists of
__________ shares, consisting of __________ shares of Common Stock, and _______
shares of Preferred Stock, $____ par value of which _________ shares have been
designated Series A Convertible Preferred Stock, ____________ shares have been
designated Series B Convertible Preferred Stock, and ___________ shares have
been designated Series C Convertible Preferred Stock. Schedule 3.1(b) sets forth
---------------
all of the outstanding shares of Common Stock and Preferred Stock and
outstanding options, warrants, convertible securities, convertible debentures,
and rights to acquire, subscribe for, and/or purchase any Common Stock,
Preferred Stock and/or other capital stock of the Company or any securities or
debentures convertible into or exchangeable for Common Stock, Preferred Stock
and/or other capital stock of the Company.
(c) The Company covenants that it shall at all times cause to be
reserved and kept available out of its authorized and unissued shares such
number of shares of Common Stock as will be sufficient to permit the exercise in
full of this Warrant.
3.2 Registration Under Securities Act of 1933, as amended. The
-----------------------------------------------------
Shares shall have certain registration rights as set forth in that certain First
Amended and Restated Registration Rights Agreement dated as of August 26, 1999
among the Company and the other parties named therein (as amended and in effect
from time to time, the "Registration Rights Agreement"). Holder shall be deemed
a "Holder" (as defined in the Registration Rights Agreement) and the Shares
shall be deemed "Registrable Securities" (as defined in the Registration Rights
Agreement). Upon the request of the Company Holder shall execute a counterpart
signature page to the Registration Rights Agreement. The Company represents and
warrants to Holder that the Company's granting of the aforementioned
registration rights to Holder (a) has been duly authorized by all necessary
corporate action of the Company's Board of Directors and shareholders, (b) will
not violate the Company's Certificate of Incorporation or By-laws, each as
amended, (c) will not violate or cause a breach or default (or an event which
with the passage of time or the giving of notice or both, would constitute a
breach or default) under any agreement, instrument, mortgage, deed of trust or
other arrangement
-4-
<PAGE>
to which the Company is a party or by which it or any of its assets is subject
or bound, and (d) does not require the approval, consent or waiver of or by any
third party which approval, consent or waiver has not been obtained as of the
date of issuance of this Warrant.
ARTICLE 4. MISCELLANEOUS.
-------------
4.1 Term This Warrant is exercisable, in whole or in part, at any
----
time and from time to time on or before the Expiration Date set forth above.
4.2 Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
-------------------------------------------
the Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company).
4.4 Transfer Procedure. Subject to the provisions of Section 4.3
------------------
Holder may transfer all or part of this Warrant and/or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares
or The Silicon Valley Bank Foundation, or, to any other transferee by giving the
Company notice of the portion of the Warrant being transferred setting forth the
name, address and taxpayer identification number of the transferee and
surrendering this Warrant to the Company for reissuance to the transferee(s)
(and Holder if applicable).
4.5 Notices. All notices and other communications from the Company
-------
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or sent by facsimile transmission, express overnight courier service,
or mailed by first-class registered or certified mail, postage prepaid, at such
address as may have been furnished to the Company or the Holder, as the case may
be, in writing by the Company or such holder from time to time, but in all
cases, unless instructed in writing otherwise, the Company shall deliver a copy
of all notices to
-5-
<PAGE>
Holder to Silicon Valley Bank, Treasury Department, 3003 Tasman Drive, MS NC
821, Santa Clara, California 95054.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
--------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of The State of New York, without giving effect to
its principles regarding conflicts of law.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as
an instrument under seal by its duly authorized representative as of the date
first above written.
ATTEST: "COMPANY"
CKG MEDIA.COM, INC.
By: By: /s/ Robert Chmiel
--------------------------------- ----------------------------------
Name: Name: Robert Chmiel
Title: Title: President & CEO
-7-
<PAGE>
Exhibit 4.4
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO RR Donnelley & Sons CompanyFinancial Printing GroupTHIS
WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW
OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE FIRST AMENDED AND RESTATED
SECURITYHOLDERS' AGREEMENT, DATED AS OF AUGUST 26, 1999, AND AS AMENDED BY
AMENDMENT NO. 1 THERETO DATED OCTOBER 15, 1999, AMONG THE COMPANY AND ITS
STOCKHOLDERS, A COPY OF WHICH WILL BE MADE AVAILABLE BY THE ISSUER UPON REQUEST.
PHASE2MEDIA, INC. (F/K/A CKG MEDIA.COM, INC.)
COMMON STOCK PURCHASE WARRANT
No. W- December 23, 1999
---
Void after December 23, 2002 Warrant to Purchase
--------
Shares of Common Stock
PHASE2MEDIA, INC. (f/k/a CKG Media.com, Inc.), a Delaware Corporation
(the "Company"), for value received, hereby certifies that
---------------------
or its registered assigns (the "Holder"), is entitled to purchase from the
Company ( ) duly
------------------------------------------------------------ ------
authorized, validly issued, fully paid and nonassessable shares of Common Stock,
par value $.001 per share, of the Company (the "Common Stock") at a purchase
price of $0.63 per share, at any time or from time to time commencing on the
date first set forth above and prior to 5:00 P.M., New York City time, on
December 23, 2002 (the "Expiration Date"), all subject to the terms, conditions
and adjustments set forth below in this Warrant.
The warrants represented by this common stock purchase warrant
certificate (collectively, the "Warrants", such term to include any such
warrants issued in substitution therefor) is one of six (6) common stock
purchase warrant certificates originally issued pursuant to that certain Second
Closing Purchase Agreement dated as of December 23, 1999 by and among the
Company, Vector Capital II, L.P. and Hachette Filipacchi Interactions S.A. and
each of the parties set forth on Schedule A annexed thereto. Each of the six
(6) Warrants originally so issued evidence rights to purchase an aggregate of
450,000 shares of Common Stock subject to adjustment as provided herein.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned such terms in the Securities Purchase Agreement.
<PAGE>
1. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms shall have the meanings indicated:
"Business Day" shall mean any day other than a Saturday or a Sunday or
------------
a day on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
"Commission" shall mean the Securities and Exchange Commission or any
----------
successor agency having jurisdiction to enforce the Securities Act.
"Common Stock" shall have the meaning assigned to it in the
------------
introduction to this Warrant, such term to include any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
"Company" shall have the meaning assigned to it in the introduction to
-------
this Warrant, such term to include any corporation or other entity which shall
succeed to or assume the obligations of the Company hereunder in compliance with
Section 4.
"Convertible Securities" shall mean any evidences of indebtedness,
----------------------
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
"Current Market Price" shall mean, on any date specified herein, the
--------------------
average of the daily Market Price during the 10 consecutive trading days
commencing 15 trading days before such date, except that, if on any such date
the shares of Common Stock are not listed or admitted for trading on any
national securities exchange or quoted in the over-the-counter market, the
Current Market Price shall be the Market Price on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Expiration Date" shall have the meaning assigned to it in the
---------------
introduction to this Warrant.
"Holder" shall have the meaning assigned to it in the introduction to
------
this Warrant.
"Market Price" shall mean, on any date specified herein, the amount
------------
per share of the Common Stock, equal to (a) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices thereof, regular way,
on such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, or (b) if such Common Stock is not then listed or admitted for trading
on any national securities exchange
-2-
<PAGE>
but is designated as a national market system security by the NASD, the last
reported trading price of the Common Stock on such date, or (c) if there shall
have been no trading on such date or if the Common Stock is not so designated,
the average of the closing bid and asked prices of the Common Stock on such date
as shown by the NASD automated quotation system or the Nasdaq SmallCap Market,
or (d) if such Common Stock is not then listed or admitted for trading on any
national exchange or quoted in the over-the-counter market, the fair value
thereof (as of a date which is within 20 days of the date as of which the
determination is to be made) determined in good faith by the Board of Directors
of the Company.
"NASD" shall mean the National Association of Securities Dealers, Inc.
----
"Options" shall mean any rights, options or warrants to subscribe for,
-------
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
"Other Securities" shall mean any stock (other than Common Stock) and
----------------
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
"Person" shall mean any individual, firm, partnership, corporation,
------
trust, joint venture, association, joint stock company, limited liability
company, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof, and shall
include any successor (by merger or otherwise) of such entity.
"Purchase Agreement" shall have the meaning assigned to it in the
------------------
introduction to this Warrant.
"Purchase Price" shall mean initially $0.63 per share, subject to
--------------
adjustment and readjustment from time to time as provided in Section 3, and, as
so adjusted or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by Section 3.
"Restricted Securities" shall mean (a) any Warrants bearing the
---------------------
applicable legend set forth in Section 9.1, (b) any shares of Common Stock (or
Other Securities) issued or issuable upon the exercise of Warrants which are
(or, upon issuance, will be) evidenced by a certificate or certificates bearing
the applicable legend set forth in such Section, and (c) any shares of Common
Stock (or Other Securities) issued subsequent to the exercise of any of the
Warrants as a dividend or other distribution with respect to, or resulting from
a subdivision of the outstanding shares of Common Stock (or other Securities)
into a greater number of shares by reclassification, stock splits or otherwise,
or in exchange for or in replacement of the Common Stock (or Other Securities)
issued upon such exercise, which are evidenced by a certificate or certificates
bearing the applicable legend set forth in such Section.
-3-
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended
--------------
from time to time, and the rules and regulations thereunder, or any successor
statute.
"Securities Purchase Agreement" shall mean Securities Purchase
-----------------------------
Agreement dated as of August 16, 1999 by and among the Company, Vector Capital
II, L.P. and each of the parties listed on Schedule A and Schedule B annexed
thereto.
"Securityholders' Agreement" shall mean the First Amended and Restated
--------------------------
Securityholders' Agreement by and among the Company and its stockholders dated
as of August 26, 1999, as amended by Amendment No. 1 thereto dated October 15,
1999.
"Warrants" shall have the meaning assigned to it in the introduction
--------
to this Warrant.
2. Exercise of Warrant.
-------------------
2.1. Manner of Exercise; Payment of the Purchase Price. (a) This
-------------------------------------------------
Warrant may be exercised by the Holder hereof, in whole or in part, at any time
or from time to time commencing on the date first set forth above and prior to
the Expiration Date, by surrendering to the Company at its principal office this
Warrant, with the form of Election to Purchase Shares attached hereto as Exhibit
A (or a reasonable facsimile thereof) duly executed by the Holder and
accompanied by payment of the Purchase Price for the number of shares of Common
Stock specified in such form.
(b) Payment of the Purchase Price may be made as follows (or by any
combination of the following): (i) in United States currency by cash or
delivery of a certified check or bank draft payable to the order of the Company
or by wire transfer to the Company, (ii) by cancellation of such number of the
shares of Common Stock otherwise issuable to the Holder upon such exercise as
shall be specified in such Election to Purchase Shares, such that the excess of
the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the Purchase Price attributable to such
shares shall equal the Purchase Price attributable to the shares of Common Stock
to be issued upon such exercise, in which case such amount shall be deemed to
have been paid to the Company and the number of shares issuable upon such
exercise shall be reduced by such specified number, or (iii) by surrender to the
Company for cancellation certificates representing shares of Common Stock of the
Company owned by the Holder (properly endorsed for transfer in blank) having a
Current Market Price on the date of Warrant exercise equal to the Purchase
Price.
2.2. When Exercise Effective. Each exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to, and the
Purchase Price shall have been received by, the Company as provided in Section
2.1, and at such time the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock (or Other Securities)
shall be issuable upon such exercise as provided in Section 2.3 shall be deemed
to have become the holder or holders of record thereof for all purposes.
-4-
<PAGE>
2.3. Delivery of Stock Certificates, etc.; Charges, Taxes and
--------------------------------------------------------
Expenses. (a) As soon as practicable after each exercise of thisWarrant, in
- --------
whole or in part, and in any event within five Business Days thereafter, the
Company shall cause to be issued in the name of and delivered to the Holder
hereof or, subject to Section 9 and the Securityholders' Agreement, as the
Holder may direct,
(1) a certificate or certificates for the number of shares of Common
Stock (or Other Securities) to which the Holder shall be entitled upon such
exercise plus, in lieu of issuance of any fractional share to which the
Holder would otherwise be entitled, if any, a check for the amount of cash
equal to the same fraction multiplied by the Current Market Price per share
on the date of Warrant exercise, and
(2) in case such exercise is for less than all of the shares of
Common Stock purchasable under this Warrant, a new Warrant or Warrants of
like tenor, for the balance of the shares of Common Stock purchasable
hereunder.
(b) Issuance of certificates for shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder hereof for
any issue tax or other incidental expense in respect of the issuance of such
certificates, all of which such taxes and expenses shall be paid by the Company.
2.4. Company to Reaffirm Obligations. The Company shall, at the time
-------------------------------
of each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder all
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the terms of this Warrant, provided that if the Holder of this
--------
Warrant shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford such rights to the Holder.
3. Adjustment of Common Stock Issuable Upon Exercise.
-------------------------------------------------
3.1. Adjustment of Number of Shares.
------------------------------
Upon each adjustment of the Purchase Price as a result of the
calculations made in this Section 3, this Warrant shall thereafter evidence the
right to receive, at the adjusted Purchase Price, that number of shares of
Common Stock (calculated to the nearest one-hundredth) obtained by dividing (i)
the product of the aggregate number of shares covered by this Warrant
immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (ii) the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
3.2. Treatment of Stock Dividends, Stock Splits, etc. In case the
------------------------------------------------
Company at any time or from time to time after the date hereof shall declare any
dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment
-5-
<PAGE>
of a dividend in Common Stock), then, and in each such case, the Purchase Price
in effect immediately prior to the declaration of such dividend or to such
subdivision shall, concurrently with the effectiveness of such declaration or
subdivision, be proportionately decreased.
3.3. Adjustments for Combinations, etc. In case the outstanding
----------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Purchase Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
3.4. De Minimis Adjustments. If the amount of any adjustment of the
----------------------
Purchase Price per share required pursuant to this Section 3 would be less than
one tenth (1/10) of one percent (1%) of the Purchase Price, such amount shall be
carried forward and adjustment with respect thereto made at the time of and
together with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate a change in the
Purchase Price of at least one tenth (1/10) of one percent (1%) of such Purchase
Price. All calculations under this Warrant shall be made to the nearest .001 of
a cent or to the nearest one-hundredth of a share, as the case may be.
3.5. Abandoned Dividend or Distribution. If the Company shall take a
----------------------------------
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Purchase Price under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Purchase Price and number of
shares of Common Stock purchasable upon Warrant exercise by reason of the taking
of such record shall be reversed, and any subsequent adjustments, based thereon,
shall be recomputed.
4. Consolidation, Merger, etc.
--------------------------
4.1. Adjustments for Consolidation, Merger, Sale of Assets,
------------------------------------------------------
Reorganization, etc. In case the Company after the date hereof (a) shall
- -------------------
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities,
then, and in the case of each such transaction, proper provision shall be made
so that, upon the basis and the terms and in the manner provided in this
Warrant, the Holder of this Warrant, upon the exercise hereof at any time after
the consummation of such transaction, shall be entitled to receive (at the
aggregate Purchase Price in effect at the time of such consummation for all
Common Stock or Other Securities issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Stock or Other Securities issuable
-6-
<PAGE>
upon such exercise prior to such consummation, the highest amount of securities,
cash or other property to which such Holder would actually have been entitled as
a shareholder upon such consummation if such Holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in Sections 3 and 4, provided that if a purchase, tender or exchange offer shall
--------
have been made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, and if the Holder so designates in a notice
given to the Company on or before the date immediately preceding the date of the
consummation of such transaction, the Holder of such Warrants shall be entitled
to receive the highest amount of securities, cash or other property to which it
would actually have been entitled as a shareholder if the Holder of such
Warrants had exercised such Warrants prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to adjustments (from
and after the consummation of such purchase, tender or exchange offer) as nearly
equivalent as possible to the adjustments provided for in Sections 3 and 4.
4.2. Assumption of Obligations. Notwithstanding anything contained
-------------------------
in the Warrants or in the Purchase Agreement to the contrary, the Company shall
not effect any of the transactions described in clauses (a) through (d) of
Section 4.1 unless, prior to the consummation thereof, each Person (other than
the Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder of
this Warrant, (a) the obligations of the Company under this Warrant (and if the
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Warrant), and (b) the obligation to
deliver to the Holder such shares of stock, securities, cash or property as, in
accordance with the foregoing provisions of this Section 4, the Holder may be
entitled to receive. Nothing in this Section 4 shall be deemed to authorize the
Company to enter into any transaction not otherwise permitted by the Purchase
Agreement.
5. No Impairment. The Company shall not, by amendment of its
-------------
certificate of incorporation or through any consolidation, merger,
reorganization, transfer of the assets, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) shall not permit the par value
of any shares of stock receivable upon the exercise of this Warrant to exceed
the amount payable therefor upon such exercise, (b) shall take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, and (c) shall not
take any action which results in any adjustment of the Purchase Price if the
total number of shares of Common Stock (or Other Securities) issuable after the
action upon the exercise of all of the Warrants would exceed the total number of
shares of Common Stock (or Other Securities) then authorized by the Company's
certificate of incorporation and available for the purpose of issue upon such
exercise.
-7-
<PAGE>
6. Certificate as to Adjustments. In each case of any adjustment or
-----------------------------
readjustment in the shares of Common Stock (or Other Securities) issuable upon
the exercise of this Warrant, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant and
prepare a certificate, signed by the Company's Chief Executive Officer or Chief
Financial Officer setting forth such adjustment or readjustment and showing in
reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Purchase Price in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required by Section 3) on account thereof. The
Company shall forthwith mail a copy of each such certificate to each holder of a
Warrant and shall, upon the written request at any time of any holder of a
Warrant, furnish to such holder a like certificate setting forth the Purchase
Price at the time in effect and showing in reasonable detail how it was
calculated. The Company shall also keep copies of all such certificates at its
principal office and shall cause the same to be available for inspection at such
office during normal business hours by any holder of a Warrant or any
prospective purchaser of a Warrant designated by the holder thereof. The
Company shall, upon the request in writing of the Holder (at the Company's
expense) retain independent public accountants of recognized national standing
selected by the Board of Directors of the Company to make any computation
required in connection with adjustments under this Warrant, and a certificate
signed by such firm shall be conclusive evidence of the correctness of such
adjustment, which shall be binding on the Holder and the Company.
7. Notices of Corporate Action. In the event of:
---------------------------
(a) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any consolidation or
merger involving the Company and any other Person, any transaction or series of
transactions in which more than 50% of the voting securities of the Company are
transferred to another Person, or any transfer, sale or other disposition of all
or substantially all the assets of the Company to any other Person, or
(b) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company, the Company shall mail to each holder of a Warrant a notice
specifying the date or expected date on which any such reorganization,
reclassification, recapitalization, consolidation, merger, transfer, sale,
disposition, dissolution, liquidation or winding-up is to take place and the
time, if any such time is to be fixed, as of which the holders of record of
Common Stock (or Other Securities) shall be entitled to exchange their shares of
Common Stock (or Other Securities) for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date therein specified.
8. Registration of Common Stock. The shares of Common Stock (and
----------------------------
Other Securities) issuable upon exercise of this Warrant (or upon conversion of
any shares of Common Stock issued upon such exercise) shall constitute
"Conversion Stock" (as such term is defined in
-8-
<PAGE>
Section 1 of that certain First Amended and Restated Registration Rights
Agreement effective as of August 26, 1999 by and among the Company and the
Investors and Series C Investors (the "Registration Rights Agreement")). Each
holder of this Warrant shall be entitled to all of the benefits afforded to such
holder of Conversion Stock in its capacity as an Investor under the Registration
Rights Agreement and such holder, by its acceptance of this Warrant, agrees to
be bound by and to comply with the terms and conditions of the Registration
Rights Agreement applicable to such holder as a holder of Conversion Stock
thereunder.
9.1 Restrictive Legends. Except as otherwise permitted by this
-------------------
Section 9, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN SUCH WARRANT AND IN THE FIRST
AMENDED AND RESTATED SECURITYHOLDERS' AGREEMENT DATED AS OF AUGUST 26, 1999, AND
AS AMENDED ON OCTOBER 15, 1999, BY AND AMONG THE COMPANY AND ITS STOCKHOLDERS, A
COPY OF WHICH SHALL BE MADE AVAILABLE BY THE ISSUER UPON REQUEST."
Except as otherwise permitted by this Section 9, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. SUCH SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE
WITH THE CONDITIONS SPECIFIED IN SUCH WARRANT AND IN THE FIRST AMENDED AND
RESTATED SECURITYHOLDERS' AGREEMENT, DATED AS OF AUGUST 26, 1999, AND AS
AMENDED ON OCTOBER 15,
-9-
<PAGE>
1999, BY AND AMONG THE COMPANY AND CERTAIN STOCKHOLDERS, A COPY OF WHICH
SHALL BE MADE AVAILABLE BY THE ISSUER UPON REQUEST."
9.2. Transfer to Comply With the Securities Act. Restricted
------------------------------------------
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part, except in compliance
with the provisions of the Securities Act and state securities or Blue Sky laws,
the Securityholders' Agreement and the terms and conditions hereof. The Company
may require a legal opinion, in form and substance reasonably satisfactory to
the Company, as to the availability of and compliance with such exemptions and
the state securities or blue sky laws.
9.3. Termination of Restrictions. The restrictions imposed by this
---------------------------
Section 9 on the transferability of Restricted Securities to comply with the
Securities Act and state securities or Blue Sky laws shall cease and terminate
as to any particular Restricted Securities (a) when a registration statement
with respect to the sale of such securities shall have been declared effective
under the Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (b) when such securities are sold
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are no longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. Reservation of Stock, etc. The Company shall at all times
--------------------------
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding.
All shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable. All
Warrant Certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
-10-
<PAGE>
11. Registration and Transfer of Warrants, etc.
-------------------------------------------
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued
---------------------------------------
by the Company shall be numbered and shall be registered in a warrant register
(the "Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9, if
--------------------
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall
at its expense issue and deliver to the Holder a new Warrant of like tenor, in
the name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
11.3. Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4. Adjustments To Purchase Price and Number of Shares.
--------------------------------------------------
Notwithstanding any adjustment in the Purchase Price or in the number or kind of
shares of Common Stock purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
11.5. Fractional Shares. Notwithstanding any adjustment pursuant to
-----------------
Section 3 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company shall not be required to issue
fractions of shares upon exercise of this Warrant or to distribute certificates
which evidence fractional shares. In lieu of fractional shares, the Company
shall make payment to the Holder, at the time of exercise of this Warrant as
herein provided, in an amount in cash equal to such fraction multiplied by the
Current Market Price of a share of Common Stock on the date of Warrant exercise.
-11-
<PAGE>
12. Remedies; Specific Performance. The Company stipulates that
------------------------------
there would be no adequate remedy at law to the Holder of this Warrant in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any federal court of the Southern District of New York or any state court
located in New York County, State of New York and in any court of the United
States or any State thereof having jurisdiction, and if any action should be
brought in equity to enforce any of the provisions of this Warrant, the Company
shall not raise the defense that there is an adequate remedy at law. Except as
otherwise provided by law, a delay or omission by the Holder hereto in
exercising any right or remedy accruing upon any such breach shall not impair
the right or remedy or constitute a waiver of or acquiescence in any such
breach. No remedy shall be exclusive of any other remedy. All available
remedies shall be cumulative.
13. No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a stockholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
14. Notices. All notices and other communications (and deliveries)
-------
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of its Chief Executive Officer
at its principal office located at 420 Lexington Avenue, 26/th/ floor, New York,
NY 10170 or such other address as may hereafter be designated in writing by the
Company to the Holder in accordance with the provisions of this Section, or (b)
if to the Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged, if telecopied; on the next Business
Day, if timely delivered to a courier guaranteeing overnight delivery; and five
days after being deposited in the mail, if sent first class or certified mail,
return receipt requested, postage prepaid; provided, that the exercise of any
--------
Warrant shall be effective in the manner provided in Section 2.
15. Amendments. This Warrant and any term hereof may not be amended,
----------
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
16. Descriptive Headings, Etc. The headings in this Warrant are for
--------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.
-12-
<PAGE>
Unless the context of this Warrant otherwise requires: (1) words of any gender
shall be deemed to include each other gender; (2) words using the singular or
plural number shall also include the plural or singular number, respectively;
(3) the words "hereof", "herein" and "hereunder" and words of similar import
when used in this Warrant shall refer to this Warrant as a whole and not to any
particular provision of this Warrant, and Section and paragraph references are
to the Sections and paragraphs of this Warrant unless otherwise specified; (4)
the word "including" and words of similar import when used in this Warrant shall
mean "including, without limitation," unless otherwise specified; (5) "or" is
not exclusive; and (6) provisions apply to successive events and transactions.
17. Governing Law. This Warrant shall be governed by, and construed
-------------
in accordance with, the laws of the State of New York (without giving effect to
the conflict of laws principles thereof).
18. Judicial Proceedings. Any legal action, suit or proceeding
--------------------
brought against the Company with respect to this Warrant may be brought in any
federal court of the Southern District of New York or any state court located in
New York County, State of New York, and by execution and delivery of this
Warrant, the Company hereby irrevocably and unconditionally waives any claim (by
way of motion, as a defense or otherwise) of improper venue, that it is not
subject personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company hereby irrevocably and
unconditionally consents to the process of any of the aforementioned courts in
any such action, suit or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, at its address set forth or
provided for in Section 14, such service to become effective 10 days after such
mailing. Nothing herein contained shall be deemed to affect the right of any
party to serve process in any manner permitted by law or commence legal
proceedings or otherwise proceed against any other party in any other
jurisdiction to enforce judgment obtained in any action, suit or proceeding
brought pursuant to this Section.
19. WAIVER OF TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER
-----------------------
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS WARRANT OR UNDER ANY AMENDMENT, WAIVER,
CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE
FUTURE MAY BE DELIVERED IN CONNECTION WITH THIS WARRANT, AND AGREES THAT ANY
SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
PHASE2MEDIA, INC. (f/k/a CKG Media.com, Inc.)
By:
----------------------------------
Name: Richard Nachmias
Title: Chief Financial Officer
-13-
<PAGE>
EXHIBIT 4.5
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE WARRANT
AGREEMENT, DATED AS OF OCTOBER 28, 1999, BETWEEN THE COMPANY AND VECTOR CAPITAL
II, L.P., A COPY OF WHICH WILL BE MADE AVAILABLE BY THE ISSUER UPON REQUEST.
PHASE2MEDIA, INC. (F/K/A CKG MEDIA.COM, INC.)
COMMON STOCK PURCHASE WARRANT
No. W-G-1 January 27, 2000
Void after October 27, 2003 Warrant to Purchase
up to 280,000 Shares
of Common Stock
PHASE2MEDIA, INC. (f/k/a CKG Media.com, Inc.), a Delaware Corporation
(the "Company"), for value received, hereby certifies that Vector Capital II,
L.P. or their registered assigns (the "Holder"), is entitled to purchase from
the Company up to Two Hundred and Eighty Thousand (280,000) duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock, par value
$.001 per share, of the Company (the "Common Stock") at a purchase price of
$0.63 per share, at any time or from time to time commencing on the date first
set forth above and prior to 5:00 P.M., New York City time, on October 27, 2003
(the "Expiration Date"), all subject to the terms, conditions and adjustments
set forth below in this Warrant.
The warrants represented by this common stock purchase warrant
certificate (collectively, the "Warrants", such term to include any such
warrants issued in substitution therefor) are part of the aggregate Warrants
issued pursuant to that certain warrant agreement dated as of October 28, 1999
(the "Warrant Agreement") between the Company and Vector Capital II, L.P., all
of which are identical, except with respect to the actual date of issuance.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned such terms in the Warrant Agreement.
-1-
<PAGE>
1. "Definitions". As used herein, unless the context otherwise
-----------
requires, the following terms shall have the meanings indicated:
"Business Day" shall mean any day other than a Saturday or a Sunday or
------------
a day on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
"Commission" shall mean the Securities and Exchange Commission or any
----------
successor agency having jurisdiction to enforce the Securities Act.
"Common Stock" shall have the meaning assigned to it in the
------------
introduction to this Warrant, such term to include any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
"Company" shall have the meaning assigned to it in the introduction to
-------
this Warrant, such term to include any corporation or other entity which shall
succeed to or assume the obligations of the Company hereunder in compliance with
Section 4.
"Current Market Price" shall mean, on any date specified herein, the
--------------------
average of the daily Market Price during the 10 consecutive trading days
commencing 15 trading days before such date, except that, if on any such date
the shares of Common Stock are not listed or admitted for trading on any
national securities exchange or quoted in the over-the-counter market, the
Current Market Price shall be the Market Price on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Expiration Date" shall have the meaning assigned to it in the
---------------
introduction to this Warrant.
"Holder" shall have the meaning assigned to it in the introduction to
------
this Warrant.
"Market Price" shall mean, on any date specified herein, the amount
------------
per share of the Common Stock, equal to (a) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices thereof, regular way,
on such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, or (b) if such Common Stock is not then listed or admitted for trading
on any national securities exchange but is designated as a national market
system security by the NASD, the last reported trading price of the Common Stock
on such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system or the Nasdaq SmallCap
-2-
<PAGE>
Market, or (d) if such Common Stock is not then listed or admitted for trading
on any national exchange or quoted in the over-the-counter market, the fair
value thereof (as of a date which is within 20 days of the date as of which the
determination is to be made) determined in good faith by the Board of Directors
of the Company.
"NASD" shall mean the National Association of Securities Dealers, Inc.
----
"Other Securities" shall mean any stock (other than Common Stock) and
----------------
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
"Person" shall mean any individual, firm, partnership, corporation,
------
trust, joint venture, association, joint stock company, limited liability
company, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof, and shall
include any successor (by merger or otherwise) of such entity.
"Purchase Price" shall mean initially $0.63 per share, subject to
--------------
adjustment and readjustment from time to time as provided in Section 3, and, as
so adjusted or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by Section 3.
"Restricted Securities" shall mean (a) any Warrants bearing the
---------------------
applicable legend set forth in Section 9.1, (b) any shares of Common Stock (or
Other Securities) issued or issuable upon the exercise of Warrants which are
(or, upon issuance, will be) evidenced by a certificate or certificates bearing
the applicable legend set forth in such Section, and (c) any shares of Common
Stock (or Other Securities) issued subsequent to the exercise of any of the
Warrants as a dividend or other distribution with respect to, or resulting from
a subdivision of the outstanding shares of Common Stock (or other Securities)
into a greater number of shares by reclassification, stock splits or otherwise,
or in exchange for or in replacement of the Common Stock (or Other Securities)
issued upon such exercise, which are evidenced by a certificate or certificates
bearing the applicable legend set forth in such Section.
"Securities Act" shall mean the Securities Act of 1933, as amended
--------------
from time to time, and the rules and regulations thereunder, or any successor
statute.
"Warrant Agreement" shall mean Warrant Agreement dated as of October
-----------------
28, 1999 between the Company and Vector Capital II, L.P.
"Warrants" shall have the meaning assigned to it in the introduction
--------
to this Warrant.
-3-
<PAGE>
2. Exercise of Warrant.
-------------------
2.1. Manner of Exercise; Payment of the Purchase Price. (a) This
-------------------------------------------------
Warrant may be exercised by the Holder hereof, in whole or in part, at any time
or from time to time commencing on the date first set forth above and prior to
the Expiration Date, by surrendering to the Company at its principal office this
Warrant, with the form of Election to Purchase Shares attached hereto as Exhibit
A (or a reasonable facsimile thereof) duly executed by the Holder and
accompanied by payment of the Purchase Price for the number of shares of Common
Stock specified in such form.
(b) Payment of the Purchase Price may be made as follows (or by any
combination of the following): (i) in United States currency by cash or
delivery of a certified check or bank draft payable to the order of the Company
or by wire transfer to the Company, (ii) by cancellation of such number of the
shares of Common Stock otherwise issuable to the Holder upon such exercise as
shall be specified in such Election to Purchase Shares, such that the excess of
the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the Purchase Price attributable to such
shares shall equal the Purchase Price attributable to the shares of Common Stock
to be issued upon such exercise, in which case such amount shall be deemed to
have been paid to the Company and the number of shares issuable upon such
exercise shall be reduced by such specified number, or (iii) by surrender to the
Company for cancellation certificates representing shares of Common Stock of the
Company owned by the Holder (properly endorsed for transfer in blank) having a
Current Market Price on the date of Warrant exercise equal to the Purchase
Price.
2.2. When Exercise Effective. Each exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to, and the
Purchase Price shall have been received by, the Company as provided in Section
2.1, and at such time the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock (or Other Securities)
shall be issuable upon such exercise as provided in Section 2.3 shall be deemed
to have become the holder or holders of record thereof for all purposes.
2.3. Delivery of Stock Certificates, etc.; Charges, Taxes and
--------------------------------------------------------
Expenses. (a) As soon as practicable after each exercise of this Warrant, in
- --------
whole or in part, and in any event within five Business Days thereafter, the
Company shall cause to be issued in the name of and delivered to the Holder
hereof or, subject to Section 9 and the Warrant Agreement, as the Holder may
direct,
(1) a certificate or certificates for the number of shares of Common
Stock (or Other Securities) to which the Holder shall be entitled upon such
exercise plus, in lieu of issuance of any fractional share to which the
Holder would otherwise be entitled, if any, a check for the amount of cash
equal to the same fraction multiplied by the Current Market Price per share
on the date of Warrant exercise, and
(2) in case such exercise is for less than all of the shares of
Common Stock
-4-
<PAGE>
purchasable under this Warrant, a new Warrant or Warrants of like tenor,
for the balance of the shares of Common Stock purchasable hereunder.
(b) Issuance of certificates for shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder hereof for
any issue tax or other incidental expense in respect of the issuance of such
certificates, all of which such taxes and expenses shall be paid by the Company.
2.4. Company to Reaffirm Obligations. The Company shall, at the time
-------------------------------
of each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder all
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the terms of this Warrant, provided that if the Holder of this
--------
Warrant shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford such rights to the Holder.
3. Adjustment of Common Stock Issuable Upon Exercise.
-------------------------------------------------
3.1. Adjustment of Number of Shares.
------------------------------
Upon each adjustment of the Purchase Price as a result of the
calculations made in this Section 3, this Warrant shall thereafter evidence the
right to receive, at the adjusted Purchase Price, that number of shares of
Common Stock (calculated to the nearest one-hundredth) obtained by dividing (i)
the product of the aggregate number of shares covered by this Warrant
immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (ii) the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
3.2. Treatment of Stock Dividends, Stock Splits, etc. In case the
------------------------------------------------
Company at any time or from time to time after the date hereof shall declare any
dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, the Purchase Price in
effect immediately prior to the declaration of such dividend or to such
subdivision shall, concurrently with the effectiveness of such declaration or
subdivision, be proportionately decreased.
3.3. Adjustments for Combinations, etc. In case the outstanding
----------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Purchase Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
3.4. De Minimis Adjustments. If the amount of any adjustment of the
----------------------
Purchase Price per share required pursuant to this Section 3 would be less than
one tenth (1/10) of one percent (1%) of the Purchase Price, such amount shall be
carried forward and adjustment with respect thereto made at the time of and
together with any subsequent adjustment which, together with such amount
-5-
<PAGE>
and any other amount or amounts so carried forward, shall aggregate a change in
the Purchase Price of at least one tenth (1/10) of one percent (1%) of such
Purchase Price. All calculations under this Warrant shall be made to the nearest
.001 of a cent or to the nearest one-hundredth of a share, as the case may be.
3.5. Abandoned Dividend or Distribution. If the Company shall take a
----------------------------------
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Purchase Price under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Purchase Price and number of
shares of Common Stock purchasable upon Warrant exercise by reason of the taking
of such record shall be reversed, and any subsequent adjustments, based thereon,
shall be recomputed.
4. Consolidation, Merger, etc.
--------------------------
4.1. Adjustments for Consolidation, Merger, Sale of Assets,
-----------------------------------------------------
Reorganization, etc. In case the Company after the date hereof (a) shall
- -------------------
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities,
then, and in the case of each such transaction, proper provision shall be made
so that, upon the basis and the terms and in the manner provided in this
Warrant, the Holder of this Warrant, upon the exercise hereof at any time after
the consummation of such transaction, shall be entitled to receive (at the
aggregate Purchase Price in effect at the time of such consummation for all
Common Stock or Other Securities issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Stock or Other Securities issuable
upon such exercise prior to such consummation, the highest amount of securities,
cash or other property to which such Holder would actually have been entitled as
a shareholder upon such consummation if such Holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in Sections 3 and 4, provided that if a purchase, tender or exchange offer shall
--------
have been made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, and if the Holder so designates in a notice
given to the Company on or before the date immediately preceding the date of the
consummation of such transaction, the Holder of such Warrants shall be entitled
to receive the highest amount of securities, cash or other property to which it
would actually have been entitled as a shareholder if the Holder of such
Warrants had exercised such Warrants prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to adjustments (from
and after the consummation of such purchase, tender or exchange offer) as nearly
equivalent as possible to the adjustments provided for in Sections 3 and 4.
-6-
<PAGE>
4.2. Assumption of Obligations. Notwithstanding anything contained in
-------------------------
the Warrants to the contrary, the Company shall not effect any of the
transactions described in clauses (a) through (d) of Section 4.1 unless, prior
to the consummation thereof, each Person (other than the Company) which may be
required to deliver any stock, securities, cash or property upon the exercise of
this Warrant as provided herein shall assume, by written instrument delivered
to, and reasonably satisfactory to, the Holder of this Warrant, (a) the
obligations of the Company under this Warrant (and if the Company shall survive
the consummation of such transaction, such assumption shall be in addition to,
and shall not release the Company from, any continuing obligations of the
Company under this Warrant), and (b) the obligation to deliver to the Holder
such shares of stock, securities, cash or property as, in accordance with the
foregoing provisions of this Section 4, the Holder may be entitled to receive.
5. No Dilution or Impairment. The Company shall not, by amendment
-------------------------
of its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of the assets, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) shall not permit the par value
of any shares of stock receivable upon the exercise of this Warrant to exceed
the amount payable therefor upon such exercise, (b) shall take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, and (c) shall not
take any action which results in any adjustment of the Purchase Price if the
total number of shares of Common Stock (or Other Securities) issuable after the
action upon the exercise of all of the Warrants would exceed the total number of
shares of Common Stock (or Other Securities) then authorized by the Company's
certificate of incorporation and available for the purpose of issue upon such
exercise.
6. Certificate as to Adjustments. In each case of any adjustment or
-----------------------------
readjustment in the shares of Common Stock (or Other Securities) issuable upon
the exercise of this Warrant, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant and
prepare a certificate, signed by the Company's Chief Executive Officer or Chief
Financial Officer setting forth such adjustment or readjustment and showing in
reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Purchase Price in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required by Section 3) on account thereof. The
Company shall forthwith mail a copy of each such certificate to each holder of a
Warrant and shall, upon the written request at any time of any holder of a
Warrant, furnish to such holder a like certificate setting forth the Purchase
Price at the time in effect and showing in reasonable detail how it was
calculated. The Company shall also keep copies of all such certificates at its
principal office and shall cause the same to be available for inspection at such
office
-7-
<PAGE>
during normal business hours by any holder of a Warrant or any prospective
purchaser of a Warrant designated by the holder thereof. The Company shall, upon
the request in writing of the Holder (at the Company's expense) retain
independent public accountants of recognized national standing selected by the
Board of Directors of the Company to make any computation required in connection
with adjustments under this Warrant, and a certificate signed by such firm shall
be conclusive evidence of the correctness of such adjustment, which shall be
binding on the Holder and the Company.
7. Notices of Corporate Action. In the event of:
---------------------------
(a) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company, any consolidation or
merger involving the Company and any other Person, any transaction or series of
transactions in which more than 50% of the voting securities of the Company are
transferred to another Person, or any transfer, sale or other disposition of all
or substantially all the assets of the Company to any other Person, or
(b) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company, the Company shall mail to each holder of a Warrant a notice
specifying the date or expected date on which any such reorganization,
reclassification, recapitalization, consolidation, merger, transfer, sale,
disposition, dissolution, liquidation or winding-up is to take place and the
time, if any such time is to be fixed, as of which the holders of record of
Common Stock (or Other Securities) shall be entitled to exchange their shares of
Common Stock (or Other Securities) for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date therein specified.
8. [RESERVED]
9.1 Restrictive Legends. Except as otherwise permitted by this
-------------------
Section 9, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE WARRANT AGREEMENT, DATED
AS OF OCTOBER 28, 1999, BETWEEN THE COMPANY AND VECTOR CAPITAL II, L.P., A
COPY OF WHICH WILL BE MADE AVAILABLE BY THE ISSUER UPON REQUEST."
-8-
<PAGE>
Except as otherwise permitted by this Section 9, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN SUCH WARRANT AND IN THE WARRANT AGREEMENT,
DATED AS OF OCTOBER 28, 1999, BETWEEN THE COMPANY AND VECTOR CAPITAL
II, L.P., A COPY OF WHICH WILL BE MADE AVAILABLE BY THE ISSUER UPON
REQUEST."
9.2. Transfer to Comply With the Securities Act. Restricted
------------------------------------------
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part, except in compliance
with the provisions of the Securities Act and state securities or Blue Sky laws,
the Warrant Agreement and the terms and conditions hereof. The Company may
require a legal opinion, in form and substance reasonably satisfactory to the
Company, as to the availability of and compliance with such exemptions and the
state securities or blue sky laws.
9.3. Termination of Restrictions. The restrictions imposed by this
---------------------------
Section 9 on the transferability of Restricted Securities to comply with the
Securities Act and state securities or Blue Sky laws shall cease and terminate
as to any particular Restricted Securities (a) when a registration statement
with respect to the sale of such securities shall have been declared effective
under the Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (b) when such securities are sold
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are no longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. Reservation of Stock, etc. The Company shall at all times
-------------------------
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) issuable upon exercise of any
-9-
<PAGE>
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable. All
Warrant Certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
11. Registration and Transfer of Warrants, etc.
------------------------------------------
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued by
---------------------------------------
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9, if
--------------------
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
11.3. Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4. Adjustments To Purchase Price and Number of Shares.
--------------------------------------------------
Notwithstanding any adjustment in the Purchase Price or in the number or kind of
shares of Common Stock purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
11.5. Fractional Shares. Notwithstanding any adjustment pursuant to
-----------------
Section 3 in the number of shares of Common Stock covered by this Warrant or any
other provision of this
-10-
<PAGE>
Warrant, the Company shall not be required to issue fractions of shares upon
exercise of this Warrant or to distribute certificates which evidence fractional
shares. In lieu of fractional shares, the Company shall make payment to the
Holder, at the time of exercise of this Warrant as herein provided, in an amount
in cash equal to such fraction multiplied by the Current Market Price of a share
of Common Stock on the date of Warrant exercise.
12. Remedies; Specific Performance. The Company stipulates that
------------------------------
there would be no adequate remedy at law to the Holder of this Warrant in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any federal court of the Southern District of New York or any state court
located in New York County, State of New York and in any court of the United
States or any State thereof having jurisdiction, and if any action should be
brought in equity to enforce any of the provisions of this Warrant, the Company
shall not raise the defense that there is an adequate remedy at law. Except as
otherwise provided by law, a delay or omission by the Holder hereto in
exercising any right or remedy accruing upon any such breach shall not impair
the right or remedy or constitute a waiver of or acquiescence in any such
breach. No remedy shall be exclusive of any other remedy. All available remedies
shall be cumulative.
13. No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a stockholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
14. Notices. All notices and other communications (and deliveries)
-------
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of its Chief Executive Officer
at its principal office located at 420 Lexington Avenue, 26th floor, New York,
NY 10170 or such other address as may hereafter be designated in writing by the
Company to the Holder in accordance with the provisions of this Section, or (b)
if to the Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged, if telecopied; on the next Business
Day, if timely delivered to a courier guaranteeing overnight delivery; and five
days after being deposited in the mail, if sent first class or certified mail,
return receipt requested, postage prepaid; provided, that the exercise of any
--------
Warrant shall be effective in the manner provided in Section 2.
-11-
<PAGE>
15. Amendments. This Warrant and any term hereof may not be amended,
----------
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
16. Descriptive Headings, Etc. The headings in this Warrant are for
-------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof", "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
17. Governing Law. This Warrant shall be governed by, and construed
-------------
in accordance with, the laws of the State of New York (without giving effect to
the conflict of laws principles thereof).
18. Judicial Proceedings. Any legal action, suit or proceeding
--------------------
brought against the Company with respect to this Warrant may be brought in any
federal court of the Southern District of New York or any state court located in
New York County, State of New York, and by execution and delivery of this
Warrant, the Company hereby irrevocably and unconditionally waives any claim (by
way of motion, as a defense or otherwise) of improper venue, that it is not
subject personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company hereby irrevocably and unconditionally
consents to the process of any of the aforementioned courts in any such action,
suit or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, at its address set forth or provided for in Section 14,
such service to become effective 10 days after such mailing. Nothing herein
contained shall be deemed to affect the right of any party to serve process in
any manner permitted by law or commence legal proceedings or otherwise proceed
against any other party in any other jurisdiction to enforce judgment obtained
in any action, suit or proceeding brought pursuant to this Section.
19. Waiver of Trial by Jury. EACH OF THE COMPANY AND THE HOLDER
-----------------------
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS WARRANT OR UNDER ANY AMENDMENT, WAIVER,
CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE
FUTURE MAY BE DELIVERED IN CONNECTION WITH THIS WARRANT, AND AGREES THAT ANY
SUCH ACTION,
-12-
<PAGE>
PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
20. Registration Rights. The Company agrees that all of the shares
-------------------
of Common Stock issuable upon the exercise of the Warrants shall be subject to
the terms and conditions of, and shall be deemed to be "Conversion Stock" as
that term is defined in, that certain Second Amended and Restated Registration
Rights Agreement dated as of January 19, 2000 by and among the Company and each
of the persons listed on Schedule 1, Schedule 2 and Schedule 3 annexed thereto
---------- ---------- ----------
(the "Registration Rights Agreement"). The Company further agrees that the
Warrant Agreement shall be the document annexed to the Registration Rights
Agreement as Schedule 5.
PHASE2MEDIA, INC. (f/k/a CKG Media.com, Inc.)
By: /s/ Richard Nachmias
------------------------------------
Name: Richard Nachmias
Title: Chief Financial Officer
-13-
<PAGE>
EXHIBIT 4.7
================================================================================
SECOND AMENDED AND RESTATED
SECURITYHOLDERS' AGREEMENT
Dated as of January 19, 2000
by and
among
PHASE2MEDIA, INC.
VECTOR CAPITAL II, L.P.
HACHETTE FILIPACCHI INTERACTIONS S.A.,
STV PARTNERS II, L.L.C.,
P2M, LLC,
GE CAPITAL EQUITY INVESTMENTS, INC.,
RICHARD E. GLASSBERG, ROBERT E. CHMIEL,
R. SCOTT FORD, THOMAS MANNION,
JASON LIEBOWITZ AND MATTHEW SPENGLER
and
EACH OF THE PARTIES LISTED ON SCHEDULE I, SCHEDULE II, SCHEDULE III,
SCHEDULE IV, SCHEDULE V and SCHEDULE VI
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. Corporate Governance...................................................................................... 4
1.1 Board of Directors........................................................................................ 4
(a) Number of Directors................................................................................. 4
(b) Initial Board of Directors.......................................................................... 4
(c) Vacancies........................................................................................... 6
(d) Covenant to Vote.................................................................................... 7
(e) Intentionally deleted............................................................................... 7
1.2 Initial Officers of the Company........................................................................... 8
1.3 Day to Day Control........................................................................................ 8
1.4 Certain Actions Requiring Approval of the Super Majority Holders.......................................... 9
1.5 Special Voting Right...................................................................................... 12
2. Transfer of Common Stock.................................................................................. 12
2.1 Restrictions on Transfer.................................................................................. 12
2.2 Right of First Refusal with Respect to Common Stock and Class A Common Stock.............................. 13
2.3 Limitation on Sales by Glassberg.......................................................................... 15
2.4 Tag-Along Rights.......................................................................................... 15
2.5 Exempt Transfers; Legends................................................................................. 16
3. Preemptive Rights......................................................................................... 17
4. Certain Option Issuances.................................................................................. 20
5. Certain Agreements with Respect to the Founding Stockholders.............................................. 20
5.1 The Company's Repurchase Right............................................................................ 20
5.2 Voting Trust Agreements................................................................................... 21
6. Company Information....................................................................................... 22
7. Miscellaneous............................................................................................. 22
7.1 Legends................................................................................................... 22
7.2 Term...................................................................................................... 23
7.3 Injunctive Relief......................................................................................... 23
7.4 Successors and Assigns.................................................................................... 24
7.5 Notice.................................................................................................... 24
7.6 Descriptive Headings...................................................................................... 26
7.7 Governing Law............................................................................................. 26
7.8 Entire Agreement.......................................................................................... 27
7.9 Severability.............................................................................................. 27
7.10 Amendments................................................................................................ 27
7.11 Subsidiaries.............................................................................................. 27
7.12 Sufficient Number of Shares of Common Stock............................................................... 28
7.13 Directors and Officers Liability Insurance................................................................ 28
7.14 Counterparts.............................................................................................. 28
7.15 Waiver of Jury Trial...................................................................................... 28
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED SECURITYHOLDERS' AGREEMENT
------------------------------------------------------
SECOND AMENDED AND RESTATED SECURITYHOLDERS' AGREEMENT (this "Agreement")
made as of this 19/th/ day of January, 2000, by and among Phase2Media, Inc., the
successor-in-interest to CKG Media.com, Inc., a Delaware corporation (the
"Company"), Vector Capital II, L.P. ("Vector"), Richard E. Glassberg,
("Glassberg"), Robert E. Chmiel ("Chmiel"), R. Scott Ford ("Ford"), Thomas
Mannion ("Mannion"), Jason Liebowitz ("Liebowitz"), Matthew Spengler
("Spengler"), (Glassberg, Chmiel, Ford, Mannion, Liebowitz and Spengler are
sometimes hereinafter collectively referred to as the "Founding Stockholders"),
each of the individuals set forth on Schedule I annexed hereto (the "Other
Current Stockholders") each of the investors set forth on Schedule II annexed
hereto (such investors, collectively, along with Vector, are hereinafter
referred to as the "Investors"), each of the additional investors set forth on
Schedule III hereto (the "Additional Investors"), the other investor set forth
on Schedule IV annexed hereto (the "Other Investor"), the further investor set
forth on Schedule V annexed hereto (the "Further Investor"), and each of the
investors acquiring securities of the Company as of the date hereof as set forth
on Schedule VI hereof (the "New Investors"). The Investors, the Founding
Stockholders, the Other Current Stockholders, the Additional Investors, the
Other Investor, the Further Investor and the New Investors are hereinafter
collectively referred to as the "Stockholders."
On August 16, 1999, the Investors purchased (i) 3,798 shares of the
Company's Series A Redeemable Preferred Stock, having a par value of $.001 per
share (the "Series A Preferred Stock"), in the aggregate principal amount of
$3,798,000, and (ii) 11,668,300 shares of the Company's Series B Convertible
Preferred Stock, having a par value of $.001 per share (the "Series B Preferred
Stock"), in the aggregate principal amount of $422,000, all of which shares of
Series A Preferred Stock and Series B Preferred Stock were acquired by the
Investors pursuant to the terms and conditions of that certain Securities
Purchase Agreement dated as of August 16, 1999 by and among the Company, Vector,
and the Investors (the "Purchase Agreement"). Pursuant to the Purchase
Agreement, Vector and the Investors may also acquire additional shares of the
Company's Series A Preferred Stock and Series B Preferred Stock in accordance
with the terms and conditions set forth in the Purchase Agreement.
On August 26, 1999, the Additional Investors purchased an aggregate of
9,750,000 shares of the Company's Series C Convertible Preferred Stock having a
par value of $0.001 per share (the "Series C Preferred Stock") in the aggregate
principal amount of $3,800,000 pursuant to the terms and conditions of that
certain Subscription and Purchase Agreement of even date thereof by and between
the Additional Investors and the Company (the "Series C Purchase Agreement").
2
<PAGE>
On October 15, 1999 the Other Investor purchased an aggregate of 1,602
shares of the Company's Series A Preferred Stock in the aggregate principal
amount of $1,602,000 and 4,921,700 shares of the Company's Series B Preferred
Stock in the aggregate principal amount of $178,000 pursuant to the terms and
conditions of the Purchase Agreement.
On December 23, 1999 certain of the Investors and the Other Investor
purchased an aggregate of 3,600 shares of the Company's Series A Preferred Stock
in the aggregate principal amount of $3,600,000 and 6,320,000 shares of the
Company's Series B Preferred Stock in the aggregate principal amount of $400,000
pursuant to the terms and conditions of that certain Second Closing Purchase
Agreement.
On December 28, 1999 the Further Investor purchased an aggregate of an
additional 158,000 shares of the Company's Series C Preferred Stock in the
aggregate principal amount of $100,000 pursuant to the terms and conditions of
that certain Subscription and Purchase Agreement of even date thereof by and
between the Further Investor and the Company.
Simultaneously with the execution hereof, the New Investors have purchased
or agreed to purchase an aggregate of up to 13,079,933 shares of the Company's
Series D Convertible Preferred Stock having a par value of $0.001 per share (the
"Series D Preferred Stock") in the aggregate principal amount of up to
$20,000,000 (but in no event less than $15,000,000) of Series D Preferred Stock
pursuant to the terms and conditions of that certain Subscription and Purchase
Agreement of even date hereof by and between the New Investors and the Company
(the "Series D Purchase Agreement").
The Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock are sometimes hereinafter
collectively referred to as the "Preferred Stock." The Investors, the Additional
Investors, the Other Investors, the Further Investor and the New Investors who
own Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock and/or Series D Preferred Stock are sometimes hereinafter collectively
referred to as the "Preferred Stockholders."
Upon the execution hereof Glassberg owns such number of shares of Class
A common stock, par value $.001 per share (the "Class A Common Stock"), as set
forth on Schedule FS-1; Chmiel owns such number of shares of common stock, par
-------------
value $.001 per share (the "Common Stock"), as set forth on Schedule FS-2; Ford
-------------
owns such number of shares of Common Stock as set forth on Schedule FS-3;
-------------
Mannion owns such number of shares of Common Stock, as set forth on Schedule
--------
FS-4; Liebowitz owns such number of shares of Common Stock as set forth on
- ----
Schedule FS-5; Spengler owns such number of shares of Common Stock as set forth
- -------------
on Schedule FS-6; and the Other Current Stockholders own such number of shares
-------------
of Common Stock set forth opposite each of their respective names on Schedules
---------
CS-1.1 - CS-1.7. Each share of Common Stock is entitled to one (1) vote per
- ---------------
share and each share of Class A Common Stock is entitled to ten (10) votes per
share.
3
<PAGE>
So as to provide for the continuity of management and ownership of Company
and to proscribe the manner in which shares of the Preferred Stock, Common Stock
and Class A Common Stock may be sold, transferred, assigned, encumbered or
otherwise disposed of, as well as to provide for the terms and conditions under
which the Company may issue additional securities and to provide for certain
other rights and obligations among the parties, the parties are entering into
this Agreement.
Accordingly, in consideration of the premises and of the covenants, terms
and conditions herein set forth, the parties hereto agree as follows:
1. Corporate Governance.
--------------------
1.1 Board of Directors. From and after the date hereof and until the
------------------
expiration of the term of this Agreement, each Stockholder shall vote all of
his, her or its shares of Common Stock and Class A Common Stock and any other
voting securities of the Company over which such Stockholder has voting control,
and shall take all other necessary or desirable actions within his, her or its
control (whether in his, her or its capacity as a Stockholder, director, member
of a committee of the Board of Directors or officer of Company or otherwise, and
including, without limitation, attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company shall take all necessary and desirable actions within
its control (including, without limitation, the calling of special meetings of
the Board of Directors or of the Stockholders), such that:
(a) Number of Directors. The authorized number of members of the
-------------------
Board of Directors shall be at eight (8), which may not be increased or
decreased except with the approval of the Investors and the New Investors
who beneficially hold a two-thirds majority interest of the aggregate of
(i) Common Stock and Class A Common Stock issued or issuable upon
conversion of the Series B Preferred Stock and (ii) the Common Stock and
Class A Common Stock issued or issuable upon conversion of the Series D
Preferred Stock, such Investors and New Investors voting together as a
single class (the "Super Majority Holders").
(b) Initial Board of Directors. For so long as Vector owns at
--------------------------
least five percent (5%) of the Series A Preferred Stock purchased by Vector
pursuant to the Purchase Agreement, one of the members of the Board of
Directors shall be a representative designated (the "Series A Designee") by
the Investors who beneficially own the majority in interest of the Series A
Preferred Stock (the "Series A majority holders"). For so long as Vector
owns, either actually or on an as converted basis, at least ten percent
(10%) of the shares of the Common Stock or Class A Common Stock into which
the Series B Preferred Stock purchased by Vector pursuant to the Purchase
Agreement is convertible, one of the members of the Board of Directors
shall be a representative designated (the "Series B Designee") by the
Investors who beneficially own a majority in interest of the Common Stock
or Class A Common Stock issued or
4
<PAGE>
issuable upon conversion of the Series B Preferred Stock (the "Series B
majority holders"). Subject to the provisions of Section 1(f) below, for so
long as the Additional Investors own, either actually or on an as converted
basis, at least ten percent (10%) of the shares of the Common Stock into
which the Series C Preferred Stock purchased by the Additional Investors
pursuant to the Series C Purchase Agreement is convertible, one of the
members of the Board of Directors shall be a representative designated (the
"Series C Designee") by those Additional Investors who beneficially own,
either actually or on an as converted basis, a majority in interest of the
Common Stock issued or issuable upon conversion of the Series C Preferred
Stock (the "Series C majority holders"), provided that the Series C
Designee shall be subject to the approval of the Series A majority holders
and Series B majority holders. Mr. Jonathan Eilian is hereby approved by
the Series A majority holders and Series B majority holders. Two (2) of the
members of the Board of Directors shall be designated by the stockholders
(the "Common Stockholder Designee") representing the majority of voting
interests of the Common Stock and Class A Common Stock held by the Founding
Stockholders and the Other Current Stockholders combined (the "Common
Stockholders voting majority") one (1) of whom shall be Glassberg, who
shall also be the Chairman of the Board, and the other shall be a non-
employee of the Company. Subject to the provision of Section 1(f) below,
Hachette Filipacchi Interactions S.A. ("Hachette") shall be entitled to
designate one (1) representative to the Board of Directors (the "Hachette
Designee") for so long as Hachette owns at least 5% of the Series A
Preferred Stock purchased by Hachette pursuant to the Purchase Agreement
and owns, either actually or on an as converted basis, at least ten percent
(10%) of the shares of Common Stock or Class A Common Stock into which the
Series B Preferred Stock purchased by Hachette pursuant to the Purchase
Agreement is convertible. Mr. Herve Digne shall be the initial Hachette
Designee. For so long as the GE Capital Equity Investments, Inc. or an
affiliate thereof (collectively "GE Capital"), owns, either actually or on
an as converted basis, at least ten percent (10%) of the shares of the
Common Stock or Class A Common Stock into which the Series D Preferred
Stock purchased by GE Capital pursuant to the Series D Purchase Agreement
is convertible, one member of the Board of Directors shall be a
representative designated (the "GE Capital Designee") by GE Capital. The
eighth (8/th/) member of the Board of Directors shall be an outside
director (the "Outside Director") nominated by the Common Stockholders
voting majority, subject to the approval of the Series A majority holders
and Series B majority holders. In the event that the Common Stockholders
voting majority, the Series A majority holders and Series B majority
holders cannot agree on an Outside Director, an Outside Director shall not
be appointed unless and until agreement is actually reached by the Common
Stockholders voting majority, the Series A majority holders and Series B
majority holders. Each member of the Board of Directors shall attend a
minimum of two-thirds of all duly called meetings of the Board of
Directors, either in person, by video conference or by telephone
conference, that are held by the Company during each calendar year (the
"Minimum Attendance Requirement"). In the event that the Series C Designee,
the Hachette Designee or the GE Capital Designee shall fail to satisfy the
Minimum Attendance Requirement during any calendar year, immediately upon
such
5
<PAGE>
failure, the Series C Designee or the Hachette Designee or the GE Capital
Designee, as the case may be, shall automatically be removed from the Board
and the Series C majority holders or Hachette or GE Capital, as the case
may be, shall no longer be entitled to designate a representative to the
Board of Directors, and the number of authorized members of the Board shall
automatically be reduced accordingly; it being agreed that the failure of
the Series C Designee or the Hachette Designee or the GE Capital Designee
to fulfill the Minimum Attendance Requirement shall not create a vacancy
with respect to the Company's Board of Directors, either pursuant to
Section 1(c) below, pursuant to the Company's By-Laws, or otherwise. In the
event that the Series A Designee, Series B Designee or either of the Common
Stockholder Designees shall fail to satisfy the Minimum Attendance
Requirement during any calendar year, immediately upon such failure, the
individual serving as the Series A Designee, Series B Designee or either of
the Common Stockholder Designees, as the case may be, shall automatically
be removed from the Board and the Series A majority holders, the Series B
majority holders or (pursuant to this Section 1.1(b)) the Common
Stockholders voting majority shall no longer be entitled to designate an
individual to replace such removed Director. All vacancies created by the
removal of the Series A Designee, Series B Designee or either of the Common
Stockholder Designees, as the case may be, for any such Designee's failure
to satisfy the Minimum Attendance Requirement, shall be filled in
accordance with the Company's By-Laws, and shall not be subject to the
terms of Section 1(c) below. In the event that the Outside Director shall
fail to satisfy the Minimum Attendance Requirement during any calendar
year, immediately upon such failure, the individual serving as the Outside
Director shall be automatically removed from the Board and a new Outside
Director shall nominated by the Common Stockholders voting majority,
subject to the approval of the Series A majority holders and the Series B
majority holders. The Company agrees that it shall be obligated to
compensate (i) any Director who is the Series A Designee, Series B
Designee, Series C Designee, GE Capital Designee, the Hachette Designee or
the Outside Director and (ii) any Board Observer (as that term is defined
in Section 1.1(f) below) for reasonable travel and lodging expenses in
connection with his or her duties as a Director or Board Observer in
connection with attending Board meetings or in connection with engaging in
any other activities at the request of the Company.
(c) Vacancies. Subject to the Minimum Attendance Requirement set
---------
forth in Section 1.1(b) above, in the event any Board member, other than
the Outside Director and Mr. Jonathan Eilian, for any reason ceases to
serve as a member of the Board during his or her term of office, the party
which originally nominated such Board member (i.e., the Common Stockholders
voting majority, the Series A majority holders or the Series B Preferred
majority holders, Hachette or GE Capital, as the case may be) shall have
the right for a period of sixty (60) days to designate a replacement
director to fill such vacancy. In the event that any party fails to
designate a representative to fill a directorship pursuant to the terms of
this Section 1.1(c) within 60 days of the creation of any vacancy, the
election of a person to such directorship shall be accomplished in
accordance with Company's By-Laws and applicable law. Any replacement for
Mr.
6
<PAGE>
Jonathan Eilian can only be effected by the mutual agreement of the Series
A majority holders, Series B majority holders and the Series C majority
holders. The replacement of the Outside Director can only be effected by
the mutual agreement of the Common Stockholders Voting majority, the Series
A majority holders and Series B majority holders.
(d) Covenant to Vote. Subject to the Minimum Attendance Requirement
----------------
set forth in Section 1.1(b) above, each of the Stockholders agrees to vote
all of the Preferred Stock (on an as converted to Common Stock basis), and
the Common Stock and Class A Common Stock beneficially owned by such
Stockholder, at any annual or special meeting of Stockholders of the
Company called for the purpose of voting on the election of directors or by
consensual action of Stockholders without a meeting with respect to the
election of directors, in favor of the election of the directors nominated
by the Common Stockholders voting majority, the Series A majority holders,
the Series B Preferred majority holders, Hachette, the Series C majority
holders, and the New Investors who beneficially own a majority in interest
of Common Stock or Class A Common Stock issued or issuable upon conversion
of the Series D Preferred Stock (the "Series D Majority Holders"), as the
case may be, in accordance the provisions of this Section 1.1. Each
Stockholder shall vote the Common Stock and Class A Common Stock owned by
such Stockholder and shall take all other actions necessary to ensure that
the Company's Certificate of Incorporation and By-Laws do not at any time
conflict with the provisions of this Agreement. In connection with the
foregoing, subject to the provisions of Section 5.2 below, each Stockholder
hereby grants to and is deemed to have executed in favor of every other
Stockholder an irrevocable proxy coupled with an interest to vote all of
the shares of Common Stock owned by the grantor of the proxy for the
election of directors and the taking of all other actions set forth in this
Section 1.1.
(e) Intentionally deleted
---------------------
(f) Right to Board Observer. Notwithstanding anything set forth
-----------------------
herein to the contrary (i) at any time and from time to time hereof, in
lieu of a Series C Designee, the Series C majority holders shall have the
right to designate an observer to the Board of Directors, (ii) at any time
and from time to time hereof, in addition to the GE Capital Designee, GE
Capital shall have the right to designate an observer to the Board of
Directors (any observer so designated pursuant to either clause (i) or
clause (ii) preceding, or clause (iii) following, of this Section 1.1(f), a
"Board Observer") and (iii) in the event that the Series A Designee, the
Series B Designee, the Series C Designee, either of the Common Stockholder
Designees, or the Hachette Designee, as the case may be, shall fail to
satisfy the Minimum Attendance Requirement, and, as a consequence, any such
Designee is removed from their Board seat in accordance with the provisions
of Section 1.1(b), the Series A majority holders, the Series B majority
holders, the Series C majority holders, the Common Stockholders voting
majority or Hachette, as the case may be, shall each have the right to
designate, in lieu of such holder's respective Designee, a Board Observer
in the event such holder's Designee has been removed from the Board of
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Directors. A Board Observer shall have the right to attend all meetings of
the Board of Directors in a non-voting capacity (and all committee meetings
that such Board Designee would have been entitled to attend) and any such
Board Observer shall receive written notice of all such meetings and copies
of all information provided to Directors (and committee members, if
applicable) all in the same manner and form, and at the same time, as if
such Board Observer was a Director (or committee member, if applicable).
The rights of the Series A majority holders, the Series B majority holders,
the Series C majority holders, the Common Stockholders voting majority,
Hachette and GE Capital to appoint a Board Observer pursuant to this
Section 1.1(f) shall automatically terminate upon the effective date of the
Company's "IPO" (as that term is defined in Section 3(b) below).
1.2 Initial Officers of the Company.
-------------------------------
Each of the Stockholders agrees to cause the Board of Directors of the
Company to initially appoint the following persons as directors and
officers of the Company in the following positions:
Name Office
---- ------
Richard E. Glassberg Chairman of the Board and Chief Executive
Officer
Richard S. Nachmias Chief Financial Officer
Robert E. Chmiel Chief Operating Officer
Thomas Mannion Senior Vice President, Advertising Sales
R. Scott Ford Senior Vice President, Network Sales and
Business Development
If any of such officers are unable to serve, or cease for any reason to
be an officer of the Company, their successors shall be appointed by the Board
of Directors of the Company.
1.3 Day to Day Control.
------------------
Except as otherwise expressly set forth herein, and subject to the
Company's Certificate of Incorporation and By-laws, the applicable provisions of
the Delaware General Corporation Law, and obtaining the requisite approval from
the Board of Directors, the Stockholders expressly acknowledge and agree that
the day to day management and operation of the Company's business, including but
not limited to the hiring and firing of employees, and the entering into of
material agreements shall be conducted by the Chief Executive Officer of the
Company.
8
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1.4 Certain Actions Requiring Approval of the Super Majority Holders.
----------------------------------------------------------------
From and after the date hereof and until the expiration of the term of this
Agreement, without (i) the affirmative written consent of the Super Majority
Holders (except with respect to the provisions of Sections 1.4 (a), 1.4(e) and
1.4(i) below, in which event only the affirmative written consent of the Series
A majority holders shall be required; with respect to Sections 1.4(b), 1.4(f)
and 1.4(j) below, in which event only the affirmative written consent of the
Series B majority holders shall be required; with respect to 1.4(t), 1.4(u), and
1.4(v), in which event only holders who beneficially own, either actually or on
an as converted basis, a two-thirds majority in interest of the Common Stock or
Class A Common Stock issued or issuable upon conversion of the Series D
Preferred Stock is required; and with respect to Sections 1.4(h), 1.4(k) and
1.4(q) (subject to the proviso at the end of Section 1.4(q)), in which event in
addition to the affirmative written consent of the Super Majority Holders, the
affirmative written consent of the Series A majority holders shall also be
required) the Company or its subsidiaries, whether hereafter formed or acquired,
shall not, and the Board of Directors shall not permit the Company or its
subsidiaries, whether hereafter formed or acquired, directly or indirectly, to
consummate a transaction or series of related transactions to:
(a) increase or decrease the number of authorized shares of Series A
Preferred Stock;
(b) increase the number of authorized shares of Series B Preferred Stock
or Series C Preferred Stock;
(c) issue, sell or transfer any additional equity securities of the
Company, or issue any rights, options or warrants to acquire any additional
equity securities of the Company, which have terms that are equivalent or
preferential to the terms of the Series A Preferred Stock, or Series B Preferred
Stock or Series D Preferred Stock including, without limitation, preferences and
priorities relating to dividends, payments upon a "change in control" (as that
term is defined in 1.4(d) below) or upon a "Liquidation Event" (as that term is
defined in Section 5 of the Company's Certificate of Designations, Preferences
and Rights of Series A Redeemable Preferred Stock), conversion rights and/or
redemption rights;
(d) effect a "change of control" in the Company. As used herein, the
term "change in control" shall mean any transaction or series of transactions
including the granting of options, warrants, convertible securities or any other
rights pursuant to which a third party or parties acquire or could have the
right to acquire (i) at least fifty percent (50%) of any class of voting stock
of Company and thereby have the right to elect a majority of Company's Board of
Directors, whether through purchase, merger, consolidation or otherwise, (ii) at
least fifty percent (50%) of the Company's operating assets, based on the lesser
of book or fair market value, or assets which, during the preceding twelve (12)
months generated at least fifty percent (50%) of the Company's net income, or
(iii) the merger or consolidation by the Company with or into any other
corporation;
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<PAGE>
(e) issue, sell or transfer any shares of Series A Preferred Stock
previously purchased, or redeemed;
(f) issue, sell or transfer any shares of Series B Preferred Stock or
Series C Preferred Stock previously purchased, converted or redeemed;
(g) amend, modify, alter, or repeal any provision of the Company's
Certificate of Incorporation or By-laws which has the effect of changing the
authorized number of directors of the Company;
(h) pay any bonus in the form of cash, securities or other consideration,
to any of the Founding Stockholders in their capacity as employees of the
Company, or otherwise, other than in accordance with, and as permitted by, the
terms of any Founding Stockholders' employment agreements or as otherwise
determined by a majority of the disinterested members of the Board of Directors;
(i) amend, modify, alter or repeal any provision of the Company's
Certificate of Incorporation or By-Laws if such action would adversely affect
the rights, preferences, privileges or restrictions of the Series A Preferred
Stock, whether directly or as a result of the modification of the rights,
preferences, privileges or restrictions of any other class or series of the
Company's capital stock;
(j) amend, modify, alter or repeal any provision of the Company's
Certificate of Incorporation or By-Laws if such action would adversely affect
the rights, preferences, privileges or restrictions of the Series B Preferred
Stock or Series C Preferred Stock, whether directly or as a result of the
modification of the rights, preferences, privileges or restrictions of any other
class or series of the Company's capital stock;
(k) incur any indebtedness other than indebtedness incurred in
connection with the entering of capital leases in the ordinary course of
business, or indebtedness incurred that is approved by the Board of Directors
having an aggregate principal amount not in excess of $1,000,000, or provide any
guaranties to third parties other than in the ordinary course of business
provided that (i) no one (1) guarantee shall exceed $75,000, and (ii) the
Company shall never have guarantees outstanding at any one time in excess of
$250,000 in the aggregate;
(l) increase the compensation of any of the Founding Stockholders of
the Company or otherwise amend in any fashion the employment agreements to be
executed pursuant to Section 6.4 hereof or enter into any new employment
agreements with the Stockholders of the Company;
(m) issue or sell any rights, options or warrants to acquire any
Common Stock or Class A Common Stock not set forth in Schedule 2.4 to the Series
D Purchase Agreement or effect any reclassification or recapitalization of its
Common Stock;
10
<PAGE>
(n) enter into any contract, agreement, understanding or transaction
with any Stockholder or director or any affiliate of any Stockholder or director
of the Company or with any management or Current Stockholder except for
arrangements consistent with prior practices and on commercially reasonable
terms;
(o) change the business or nature of the business of the Company;
(p) redeem, repurchase or otherwise acquire any shares of Common Stock or
Class A Common Stock, declare or pay any dividend on Common Stock or Class A
Common Stock or otherwise distribute cash or property to holders of Common Stock
in respect of their ownership of such stock, except as set forth in Section 5.1
hereof;
(q) take any action with a view towards the dissolution, liquidation,
winding up or termination of the corporate existence of the Company, or initiate
any action or proceeding with respect to the filing of any bankruptcy,
reorganization or similar action under any federal bankruptcy or insolvency
laws, or under any other similar laws of any jurisdiction; provided, however,
-------- -------
that it is expressly understood and agreed that no prior approval of the
Stockholders shall be required with respect to the filing of a voluntary
petition for relief under chapter 11 of title 11 of the United States Code;
(r) amend or modify any of the material terms, provisions or conditions of
this Agreement;
(s) materially amend or modify the terms of the directors and officers
liability insurance described in Section 7.13 below.
(t) increase the number of authorized shares of Series D Preferred Stock;
(u) issue, sell or transfer any shares of Series D Preferred Stock
previously purchased, converted or redeemed;
(v) amend, modify, alter or repeal any provision of the Company's
Certificate of Incorporation or By-laws if such action would adversely affect
the rights, preferences, privileges or restrictions of the Series D Preferred
Stock, whether directly or as a result of the modification of the rights,
preferences, privileges or restriction of any other class or series of the
Company's capital stock;
(w) effect the acquisition of a "significant amount of assets", otherwise
than in ordinary course of business, as that term is defined in the Instructions
to Item 2 of the Current Report on Form 8K pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; or
11
<PAGE>
(x) redeem, repurchase or otherwise acquire any shares of Preferred Stock,
or declare or pay any dividend thereon, except as may otherwise be expressly
provided in, and pursuant to the terms and conditions of, any certificate of
designations, preferences and rights of any series of Preferred Stock.
Each Stockholder expressly agrees it shall act in good faith and use its
reasonable best efforts to advise the Company in writing within ten (10) days
after the receipt by an Investor of a written request from the Company to
consent to the taking of any action referred to in this Section 1.4 (the
"Consent Request Notice"), whether such Investor consents or disapproves of the
action described in the Consent Request Notice.
1.5 Special Voting Right.
--------------------
Provided that GE Capital holds at least 75% of the shares of Common Stock
or Class A Common Stock issued or issuable upon conversion of the Series D
Preferred Stock that was actually purchased by GE Capital pursuant to the Series
D Purchase Agreement, the Company shall not, at any time prior to January 19,
2001, without the prior written consent of GE Capital, effect any "Liquidation
Event" (as that term is defined in the Certificate of Designations, Preferences
and Rights of the Series D Preferred Stock) that would result in GE Capital
receiving gross proceeds on a per share basis of less than three times the
"Original Conversion Price" (as that term is defined in, the Certificate of
Designations, Preferences and Rights of the Series D Convertible Preferred
Stock) each of the shares of the Series D Preferred stock held by GE Capital
upon such Liquidation Event.
2. Transfer of Common Stock.
------------------------
2.1 Restrictions on Transfer.
------------------------
(a) Notwithstanding anything to the contrary set forth herein, no
Stockholder or Transferee (as hereinafter defined in Section 2.5(b)) shall
directly or indirectly sell, assign, pledge, encumber, hypothecate or otherwise
transfer any shares of Common Stock, Class A Common Stock or Preferred Stock at
any time, unless any such sale, assignment, pledge, encumbrance, hypothecation
or other transfer shall have been effected in accordance with the terms of this
Agreement.
(b) No Stockholder shall sell, assign, pledge, encumber, hypothecate or
otherwise transfer any shares of Common Stock, Class A Common Stock or Preferred
Stock at any time if such action would constitute a violation of any federal or
state securities or blue sky laws or a breach of the conditions to any exemption
from registration of securities under any such laws or a breach of any
undertaking or agreement of such Stockholder entered into pursuant to such laws
or in connection with obtaining an exemption thereunder. Each Stockholder agrees
that all shares of Common Stock, Class A Common Stock and Preferred Stock shall
bear appropriate legends restricting the sale or other transfer of such stock in
accordance with applicable federal
12
<PAGE>
or state securities or blue sky laws, and shall also reference this Agreement,
as set forth in Section 7.1 hereof.
(b) Except as otherwise provided in Section 5.2 or elsewhere in this
Agreement, no Stockholder shall grant any proxy or enter into or agree to be
bound by any voting trust with respect to any shares of Common Stock, Class A
Common Stock or Preferred Stock nor shall any Stockholder enter into any
stockholder agreements or arrangements of any kind with any person with respect
to any shares of Common Stock, Class A Common Stock or Preferred Stock
inconsistent with the provisions of this Agreement (whether or not such
agreements and arrangements are with other Stockholders or holders of securities
who are not parties to this Agreement), including agreements or arrangements
with respect to the acquisition, disposition or voting (if applicable) of any
shares of Common Stock, Class A Common Stock or Preferred Stock nor shall any
Stockholder act, for any reason, as a member of a group or in concert with any
other persons in connection with the acquisition, disposition or voting (if
applicable) of any securities in any manner which is inconsistent with this
Agreement.
2.2 Right of First Refusal with Respect to Common Stock and Class A Common
----------------------------------------------------------------------
Stock.
- -----
(a) Except as may otherwise be set forth herein, in the event that one or
more Founding Stockholders or Other Current Stockholders, other than Glassberg
(collectively, the "Offeree Stockholder") desires to transfer, sell or otherwise
dispose of any shares of Common Stock, Class A Common Stock or Preferred Stock
now or hereafter beneficially owned by such Offeree Stockholder (other than
pursuant to a registered public offering under the Securities Act or a transfer
of shares of Common Stock, Class A Common Stock or Preferred Stock to a
Permitted Transferee as defined in Section 2.5(a)) the Offeree Stockholder shall
before effecting such transfer, sale or other disposition, first give written
notice (the "Seller's Notice") to Glassberg (and simultaneously therewith, send
a copy of such Seller's Notice (i) to all of the "Series B Preferred
Stockholders", as that term is defined in Section 2.2(b) below (ii) to all of
the "Series C Preferred Stockholders", as that term is defined in Section 2.2(b)
below, and (iii) to all of the "Series D Preferred Stockholders" as that term is
defined in Section 2.2(b) below) which shall state the Offeree Stockholder's
desire to make such transfer and the material terms and conditions relative to
such proposed transfer, including but not limited to the amount of shares of
Common Stock, Class A Common Stock or Preferred Stock proposed to be transferred
(the "Offered Shares"), the per share cash consideration therefor (the "ROFR
Price") (it being agreed and understood that the Offeree Stockholder may only
sell, transfer or otherwise dispose of the Offered Shares for cash), and the
identity of the party to whom the Offered Shares are proposed to be transferred
(the "Third Party Offeror"). Upon receipt of the Seller's Notice hereunder,
Glassberg shall have the irrevocable and exclusive option (the "ROFR Option") to
buy all of the Offered Shares; provided that, in the event that Glassberg
-------- ----
desires to transfer, sell or otherwise dispose of any shares of Common Stock or
Class A Common Stock now or hereafter beneficially owned by him, the provisions
of Section 2.2(c) below shall apply.
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<PAGE>
(b) In the event that Glassberg does not advise the Offeree Stockholder
that he wishes to purchase all of the Offered Shares within fifteen (15) days
after his receipt of the Seller's Notice, then Chmiel, Ford and Mannion
(sometimes hereinafter referred to as the Other Founding Stockholders, provided
that neither of Chmiel, Ford or Mannion is the Offeree Stockholder, and in the
event that either of Chmiel, Ford or Mannion is the Offeree Stockholder, then
all references to the Other Founding Stockholders in this Section 2 shall only
be deemed to include those individuals who are not Offeree Stockholders) along
with (i) all of the holders of Common Stock or Class A Common Stock issued or
issuable with respect to the Series B Preferred Stock (the "Series B Preferred
Stockholders"), (ii) all of the holders of the Common Stock issued or issuable
with respect to the Series C Preferred Stock (the "Series C Preferred
Stockholders") and (iii) all of the holders of Common Stock or Class A Common
Stock issued or issuable with respect to the Series D Preferred Stock (the
"Series D Preferred Stockholders") shall thereafter automatically have the ROFR
Option to buy a pro rata portion of the Offered Shares based upon the percentage
--- ----
ownership of Common Stock owned by each of (i) the Other Founding Stockholders,
(ii) the Common Stock or Class A Common Stock issued or issuable to each Series
B Preferred Stockholder relative to all shares of Common Stock and Class A
Common Stock issued or issuable to all Series B Preferred Stockholders upon the
conversion of the Series B Preferred Stock or otherwise, (iii) the Common Stock
issued or issuable to each Series C Preferred Stockholder relative to all shares
of Common Stock issued or issuable to all Series C Preferred Stockholders upon
the conversion of the Series C Preferred Stock or otherwise and (iv) the Common
Stock or Class A Common Stock issued or issuable to each Series D Preferred
Stockholder relative to all shares of Common Stock or Class A Common Stock
issued or issuable to all Series D Preferred Stockholders upon the conversion of
the Series D Preferred Stock or otherwise ((i), (ii), (iii) and (iv)
collectively, the "Offeror Stockholder's Pro Rata Share"). The ROFR Option to
the Other Founding Stockholders, the Series B Preferred Stockholders, the Series
C Preferred Stockholders and the Series D Preferred Stockholders (collectively
referred to as the "Offeror Stockholders" and each, an "Offeror Stockholder")
shall be at the ROFR Price and upon such other material terms and conditions set
forth in the Seller's Notice; it being expressly understood and agreed that the
Offeror Stockholders must agree to purchase all of the Offered Shares in the
aggregate in order to effect the ROFR Option. Consequently, in the event that an
Offeror Stockholder does not advise the Offeree Stockholder that it wishes to
purchase all of such Offeror Stockholder's Pro Rata Share of the Offered Shares
within fifteen (15) days commencing on the sixteenth (16/th/) day after
Glassberg's receipt of the Seller's Notice, the Offeree Stockholder shall so
notify the other Offeror Stockholders of same on or before the fortieth (40/th/)
day after Glassberg's receipt of the Seller's Notice, after which time such
other Offeror Stockholders who have chosen to purchase their entire pro rata
--- ----
share of the Offered Shares shall have until the 50/th/ day after Glassberg's
receipt of the Seller's Notice in which to notify the Offering Stockholder that
they wish to increase the number of Offered Shares to be purchased by them on a
pro rata basis, or on some other basis as may be determined by such other
- --- ----
Offeror Stockholders; provided, however, that in the event that within sixty
(60) days after Glassberg's receipt of the Seller's Notice the Offeror
Stockholders have not agreed to purchase all of the Offered Shares the Company
shall automatically have the ROFR Option for fifteen (15) days commencing on the
sixty-first (61/st/) day after Glassberg's receipt of Seller's Notice. In the
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<PAGE>
event the Company does not advise the Offeree Stockholder that it wishes to
purchase all of the Offered Shares within such fifteen (15) day period, the
Offered Shares will then be subject to provisions of Section 2.4(a) below.
(c) In the event that the Offeree Stockholder in 2.2(a) is Glassberg, the
ROFR Option set forth in Section 2.2(a) above shall commence with the giving of
Seller's Notice by Glassberg to each of the Offeror Stockholders who shall
thereafter have the ROFR Option to buy a pro rata portion of the Offered Shares
--- ----
based upon the Offeror Stockholder's Pro Rata Share. The issuance of the ROFR
Option to the Offeror Stockholders shall be at the ROFR price and upon such
material terms and conditions set forth in the Seller's Notice; being expressly
understood and agreed that the Offeror Stockholders must agree to purchase all
of the Offered Shares in the aggregate in order to effect the ROFR Option.
Consequently, in the event that an Offeror Stockholder does not advise the
Offeree Stockholder that it wishes to purchase all of such Offeror Stockholder's
Pro Rata Share of the Offered Shares within 15 days after receipt by the Offeror
Stockholders of Seller's Notice, the Offeree Stockholder shall so notify the
other Offeror Stockholders of same on or before the 20/th/ day after receipt by
the Offeror Stockholders of Seller's notice, after which time such other Offeror
Stockholders that have chosen to purchase their entire pro rata share of the
--- ----
Offered Shares shall have until 30 days after receipt of the Seller's Notice in
which to notify the Offeree Stockholder that they wish to increase the number of
Offered Shares to be purchased by them on a pro rata basis, or on some other
--- ----
basis as may be determined by the other Offeror Stockholders; provided, however,
that in the event that within 45 days after receipt by the Offeror Stockholders
of the Seller's Notice, the other Offeror Stockholders do not agree to purchase
all of the Offered Shares, the Company shall have fifteen (15) days to purchase
the Offered Shares commencing on the 46/th/ day after receipt by the Offeror
Stockholders of Seller's Notice. In the event that the Company does not advise
the Offeree Stockholder that it wishes to purchase all of the Offered Shares
within such fifteen (15) day period, the Offered Shares will then be subject to
the provisions of Section 2.4(c) below. For purposes of this Section 2.2(c), the
date of receipt of Seller's Notice by the Offeror Stockholders shall be deemed
to be the latest date on which any Offeror Stockholder actually receives the
Seller's Notice.
2.3 Limitation on Sales by Glassberg
--------------------------------
Notwithstanding the provisions of 2.2(a) to the contrary, subject to
the provisions of Section 2.5, Glassberg shall not sell, transfer or otherwise
dispose of any shares of Class A Common Stock or Common Stock beneficially owned
by him if after giving effect to such sale he will have sold in excess of 20% of
the Common Stock or Class A Common Stock, in the aggregate, owned by him on the
date of this Agreement. This provision shall terminate upon completion of a
"Qualified Initial Public Offering" (as that term is defined in Section 3(b) of
the Company's Certificate of Designations, Preferences and Rights of its Series
D Convertible Preferred Stock) or a Liquidation Event.
2.4 Tag-Along Rights.
----------------
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(a) In the event all of the Offered Shares are not purchased by
Glassberg, the Company or the Offeror Stockholders, pursuant to and in
accordance with the terms and conditions set forth in Section 2.2 above
(collectively, other than the Company, the "Non-Purchasing Stockholders," and
each a "Non-Purchasing Stockholder") the Offeree Stockholder shall promptly
thereafter advise each of the Non-Purchasing Stockholders of same in writing and
shall offer to each of them the irrevocable and exclusive option (the "TA
Option") to sell to the Third Party Offeror their pro rata portion of the number
--- ----
of Offered Shares (the "TA Shares") based upon the percentage ownership of
Common Stock and Class A Common Stock beneficially owned, either actually or on
an as converted or on an as exercised basis, owned by each Non-Purchasing
Stockholder relative to all Common Stock and Class A Common Stock beneficially
owned, either actually or on an as converted or on an as exercised basis, owned
by the Offeree Stockholder and all of the Non-Purchasing Stockholders.
(b) Each of the Non-Purchasing Stockholders shall have ten (10) days
from the actual date of receipt of the TA Option to advise the Offeree
Stockholder that it wishes to sell all of its TA Shares. In the event any Non-
Purchasing Stockholder does not advise the Offeree Stockholder that it desires
to sell all of its TA Shares within the aforementioned ten (10) day period, the
Offeree Stockholder shall so notify the other Non-Purchasing Stockholders of
same within five (5) days thereafter, after which time the other Non-Purchasing
Stockholders who have accepted the TA Option with respect to all of their TA
Shares shall have ten (10) days in which to notify the Offeree Stockholder that
they wish to increase the number of shares of TA Shares to be sold by them on a
pro rata basis or on some other basis as may be determined by such Non-
- --- ----
Purchasing Stockholders.
(c) In the event that the Non-Purchasing Stockholders shall not have
exercised their ROFR Option in accordance with the provisions of Section 2.2
above, those Offered Shares which are not to be sold to the Third Party Offeror
by the Non-Purchasing Stockholders in accordance with the provisions of Section
2.4 (b) above may be sold by the Offeree Stockholder to the Third Party Offeror,
and any TA Shares to be sold by Non-Purchasing Stockholders in accordance with
the provisions of Section 2.4(b) above may be sold to the Third Party Offeror,
for a period of sixty (60) days after the Non-Purchasing Stockholders' right to
advise the Offeree Stockholder that it wishes to sell any Offered Shares has
expired; provided, however, that in the event that any Offered Shares are not
-------- -------
sold by the Offeree Stockholder or TA Shares are not sold by a Non-Purchasing
Stockholder within such sixty (60) day period, or are to be sold on terms and
conditions other than as set forth in the Seller's Notice, all such unsold
Offered Shares and TA Shares shall again become subject to the provisions of
Sections 2.2 and 2.4 hereof.
2.5 Exempt Transfers; Legends.
-------------------------
(a) The restrictions contained in this Section 2 shall not apply with
respect to: (i) transfers (including sales) of Common Stock, Class A Common
Stock and Preferred Stock by a Stockholder who is a natural person pursuant to
applicable laws of descent and distribution
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<PAGE>
or testamentary transfer or to a Stockholder's spouse, parents, siblings and
lineal descendants (including to trusts for the benefit of a Stockholder's
spouse, parents, siblings and lineal descendants), (ii) transfers of Common
Stock, Class A Common Stock and Preferred Stock by a corporate or partnership
Stockholder with respect to the transfer of Common Stock, Class A Common Stock
and Preferred Stock to any "Affiliate" or employee or limited partner of such
corporate or partnership Stockholder (collectively, "Permitted Transferees"). As
used in this Section 2.5(a), the term Affiliate shall have the same meaning as
ascribed to it under Rule 12b-2 of the Securities Exchange Act of 1934, as
amended.
(b) Unless otherwise expressly provided herein, no Stockholder shall
sell, assign, pledge, encumber or otherwise transfer any shares of Common Stock,
Class A Common Stock or Preferred Stock to any person (regardless of the manner
in which such Stockholder initially acquired such shares of Common Stock, Class
A Common Stock or Preferred Stock) nor shall the Company issue, sell or
otherwise transfer any shares of Common Stock, Class A Common Stock or Preferred
Stock (including but not limited to issue any shares of Preferred Stock pursuant
to any "Supplemental Closing" as that term is defined in the Series D Purchase
Agreement) to any person (all persons acquiring shares of Common Stock, Class A
Common Stock or Preferred Stock from a Stockholder, including Permitted
Transferees, or from the Company, regardless of the method of transfer, shall be
referred to collectively as "Transferees" and individually as a "Transferee")
unless (i) such shares of Common Stock, Class A Common Stock and Preferred Stock
bear legends as provided in Section 7.1 hereof, and (ii) unless such Transferee
shall have executed and delivered to the Company, as a condition precedent to
any acquisition of such shares of Common Stock, Class A Common Stock or
Preferred Stock, an instrument in form and substance reasonably satisfactory to
the Company confirming that such Transferee agrees to become a party to this
Agreement and takes such securities subject to all terms and conditions of this
Agreement; provided that the provisions of this Section 2.5 (b) shall not apply
--------
in respect of a sale of securities included in a registered public offering
under the Securities Act. The Company shall not transfer upon its books any
securities to any person except in accordance with this Agreement.
3. Preemptive Rights.
-----------------
(a) In the event that the Company intends to issue for cash
consideration additional shares (the "Additional Shares") of Common Stock or
Class A Common Stock (whether directly, or through the exercise of any options,
warrants or rights to acquire Common Stock or Class A Common Stock (except with
respect to the issuance of Common Stock relative to any options, warrants or
rights set forth on Schedule 2.4 of the Series D Purchase Agreement)), or,
------------
except as in respect to the conversion of the Series B Preferred Stock, Series C
Preferred Stock or the Series D Preferred Stock, to one or more third persons or
entities (collectively, the "New Stockholders"), prior to said issuance of
Additional Shares, each Series B Preferred Stockholder, Series C Preferred
Stockholder and Series D Stockholder shall have the right to subscribe, at the
price which the Additional Shares are intended to be issued by the Company, for
all or any portion of such Series B Preferred Stockholder's, Series C Preferred
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Stockholder's and Series D Stockholder's pro rata portion of the Additional
Shares based upon the percentage ownership of Common Stock or Class A Common
Stock issued or issuable to each Series B Preferred Stockholder, Series C
Preferred Stockholder and Series D Preferred Stockholder relative to all shares
of Common Stock and Class A Common Stock issued or issuable to all Series B
Preferred Stockholders, Series C Preferred Stockholders and Series D Preferred
Stockholders (collectively the "Preferred Stockholders Preemptive Pro Rata
Share"). Accordingly, whenever it proposes to issue Additional Shares which are
subject to the preemptive rights herein, the Company shall give written notice
thereof (the "Additional Shares Sales Notice") to each Series B Preferred
Stockholder, Series C Preferred Stockholder and Series D Preferred Stockholder
at least ten (10) days prior to the date of the proposed issuance of such
Additional Shares (the "Proposed Issuance Date"). Such notice shall describe the
Additional Shares to be issued, the Proposed Issuance Date and the other
material terms and conditions of such proposed issuance, and the identity of the
proposed purchaser(s) thereof. Each Series B Preferred Stockholder, Series C
Preferred Stockholder and Series D Preferred Stockholder shall have ten (10)
days from the date of such notice to give written notice to Company whether it
elects to purchase some or all of its Preferred Stockholder's Preemptive Pro
Rata Share of such Additional Shares, and if it gives such notice, it shall pay
for such Additional Shares simultaneously with the purchase of the Additional
Shares by all of the Series B Preferred Stockholders, Series C Preferred
Stockholders and Series D Preferred Stockholders. In the event that any Series B
Preferred Stockholder, any Series C Preferred Stockholder or any Series D
Preferred Stockholder does not advise the Company that it wishes to purchase its
entire Preferred Stockholder's Preemptive Pro Rata Share of Additional Shares
within such ten (10) day period, the Company shall, within twenty-four hours,
notify the other Series B Preferred Stockholders, Series C Preferred
Stockholders and Series D Preferred Stockholders, who have chosen to purchase
their entire pro rata portion of the Additional Shares and such unpurchased
--- ----
Additional Shares shall be available for purchase by such other Series B
Preferred Stockholders, Series C Preferred Stockholders and Series D Preferred
Stockholders, on a pro rata basis, or some other basis, as they may determine
--- ----
for five (5) days thereafter. To the extent that all of the Additional Shares
are not subscribed for within such five (5) day period, then the Series B
Preferred Stockholders, the Series C Preferred Stockholders and the Series D
Preferred Stockholders agree that the Company shall have the absolute right to
sell all or less than all of those Additional Shares that have not been
subscribed for on the terms set forth in the Additional Shares Sales Notice to
one or more third persons or entities for sixty (60) days thereafter, after
which time any further proposed issuances of Additional Shares shall be subject
to the provisions of this Section 3(a).
(b) Notwithstanding anything set forth herein to the contrary, in the
event that the Additional Shares proposed to be sold by the Company are equity
securities that are the subject of the Company's initial registration statement
for which effectiveness shall be sought by the Company under Section 5 of the
Securities Act (the "IPO Shares"), then the Series B Preferred Stockholders',
Series C Preferred Stockholders' and the Series D Preferred Stockholders' pre-
emptive rights set forth in Section 3(a) above shall not relate to all IPO
Shares, but rather, it shall only relate to up to fifteen percent (15%) of the
IPO Shares actually included in
18
<PAGE>
any such registration statement actually declared effective under Section 5 of
the Securities Act (without giving effect to any over-allotment option) sold by
the Company for its own account pursuant to such registration statement. In the
event that the provisions of this Section 3 relate to IPO Shares, the defined
term "Proposed Issuance Date" shall mean the date two (2) "business days" prior
to the effective date of the Company's registration statement on Form S-1 (or
any successor form) relative to the Company's initial public offering of equity
Securities (the "IPO"). As used in this Section 3, the term "business day" shall
mean any day that the offices of the United States Securities and Exchange
Commission are open.
(c) Notwithstanding the other provisions of this Section 3, in the
event that the Company proposes to issue IPO Shares, it shall give the Series B
Preferred Stockholders, Series C Preferred Stockholders and Series D Preferred
Stockholders written notice of its filing of a registration statement with the
Securities and Exchange Commission relating to same within five (5) days of such
filing along with a copy of such registration statement. In addition, the
Company shall give each Series B Preferred Stockholder, Series C Preferred
Stockholder and Series D Preferred Stockholder further written notice by
facsimile transmission no later than two (2) business days prior to the
anticipated effective date of the registration statement relative to the IPO
(the "Notice of Effective Date"), such notice to include: (i) the proposed
number of IPO Shares to be offered in the IPO, (ii) a calculation of such
Preferred Stockholder's Preemptive Pro Rata Share of fifteen percent (15%) of
the IPO Shares offered in such IPO, and (iii) a good faith per share estimate of
the range of the proposed initial "Price to Public"of the IPO Shares. Each
Series B Preferred Stockholder, Series C Preferred Stockholder and Series D
Preferred Stockholder shall have twenty four (24) hours after receipt of the
Notice of Effective Date to agree in writing (the "Written Acceptance") to
purchase some or all of its Preferred Stockholder's Preemptive Pro Rata Share of
15% of the IPO Shares at the same price and on the same terms upon which the
Company issues such IPO Shares to the public. Series B Preferred Stockholders,
Series C Preferred Stockholders and Series D Preferred Stockholders that agree
in writing to purchase their entire Preferred Stockholder's Preemptive Pro Rata
Share of 15% of the IPO shares may also indicate in its Written Acceptance to
purchase any additional IPO Shares (or portion thereof) not subscribed for by
the other Series B Preferred Stockholders, Series C Preferred Stockholders and
Series D Preferred Stockholders. Any Written Acceptance by a Series B Preferred
Stockholder, Series C Preferred Stockholder or Series D Preferred Stockholder to
purchase IPO Shares pursuant to this Section 3(c) shall be irrevocable without
the consent of the Company and its underwriters (if any) for the proposed IPO,
provided that there is no material change to the terms and conditions of the
proposed IPO as set forth in the Notice of Effective Date. In the event,
however, that the registration statement relative to the IPO does not become
effective within seven (7) business days of the Company's receipt of any Written
Acceptance, then Series B Preferred Stockholders, Series C Preferred
Stockholders and Series D Preferred Stockholders who delivered Written
Acceptances shall no longer be bound to purchase any IPO Shares in the IPO and
the right to purchase such IPO Shares pursuant to Section 3(b) above and this
Section 3(c) shall be deemed revived as to all of the Series B Preferred
Stockholders and Series C Preferred Stockholders.
19
<PAGE>
Notwithstanding the foregoing, the Company shall not be required to
offer or sell any IPO Shares to any Series B Preferred Stockholder, Series C
Preferred Stockholder or Series D Preferred Stockholder pursuant to Section 3(b)
above and this Section 3(c) if such offer of sale would cause the Company to be
in violation of applicable federal securities laws or the rules and regulations
of the National Association of Securities Dealers by virtue of such offer or
sale.
4. Certain Option Issuances.
------------------------
Unless the Company has obtained (i) the approval of the Board of
Directors, and (ii) the affirmative written consent of holders who beneficially
own at least two-thirds of the shares of the Series D Preferred Stock issued and
outstanding, any options issued by the Company under its stock option plans in
excess of the "Maximum Permissible Amount" (as that term is hereinafter defined)
having a per share exercise price of less than the "Conversion Price" of the
Series D Preferred Stock, as such term is defined in the Certificate of
Designations, Preferences and Rights of the Series D Preferred Stock (the
"Series D Certificate of Designations") shall be deemed to be "Additional
Shares", as that term is defined in the Series D Certificate of Designations.
Solely for purposes of this Section 4, the term Maximum Permissible Amount shall
mean (i) the number of available options set forth on Schedule 4(d) to the
Series D Purchase Agreement, plus (ii) 3,250,000 additional options.
5. Certain Agreements with Respect to the Founding Stockholders.
------------------------------------------------------------
5.1 The Company's Repurchase Right.
------------------------------
(a) Each of the Founding Stockholders expressly agrees that the
Company shall have the right to repurchase from each of them their shares of
Common Stock as set forth opposite their names on each of their respective
schedules (Schedule FS-1 through Schedule FS-6) in accordance with the
------------- -------------
provisions of this Section 5.1. In the event that any Founding Stockholder is
terminated by the Company for any reason or any such Founding Stockholder
voluntarily decides to terminate his employment with the Company, then the
Company shall have the right to effect the repurchase from such Founding
Stockholder, within thirty days (the "Repurchase Period") after any such
termination (which termination shall be deemed to have occurred on the first
date on which the Founding Stockholder is no longer entitled to receive any
consideration, other than severance or other like consideration, in exchange for
services to the Company): 1/48th of the shares of Common Stock owned by the
Founding Stockholder as of August 16, 1999 for each full calendar month
remaining after the date any such termination occurs up to the end of the forty-
seventh month after August 16, 1999, after which time the Company's repurchase
right set forth herein shall terminate. In order to effectively exercise its
right to repurchase any Founding Stockholder's shares hereunder, the Company
shall be required to deliver to such Founding Stockholder written notice thereof
during the Repurchase Period (the "Redemption Notice") which Redemption Notice
shall set forth the number of shares of Common Stock or Class A Common Stock
that are to be repurchased and the manner in which such repurchase price shall
be calculated pursuant to Section 5.1(b) below. Notwithstanding the foregoing,
in the event that the Company effects a Qualified Initial Public Offering on or
before the thirty-sixth month after August 16, 1999, the Company's repurchase
rights under this Section
20
<PAGE>
5.1 shall be automatically amended by reducing the Company's repurchase right by
twelve months and increasing the portion that is subject to repurchase each
month from 1/48th to 1/36th. In the event that the Qualified Initial Public
Offering occurs at any time after the thirty-sixth month from the date first set
forth above any remaining repurchase right of the Company shall automatically be
null and void. In addition, notwithstanding anything set forth herein to the
contrary, in the event a Founding Stockholder, including Glassberg, is
terminated because of death or disability (as determined by the Company's Board
of Directors) the portion of such Founding Stockholder's Common Stock that the
Company is entitled to repurchase in accordance with the foregoing schedule at
any particular time shall never exceed fifty percent (50%) of the amount of such
Founding Stockholder's Common Stock.
(b) Any repurchase by the Company of (i) the Common Stock of a
Founding Stockholder (other than Glassberg), or (ii) Glassberg's Common Stock or
Class A Common Stock, (A) upon Glassberg's termination "for cause" as that term
is defined in Section 4(c) of his employment agreement with the Company, (B) in
the event that Glassberg decides to voluntarily terminate his employment with
the Company, or (C) in the event Glassberg's employment is terminated as a
result of his death or disability, shall be for the par value thereof. In the
event of any other repurchase of Glassberg's Class A Common Stock or Common
Stock the price therefor shall be the "Market Price" (as the term is hereinbelow
defined) of such Common Stock or Class A Common Stock as of the date of the
Redemption Notice. As used herein, the term "Market Price" shall mean on any
date specified herein, the amount per share of the Common Stock, equal to (a)
the last reported sale price of such Common Stock, regular way, on such date or,
in case no such sale takes place on such date, the average of the closing bid
and asked prices thereof, regular way, on such date, in either case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted for trading, or (b) if such Common Stock
is not then listed or admitted for trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
reported trading price of the Common Stock on such date, or (c) if there shall
have been no trading on such date or if the Common Stock is not so designated,
the average of the closing bid and asked prices of the Common Stock on such date
as shown by the NASD automated quotation system or the Nasdaq SmallCap Market,
or (d) if such Common Stock is not then listed or admitted for trading on any
national exchange or quoted in the over-the-counter market, the fair market
value thereof, which shall be deemed to be the last determination made by the
Company's Board of Directors prior to the Company's exercise of its right to
repurchase Glassberg's Common Stock or Class A Common Stock in connection with
establishing the exercise price of stock options granted to employees to the
Company. In the event that the Company is repurchasing shares of Class A Common
Stock from Glassberg, it is agreed that the value of such shares shall be
calculated, for purposes of this Section 5(b), as if such shares were shares of
Common Stock.
5.2 Voting Trust Agreements. Each of the Other Founding Stockholders
-----------------------
and certain of the Other Current Stockholders hereby agrees upon the execution
hereof to execute and deliver the ten year voting trust to and in favor of
Glassberg with respect to all of the shares of Common Stock they currently or
may hereafter own in the Company in accordance with the terms and conditions of
that certain voting trust agreement annexed hereto as Exhibit 5.2.
-----------
21
<PAGE>
6. Company Information. Company agrees to deliver to each Investor,
-------------------
each Additional Investor, each Other Investor and each New Investor without
charge, so long as such Investor or Additional Investor, owns any Preferred
Stock, Common Stock or Class A Common Stock:
(a) At such time as same are available for the Company's use, after
the end of each calendar month (except for the last calendar month of the
Company's fiscal year) statements of income and cash flow of the Company for
such month.
(b) Within forty five (45) days after the end of each quarter
(except the last) in each fiscal year of Company, a balance sheet of the Company
as of the end of such quarter, and statements of income and cash flow of the
Company for such quarter and the portion of the fiscal year ending with such
quarter, setting forth in each case in comparative form the figures for the
corresponding period.
(c) Within one hundred and five (105) days after the end of each
fiscal year of Company, an audited balance sheet of Company as of the end of
such fiscal year, and audited statements of income, changes in stockholders'
equity and statements of cash flows of Company for such fiscal year, in each
case prepared in accordance with generally accepted accounting principles,
consistently applied, setting forth in each case in comparative form the figures
for the previous fiscal year end and the figures set forth in the Company's
budget for such fiscal year.
(d) Promptly after receipt of a request therefor, any information
required by or necessary for an Investor to comply with local, state or federal
regulatory or tax filing requirements.
(e) Permit representatives and/or an Investor at reasonable time upon
prior reasonable notice to visit and inspect such financial records and the
premises of Company at reasonable times on reasonable notice and to make copies
of such records as such representatives deem necessary, other than documents
subject to the attorney-client privilege or the attorney work product privilege,
and to discuss the business, operations, assets, properties and financial and
other conditions of Company with officers and employees of Company and with its
independent accountants.
(f) With reasonable promptness, such other data and information as
from time to time may be reasonably requested by any Stockholder.
7. Miscellaneous.
-------------
7.1 Legends. A copy of this Agreement shall be filed with the Secretary
-------
of the Company and kept with the records of the Company. Each of the
Stockholders hereby agrees that certificates representing each outstanding share
of Common Stock (including shares of Common Stock issuable upon conversion of
the Preferred Stock), Class A Common Stock and Preferred Stock subject to this
Agreement shall bear restrictive legends reading substantially as follows:
22
<PAGE>
(a) Until such time as the Company has effected an initial public
offering of its equity securities under Section 5 of the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder, the
shares represented by this certificate are subject to restrictions on
transfer, and certain voting restrictions, on the terms and conditions set
forth in that certain Second Amended and Restated Securityholders'
Agreement dated as of January 19, 2000, as same may be amended from time to
time, a copy of which may be obtained from the Company or from the holder
of this certificate. No transfer of such shares will be made on the books
of the corporation unless accompanied by evidence of compliance with the
terms of such Agreement.
(b) In addition, each of the Stockholders hereby agrees that
certificates representing each outstanding share of Common Stock (including
shares of Common Stock issuable upon conversion of the Preferred Stock),
Class A Common Stock and Preferred Stock subject to this Agreement shall
bear the restrictive legends substantially in the form set forth in Section
3 of that certain Second Amended and Restated Registration Rights Agreement
of even date hereof by and among the Company and the Investors.
Such certificates shall bear any additional legend which may be required for
compliance with state securities or blue sky laws The Company shall be obliged
to reissue a certificate without the legends above at the request of any holder
thereof if the holder shall have obtained an opinion of counsel reasonably
acceptable to the Company to the effect that the securities evidenced by such
certificate may be lawfully disposed of without registration or qualification
and that the restrictions referred to in such legend are no longer applicable to
such holder or such holder's transferee or assigns.
7.2 Term. Subject to the provisions of the immediately following
----
sentence, this Agreement shall terminate on the date of the first to occur of
either of the following events (i) the effective date of an Qualified Initial
Public Offering (as such term is defined in the Certificate of Designations,
Preferences and Rights of the Series D Preferred Stock) or (ii) a change in
control of the Company as that term is defined in section 1.4(d) above, or (iii)
a "Liquidation Event" (as that term is defined in clauses (a), (b) or (c) of
Section 5 of the Certificate of Designation, Preferences and Rights of the
Series A Preferred Stock). The provisions of Sections 3 of this Agreement, if
not otherwise terminated by the immediately preceding sentence, shall terminate
on the effective date of an IPO. It is expressly agreed that the rights, terms
and conditions set forth in Section 5 of this Agreement shall survive the
termination of this Agreement.
7.3 Injunctive Relief. It is hereby agreed and acknowledged that it will
-----------------
be impossible to measure in money the damages that would be suffered if any of
the parties fail to comply with any of the obligations herein imposed on them
and that in the event of any such failure, an aggrieved person will be
irreparably damaged and will not have an adequate remedy at law. Any such person
shall, therefore, be entitled to seek injunctive relief, without the necessity
of a bond, including specific performance, to enforce such obligations, and if
any action should be brought in equity to enforce any of the provisions of this
Agreement, none of the parties hereto shall raise the defense that there is an
adequate remedy at law.
23
<PAGE>
7.4 Successors and Assigns. This Agreement and all covenants and
----------------------
agreements by or on behalf of the parties hereto which are contained herein
shall bind and inure to the benefit of the respective successors and assigns of
the parties hereto, including, without limitation, all subsequent Transferees,
whether so expressed or not. In the event that any Transferee shall acquire any
securities of Company, or any right to acquire securities, in any manner,
whether by operation of law or otherwise, such securities shall be held subject
to all of the terms of this Agreement, and by taking and holding such securities
such Transferee shall be conclusively deemed to have agreed to be and shall be
bound by and perform all of the terms and provisions of this Agreement
7.5 Notice. Any notice or other communication required or permitted
------
hereunder shall be in writing and may be delivered personally or sent by
certified or registered mail, postage prepaid return receipt requested, or sent
by next day U.S. express mail, postage prepaid, or by private overnight delivery
service, postage prepaid, and shall be deemed effective upon receipt as follows:
if to the Investors, to the addresses set forth on Schedule II, with a
-----------
copy simultaneously by like means to:
Vector Capital II, L.P.
456 Montgomery Street, 19th floor
San Francisco, CA 94104
Facsimile No. (415) 293-5100
Attention: Mr. Alex Slusky
with another copy simultaneously by like means to their counsel:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-4728
Facsimile No. (212) 735-2000
Attention: James Schell, Esq.
if to a Founding Stockholder, to such Stockholder's address set forth
on such Stockholder's Schedule (Schedule FS-1 through Schedule FS-6)
------------- -------------
if to a Current Stockholder, to such Current Stockholder's address as
set forth on Schedule I
----------
if to the Company to:
Phase2Media, Inc.
420 Lexington Avenue
New York, NY 10170
Facsimile No. (917) 368-7227
Attention: Mr. Richy Glassberg, CEO
24
<PAGE>
with a copy simultaneously by like means to their counsel:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022
Facsimile No. (212) 223-6433
Attention: Clifford A. Brandeis, Esq.
if to the Additional Investors:
Starwood Capital Group
591 West Putnam Avenue
Greenwich, CT 06830
Facsimile No. (203) 422-7784
Attention: Jonathan Eilian
with a copy simultaneously by like means to their counsel:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
24th Floor
New York, NY 10112
Facsimile No. (212) 728-5950
Attention: John M. Scott, Esq.
if to the Other Investors:
Hachette Filipacchi Interactions, S.A.
149, rue Anatole France
92534 Levallois-Perret Cedex, France
Facsimile No. 011-331-41-34-6300
Attention: Mr. Herve Digne
with a copy simultaneously by like means to their counsel:
Hachette Filipacchi Interactions, S.A.
149, rue Anatole France
92534 Levallois-Perret Cedex, France
Facsimile No. 011-331-41-34-6300
Attention: Patricia Carnese, Esq.
and
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, NY 10022
25
<PAGE>
Facsimile No.: (212) 755-7306
Attention: John J. Hyland, Esq.
If to Further Investor:
John W. Danner
147 Landlord Sandra Way
Portola Valley, CA 94028
If to New Investors to the addresses set forth on Schedule VI, with a copy
-----------
simultaneously by like means to:
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Attn: GE Equity Group-Phase2Media
Facsimile No.: (203) 357-4565
with copies to:
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Attention: GE Equity Group Legal Counsel
Facsimile No.: (203) 357-3047
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Ted S. Waksman, Esq.
Facsimile No.: (212) 310-8007
Each of the Company, and the Stockholders, by written notice given to
the other in accordance with the provisions of this Section 7.5 may change the
address to which notices or other communication are to be given to the other
hereunder.
7.6 Descriptive Headings. The descriptive headings of the several
--------------------
sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
7.7 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the law of
the State of New York as applied to agreements entered into and wholly performed
in New York, without giving effect to the conflicts principles thereof. All the
parties hereto hereby agree to submit to the jurisdiction and venue of the
federal and state courts of the State of New York, County of New York with
26
<PAGE>
respect to the breach or interpretation of this Agreement or the enforcement of
any and all rights, duties, liabilities, obligations, powers and other relations
between the parties arising under this Agreement.
7.8 Entire Agreement. This Agreement contains the entire agreement among
----------------
the parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous arrangements or understandings with respect thereto,
including but not limited to each of that certain Securityholders' Agreement
dated August 16, 1999, that certain First Amended and Restated Securityholders'
Agreement dated as of August 26, 1999, and that certain Amendment No. 1 to the
First Amended and Restated Securityholders' Agreement dated as of October 15,
1999, it being expressly understood and agreed that upon the execution hereof,
each of the foregoing shall be automatically and irrevocably terminated in their
entirety and each such agreement shall be of no further force or effect.
7.9 Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
7.10 Amendments. This Agreement may be modified or amended and the
----------
observance of any provision hereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) by the
affirmative written consent of (i) the Company, (ii) the affirmative vote of
Stockholders who beneficially own at least two-thirds of the shares of Common
Stock and Class A Common Stock entitled to vote hereunder either actually or on
an as converted basis, (iii) the affirmative vote of the beneficial holders of
the majority of the class of securities issued and outstanding (i.e., the Common
Stockholders' voting majority, Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock), against whom
enforcement of any waiver, change, modification or discharge is sought in the
event that any such waiver, change, modification or discharge adversely affects
a class of securities in a manner inconsistent or disproportionate with the
manner in which all classes of securities are affected by such waiver, change,
modification or discharge (provided however, that in the event the party against
whom enforcement of any waiver, change, modification or discharge is sought are
the holders of the Series D Preferred Stock, the affirmative written consent of
holders who beneficially own at least two-thirds of the Series D Preferred Stock
issued and outstanding shall be required), and (iv) the approval of Vector (so
long as Vector owns at least ten percent (10%) of the Series B Preferred Stock
(or Class A Common Stock or Common Stock into which the Series B Preferred Stock
is convertible)).
7.11 Subsidiaries. The Company does not presently have any subsidiaries.
------------
In the event that the Company hereafter forms or acquires any subsidiaries, in
whole or in part, the Company agrees that any such subsidiaries shall be bound
by all of the terms and conditions of this Agreement, and the Company and the
Board of Directors of the Company shall not permit the Company, directly or
indirectly, to consummate a transaction or series of transactions by or through
any subsidiary that would not be permissible by the Company under the terms of
this Agreement.
27
<PAGE>
7.12 Sufficient Number of Shares of Common Stock. So long as any shares
-------------------------------------------
of Preferred Stock are issued and outstanding, the Company shall keep a
sufficient number of shares of Common Stock authorized for issuance upon
conversion of the Preferred Stock.
7.13 Directors and Officers Liability Insurance. For at least so long as a
------------------------------------------
GE Capital Designee is a member of the Board of Directors, the Company shall
maintain directors and officers liability insurance with an insurance carrier
rated at least A/IX by A.M. Best Property and Casualty Insurance Rating Company,
providing for such insurance coverage upon commercially reasonable terms for
entities similarly situated to the Company.
7.14 Counterparts. This Agreement may be executed simultaneously in two or
------------
more original or facsimile counterparts, each of which shall be deemed as
original, and it shall not be necessity in making proof of this Agreement to
produce or account for more than one such counterpart.
7.15 Waiver of Jury Trial. The parties hereto waive all right to trial by
--------------------
jury of any action, suit or proceeding brought to enforce or defend any rights
or remedies arising under or in connection with this Agreement or the
transactions contemplated hereby whether grounded in tort, contract or
otherwise.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
date set forth above.
Phase2Media, Inc.
By /s/ Richard Glassberg
-----------------------------
Name: Richard Glassberg
Title: Chairman / CEO
/s/ Richard E. Glassberg
-------------------------------
Richard E. Glassberg
/s/ Robert E. Chmiel
-------------------------------
Robert E. Chmiel
/s/ R. Scott Ford
-------------------------------
R. Scott Ford
/s/ Thomas Mannion
-------------------------------
Thomas Mannion
/s/ Jason Liebowitz
-------------------------------
Jason Liebowitz
/s/ Matthew Spengler
-------------------------------
Matthew Spengler
/s/ Tim Di Scipio
-------------------------------
Tim Di Scipio
/s/ John Irving
-------------------------------
John Irving
/s/ Andrew M. Chonoles
-------------------------------
Andrew M. Chonoles
/s/ Jeffrey D. Zukerman
-------------------------------
Jeffrey D. Zukerman
/s/ Nathaniel S. Gore
-------------------------------
Nathaniel S. Gore
/s/ Clifford A. Brandeis
-------------------------------
Clifford A. Brandeis
29
<PAGE>
/s/ Louis Ginsberg
----------------------------------
Louis Ginsberg
VECTOR CAPITAL II, L.P.
By: Vector Capital Partners II, LLC,
as General Partner
/s/ Alex Slusky
------------------------------
By: Alex Slusky
Title: Managing Member
VECTOR MEMBER FUND II, LP
By: /s/ Alexander R Slusky
-------------------------------
Name: Alexander R. Slusky
Title: Managing Member, Vector
Capital Partners II, L.L.C. The
General Partner of Vector Member
Fund II, L.P.
/s/ Robert Amen
----------------------------------
Robert Amen
/s/ Barbara Lewis
----------------------------------
Barbara Lewis
/s/ Christopher G. Nicholson
----------------------------------
Christopher G. Nicholson
/s/ Jennifer Taylor
-----------------------------------
Jennifer Taylor
STV PARTNERS, II, L.L.C.
/s/ Jerome C. Silvey
By:-------------------------------
Jerome C. Silvey
General Manager
30
<PAGE>
P2M, LLC
/s/ Kevin Eilian
By:-------------------------------
Kevin Eilian
Managing Member
GE CAPITAL EQUITY INVESTMENTS, INC.
/s/ Steve Smith
By:_______________________________
Name: Steve Smith
Title: Managing Director
HACHETTE FILIPACCHI INTERACTIONS
S.A.
/s/ Herve Digne
By:-------------------------------
Name: Herve Digne
Title: President
/s/ Kent Baum
----------------------------------
Kent Baum
/s/ Herve Digne
----------------------------------
Herve Digne
/s/ Richard LeFurgy
----------------------------------
Richard LeFurgy
/s/ Steven Eskenazi
----------------------------------
Steven Eskenazi
/s/ Robert Petrocelli
-----------------------------------
Robert Petrocelli
/s/ Louis LaTorre
----------------------------------
Louis LaTorre
31
<PAGE>
STV PARTNERS IX, LLC
By: /s/ Jerome Silvey
-------------------------------
Name: Jerome Silvey
Title: General MGR
P2M INVESTMENT PARTNERSHIP
/s/ Thomas C. Janson, Jr.
By:-------------------------------
Thomas C. Janson, Jr.
General Partner
/s/ John W. Danner
----------------------------------
John W. Danner as Trustee for the
John W. Danner Separate Property
Trust UDT 4/6/99
32
<PAGE>
EXHIBIT 4.8
PHASE2MEDIA, INC.
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Second Amended and Restated Registration Rights Agreement (the
"Agreement") is made effective as of January 19, 2000 by and among Phase2Media,
Inc., (f/k/a CKG Media.com, Inc., d/b/a Phase2Media) a Delaware corporation (the
"Company"), each of the persons listed on the Schedule of Investors annexed
hereto as Schedule 1 (the "Investors"), each of the persons listed on the
----------
Schedule of Series C Investors annexed hereto as Schedule 2 (the "Series C
----------
Investors") and each of the persons listed on the Schedule of Series D Investors
annexed hereto as Schedule 3 (the "Series D Investors").
----------
RECITALS
A. Each Investor has agreed to purchase from the Company, and the
Company has agreed to sell to each Investor, shares of the Company's Series A
Preferred Stock, par value $.001 per share (the "Series A Preferred" or "Series
A Preferred Stock") and shares of the Company's Series B Preferred Stock, par
value $.001 per share (the "Series B Preferred" or "Series B Preferred Stock")
on the terms and conditions set forth in that certain Securities Purchase
Agreement, dated as of August 16, 1999 by and between the Company, each Investor
and certain other parties (the "Securities Purchase Agreement").
B. Certain of the Investors have also acquired from the Company
common stock purchase warrants pursuant to that certain second closing purchase
agreement dated as of December 23, 1999 by and between the Company and those
certain Investors.
C. Each Series C Investor has agreed to purchase from the Company,
and the Company has agreed to sell to each Series C Investor, shares of the
Company's Series C Convertible Preferred Stock, par value $.001 per share (the
"Series C Preferred" or "Series C Preferred Stock") on the terms and conditions
set forth in the Subscription and Purchase Agreement (the "Series C Purchase
Agreement"), dated as of August 26, 1999 between the Company and the Subscriber.
D. Each Series D Investor has agreed to purchase from the Company,
and the Company has agreed to sell to each Series D Investor, shares of the
Company's Series D Convertible Preferred Stock, par value $.001 per share (the
"Series D Preferred" or "Series D Preferred Stock") on the terms and conditions
set forth in the Subscription and Purchase Agreement dated of even date herewith
between the Company and each Series D Investor (the "Series D Purchase
Agreement").
E. The obligations of the Company, each Investor, each Series C
Investor, and each Series D Investor are conditioned, among other things, upon
the execution and delivery of this Agreement by the Company, each Investor, each
Series C Investor and each Series D Investor.
1
<PAGE>
NOW, THEREFORE, in consideration of 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:
"Commission" means the Securities and Exchange Commission or any other
----------
Federal agency at the time administering the Securities Act.
"Common Stock" means the Company's common stock, par value $.001 per
------------
share.
"Conversion Stock" means the Common Stock issued or issuable pursuant
----------------
to conversion of the Series B Preferred, the Series C Preferred, the Series D
Preferred or upon the exercise of the Warrants.
"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.
"Holder" means each Investor or any other person holding (i) Warrants
------
or Series B Preferred Stock, or (ii) Registrable Securities that is Conversion
Stock as a result of the exercise of the Warrants or the conversion of the
Series B Preferred Stock, in any event, to whom the rights under this Agreement
have been transferred in accordance with Section 5.9 hereof.
"Initiating Holders" means any Holder or Holders who, in the
------------------
aggregate, hold not less than twenty-five (25%) of the Registrable Securities
then outstanding that are Conversion Stock.
"Investor" means each of the persons listed on the Schedule of
--------
Investors attached hereto as Schedule 1.
-----------
"Preferred Stock" shall mean the Series B Preferred, Series C
---------------
Preferred and Series D Preferred.
"Registrable Securities" means the Conversion Stock and any of the
----------------------
Company's Common Stock issued or issuable in respect of the Conversion Stock
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 5.10.
2
<PAGE>
The phrase "Registrable Securities then outstanding" or similar
---------------------------------------
phrases shall mean the total number of Registrable Securities which are either
(i) shares of Common Stock then outstanding, (ii) shares of Common Stock
issuable upon conversion of Series B Preferred then outstanding, (iii) shares of
Common Stock issuable upon conversion of Series C Preferred then outstanding,
(iv) shares of Common Stock issuable upon conversion of Series D Preferred Stock
then outstanding, and (v) shares of Common Stock issuable upon exercise of
Warrants then outstanding.
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 and 5.2
hereof, including without limitation, all registration, qualification and filing
fees, printing expenses, escrow fees, fees and disbursements of counsel for the
Company, fees and expenses of one special counsel for all of the Holders, the
Series C Holders and the Series D Holders as a single class, 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.
"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.
"Second Amended and Restated Securityholders' Agreement" shall mean
------------------------------------------------------
that certain agreement of even date by and among the Company, Vector Capital II,
L.P. Hachette Filipacchi Interactions S.A., STV Partners II, L.L.C., P2M, LLC,
GE Capital Equity Investments, Inc., Richard E. Glassberg, Robert E. Chmiel, R.
Scott Ford, Thomas Mannion, Jason Liebowitz and Matthew Spengler and each of
the parties listed on Schedule I, Schedule II, Schedule III, Schedule IV,
Schedule V and Schedule VI attached thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and the rules and regulations promulgated thereunder, 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, the Series C Holders and the Series D Holders.
"Series C Holder" means each Series C Investor or any other person
---------------
holding (i) Series C Preferred Stock, or (ii) Registrable Securities which is
Conversion Stock as a result of the
3
<PAGE>
conversion of the Series C Preferred Stock, in either case, to whom the rights
under this Agreement have been transferred in accordance with Section 5.9
hereof.
"Series C Initiating Holder" means any Series C Holder or Series C
--------------------------
Holders who, in the aggregate, hold not less than twenty-five percent (25%) of
the Registrable Securities then outstanding that are Series C Preferred Stock.
"Series C Investor" means each of the persons listed on the Schedule
-----------------
of Series C Investors attached hereto as Schedule 2.
----------
"Series D Holder" means each Series D Investor or any other person
---------------
holding (i) Series D Preferred Stock, or (ii) Registrable Securities which is
Conversion Stock as a result of the conversion of the Series D Preferred Stock,
in either case, to whom the rights under this Agreement have been transferred in
accordance with Section 5.9 hereof.
"Series D Initiating Holder" means any Series D Holder or Series D
--------------------------
Holders who, in the aggregate, hold not less than twenty-five percent (25%) of
the Registrable Securities then outstanding that are Series D Preferred Stock.
"Series D Investor" means each of the persons listed on the Schedule
-----------------
of Series D Investors attached hereto as Schedule 3.
----------
"Warrants" means those certain common stock purchase warrants issued
--------
to certain of the Investors pursuant to that certain second closing purchase
agreement dated as of December 23, 1999 as set forth on Schedule 4 annexed
----------
hereto, and those certain common stock purchase warrants issued to or issuable
to one of the Investors pursuant to that certain warrant agreement dated as of
October 28, 1999 as set forth on Schedule 5 annexed hereto.
----------
2. Restrictions on Transferability. The Preferred Stock, the
-------------------------------
Warrants, the Conversion 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, Series
C Holder, Series D Holder or transferee will cause any proposed purchaser,
assignee, transferee, or pledgee of any such shares held by the Holder, Series C
Holder, Series D 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 6 and the
Second Amended and Restated Securityholders' Agreement.
3. Restrictive Legend. Each certificate representing the Preferred
------------------
Stock, the Warrants, the Conversion 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
4
<PAGE>
the following form (in addition to any legends required by agreement or by
applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES OR BLUE SKY LAWS, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE DISTRIBUTION THEREOF.
SUCH SHARES GENERALLY MAY NOT BE SOLD, TRANSFERRED, PLEDGED ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED OF 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 AND SUCH STATE SECURITIES OR BLUE SKY LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCKUP
PERIOD OF UP TO 180-DAYS FOLLOWING THE EFFECTIVE DATE OF THE FIRST
REGISTRATION STATEMENT 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.
In addition, all such certificates shall also be stamped or otherwise
imprinted with a legend in substantially the form set forth in Section 7.1(a) of
the Second Amended and Restated Securityholders' Agreement.
Each Holder, Series C Holder and Series D 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
and Section 6 below. Without in any way limiting the immediately
5
<PAGE>
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 6 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,
employees, members or former members, (iii) a transaction involving the transfer
without consideration of 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 or a limited liability company to
another partnership or limited liability company that is under common control
with such holder (such transferee, an "Affiliated Partnership"). 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, Series C Initiating Holders or Series D
Initiating Holders a written request that the
6
<PAGE>
Company effect any registration with respect to shares of Registrable
Securities, the Company, subject to the provisions of Section 5.1(c) below,
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, Series C Holders or Series D Holders, as
the case may be;
(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 (except in the event of
an "S-3 Registration Request" as that term is
defined in Section 5.1(a)(E) below, in which event
no underwriting will be required, but the Company
will nevertheless use its best efforts to effect the
registration pursuant to such S-3 Registration
Request); (it being expressly understood and agreed
that in the event that the Company cannot effect
such registration as part of a firm commitment
underwritten public offering, the Company shall
nevertheless be obligated to effect a registration
in accordance with any such written request pursuant
to this Section 5.1(a)(ii)) with underwriters
reasonably acceptable to the Initiating Holders and
the Company, or the Series C Initiating Holders and
the Company, or the Series D Initiating Holders and
the Company, as the case may be (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 or
any Series C Holder or Series C Holders or any
Series D Holder or Series D Holders joining in such
request by delivering a written notice to such
effect to the Company within twenty (20) days after
receipt of such written notice from the Company; and
(iii) After its initial 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, and to the extent possible, will use its best
efforts to effect any registration
7
<PAGE>
requested hereunder on such Form S-3 or on any such
comparable or successor form(s).
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:
(A) Prior to six (6) months after the effective date of
the Company's first registered public offering of its equity securities;
(B) 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.
(C) On behalf of the Initiating Holders after the
Company has effected two registrations requested by the Initiating Holders,
pursuant to this subparagraph 5.1(a), and such registrations have been declared
or ordered effective; or
(D) On behalf of the Series C Initiating Holders, after
the Company has effected two registrations requested by the Series C Initiating
Holders pursuant to this subparagraph 5.1(a), and such registrations have been
declared or ordered effective; or
(E) On behalf of the Series D Initiating Holders, after
the Company has effected four registrations requested by the Series D Initiating
Holders pursuant to this subparagraph 5.1(a) (two of which four registration
requests must be requests for registration on Form S-3, or any successor form of
short form registration statement (an "S-3 Registration Request"); or
(F) In the event that the Company shall furnish to the
Initiating Holders, or the Series C Initiating Holders or the Series D
Initiating Holders, as the case may be, a certificate signed by the Chief
Executive Officer 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
stockholders 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, the Series C Initiating Holders or the
Series D Initiating Holders, as the case may be, provided that the Company may
not exercise this deferral right more than once during any twelve month period
or twice during the term of this Agreement.
(b) Reciprocal Piggyback Rights. In the event that the Company
---------------------------
shall commence the registration of Registrable Securities on behalf of the
Initiating Holders, the Series C
8
<PAGE>
Initiating Holders or the Series D Initiating Holders, as the case may be,
pursuant to the provisions of the Section 5.1, simultaneously with the written
request delivered by the Company pursuant to Section 5.1(a)(i) above, the
Company shall also notify the class of holders who did not initiate the request
for registration of same (by way of example, in the event the Initiating Holders
made the request for registration, the Company would notify the Series C Holders
and the Series D Holders of such, and similarly, in the event that the Series D
Holders made the request for registration the Company would notify the Holders
and Series C Holders of such) and such other class of holders (the "Non-
Requesting Holders") shall have the right within ten (10) days from receipt of
such written notice of the proposed registration requested by the other class of
holders (the "Requesting Holders") to advise the Company in writing that they
wish to be included in such registration. The Company, whether the registration
is underwritten or otherwise, will use its best efforts to include the
Registrable Securities of all Requesting and Non-Requesting Holders in any such
registration (all Requesting and Non-Requesting Holders who have Registrable
Securities included on any registration statement are sometimes collectively
referred to as the "Registering Holders"). In the event that it is unable to do
so (including but not limited to if the managing underwriter of any such
registration determines that marketing factors require a limitation on the
number of Registrable Securities to be underwritten), then the Registrable
Securities to be included in the registration statement shall be allocated among
all Registering Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by the Registering Holders at
the time of the initial filing of the registration statement. To facilitate the
allocation of any Registering Holders hereunder, the Company or the managing
underwriter may round to the nearest one hundred (100) shares.
(c) Underwriting. In the event of a registration pursuant to
------------
Section 5.1 (except with respect to any S-3 Registration Request), the Company
shall advise the Holders and/or the Series C Holders and/or the Series D
Holders, as the case may be, as part of the notice given pursuant to Section
5.1(a)(i) and Section 5.1(b) above, that the right of any such Holder and/or
Series C Holder and/or Series D Holder, as the case may be, to registration
pursuant to Section 5.1 shall be conditioned upon such Holder's and/or such
Series C Holder's and/or Series D Holder's participation, as the case may be, in
the underwriting arrangements required by this Section 5.1, and the inclusion of
such Holder's and/or such Series C Holder's and/or Series D Holder's Registrable
Securities, as the case may be, in the underwriting to the extent requested
shall be limited to the extent provided therein.
The Company shall, together with all Holders and/or Series C Holders
and/or Series D Holders, as the case may be, proposing to distribute their
securities through such underwriting, enter into an underwriting agreement in
customary form with the managing underwriter reasonably acceptable to the
majority in interest of the Initiating Holders and/or Series C Initiating
Holders and/or Series D Initiating Holders, as the case may be. Notwithstanding
any other provision of this Section 5.1, if the managing underwriter advises the
Initiating Holders and/or Series C Initiating Holders and/or Series D Initiating
Holders, as the case may be, in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Company shall so
advise all Holders and/or Series C Holders and/or Series D Holders, as the case
may be, requesting to be included in the registration and underwriting and the
number of shares of Registrable Securities that
9
<PAGE>
may be included in the registration and underwriting shall be allocated among
all Holders and/or Series C Holders, and/or Series D Holders, as the case may
be, 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. In the
event that any Registrable Securities are excluded from the underwriting by
reason of the underwriter's marketing limitations, (i) such excluded shares
shall be excluded from the registration and (ii) no shares that are not
Registrable Securities shall be included in the 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 or any
Series C Holder and/or Series D Holder, as the case may be, to the nearest one
hundred (100) shares. If any Holder and/or any Series C Holder, and/or Series D
Holder as the case may be, 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, Series C Holder, Series D 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
after determining to proceed with such registration,
give to each Holder, each Series C Holder and each
Series D 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, Series C Holder or Series D
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, the Series C Holders and the Series D
Holders, as a part of the written notice given pursuant to Section 5.2(a)(i). In
such event, the right of any Holder, any Series C Holder or any Series D Holder
to registration pursuant to Section 5.2 shall be conditioned upon such Holder's,
such Series C Holder's and such Series D 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, Series C Holders and Series D Holders proposing to distribute
their securities through such underwriting shall (together with the Company
and the other holders distributing their
10
<PAGE>
securities through such 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, then the
Company shall so advise all Holders, Series C Holders and Series D Holders
requesting to include Registrable Securities in the registration and
underwriting and the number of shares of Registrable Securities that the
managing underwriter has determined that may be included in the
registration and underwriting shall be allocated among them in proportion,
as nearly as practicable, to the respective amounts of Registrable
Securities held by them at the time of filing the registration statement;
provided that the managing underwriter may determine that marketing factors
prohibit the inclusion of any Registrable Securities. In the event that any
Registrable Securities are excluded from the underwriting by reason of the
underwriter's marketing limitations, (i) such excluded shares shall be
excluded from the registration, and (ii) other than shares to be issued and
sold by the Company, no shares that are not Registrable Securities shall be
included in the 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, any Series C Holder or
any Series D Holder to the nearest one hundred (100) shares. If any Holder,
Series C Holder or any Series D 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, any Series C Holder or any Series D Holder has elected to include any
securities in such registration.
5.3 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 equal or superior to the rights
granted hereunder without the written consent of the holders of a majority of
the Registrable Securities then outstanding. Notwithstanding the foregoing,
Series D Investors who purchase shares of Series D Preferred in any Supplemental
Initial Closing (as that term is defined in the Series D Purchase Agreement)
shall become parties to this agreement by executing a counterpart hereof and
Schedule 3 shall be amended accordingly.
5.4 Expenses of Registration. All Registration Expenses incurred
------------------------
pursuant to Section 5.1 and Section 5.2 shall be borne by the Company.
Notwithstanding the foregoing, in the event that Initiating Holders, Series C
Initiating Holders or Series D Initiating Holders cause the Company to begin a
registration pursuant to Section 5.1, and the request for such registration is
subsequently withdrawn by the Requesting Holders requesting such registration or
such registration is not successfully completed due to no fault of the Company,
the class of holders represented by the Requesting Holders shall be deemed to
have forfeited their right to a registration under Section 5.1, unless such
Requesting Holders pay for, or reimburse the Company for, all of 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, the Series C Holders and the
Series D Holders shall be borne by the Holders, the Series C Holders and the
Series
11
<PAGE>
D Holders of such securities pro rata on the basis of the number of shares so
registered or proposed to be so registered.
5.5 Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Agreement, the Company will keep each
Registering 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 until the distribution described in the registration
statement has been completed.
(b) Furnish to the Registering Holders 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 Registering Holders may reasonably request in order to
facilitate the public offering of such securities.
(c) Use its best efforts to register and qualify 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.
(d) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement with terms
satisfactory to the managing underwriter of such offering.
(e) Notify each Registering Holder 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 or quotation system 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.
5.6 Indemnification. For the purposes of the remainder of this
---------------
Section 5 (i.e. Sections 5.6, 5.7, 5.8, 5.9 and 5.10 hereof), the term "Holder"
shall mean each Holder and each
12
<PAGE>
Series C Holder and each Series D Holder or any other person holding Registrable
Securities to whom rights under this Agreement have been transferred in
accordance with Section 5.9 hereof.
(a) The Company will indemnify each Holder, each of its
officers, directors, members, partners 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, state securities law or any rule or regulation promulgated under
the such laws applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers, directors, members, partners 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. The
obligation of the Company pursuant to this Section 5.6(a) 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 the Company, such consent not
to be unreasonably withheld.
(b) To the extent provided below, 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 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
13
<PAGE>
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 5.6(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 5.6(b) with respect to a registration shall be limited to an amount
equal to the net proceeds received by such Holder from the sale of Registrable
Securities in such registration. 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
5.6 (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 Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless and to the extent that 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 5.6 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
14
<PAGE>
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 from sales of Registrable Securities
in such offering.
5.7 Information by Holder. Each Holder, Series C Holder or Series D
---------------------
Holder of Registrable Securities included in any registration shall furnish to
the Company such information regarding such Holder, Series C Holder or Series D
Holder, the Registrable Securities held by them and the distribution proposed by
such Holder, Series C Holder or Series D Holder as the Company may request in
writing and as shall be required in connection with any registration referred to
in this Agreement.
5.8 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 statement on Form S-3 or without registration pursuant to Rule 144,
in each case, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use all reasonable 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;
(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, Series C Holders and Series D Holders to utilize Form S-3, or any
successor form, for the resale of their Registrable Securities; and
(d) So long as a Holder, Series C Holder or Series D Holder owns
any Restricted Securities, to furnish to the Holder, Series C Holder or Series D
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, Series C
Holder or Series D Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing the Holder, Series C Holder or Series D
Holder to sell any such securities without registration.
15
<PAGE>
5.9 Transfer of Registration Rights. The rights to cause the Company
-------------------------------
to register securities granted Holders, Series C Holders and Series D Holders
under Sections 5.1 and 5.2 may be assigned to a transferee or assignee in
connection with any transfer or assignment of Registrable Securities by a
Holder, Series C Holder or Series D Holder provided that: (i) such transfer is
otherwise effected in accordance with applicable securities laws and the terms
of this Agreement, (ii) such assignee, following such transfer, holds a number
of Registrable Securities equal to at least 10% of the total number of
Registrable Securities then outstanding or such assignee receives 25% of the
transferor's Registrable Securities, (iii) written notice is promptly given to
the Company, and (iv) such transferee agrees in writing 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, member or former
member, or shareholder of a Holder, Series C Holder or Series D Holder which is
a partnership, limited liability company or corporation; (y) a family member of
a Holder, Series C Holder or Series D Holder or trust for the benefit of a
Holder, Series C Holder or Series D Holder, the spouse of a Holder, Series C
Holder or Series D Holder or issue of a Holder, Series C Holder or Series D
Holder; or (z) any Affiliated Partnership or any corporation, partnership,
limited liability company or other entity of which at least 75% in interest is
owned or controlled, directly or indirectly, by one or more of the persons
described in (x) or (y), or is under common control with such person.
Registrable Securities acquired by two or more transferees which are affiliates
of each other shall be aggregated for the purpose of determining satisfaction of
the requirement set forth in item (ii) above.
5.10 Termination/Suspension of Registration Rights. The rights
---------------------------------------------
granted pursuant to Sections 5.1 and 5.2 of this Agreement shall (i) terminate
as to any Holder, Series C Holder or Series D Holder upon the date seven years
after the effective date of the Company's initial public offering and (ii) shall
be suspended as to a Holder, Series C Holder or Series D Holder during such
earlier periods of time as a public market for the Company's Common Stock exists
and such Holder, Series C Holder or Series D, as the case may be, may sell all
Registrable Securities held by such Holder, Series C Holder or Series D Holder
within one ninety (90) day period under Rule 144.
6. Lockup Agreement. Each Investor, Series C Investor, Holder,
----------------
Series C Holder, Series D Investor and Series D Holder and transferee hereby
agrees that, in connection with the first registration of the offering of any
securities of the Company under the Securities Act for the account of the
Company, if so requested by any representative of the underwriters (the
"Managing Underwriter"), none of such persons shall 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 (the "Market
Standoff Period"), following the effective date of a registration statement of
the Company filed under the Securities Act; provided, however, that the
-------- -------
restriction contained in this Section 6 shall not apply unless (i) all officers
and directors of the Company, all persons holding more than one percent (1%) of
the Company's outstanding voting securities and all persons with registration
rights similar to those provided for in Section 5.1 or 5.2 above are each bound
by similar lockup provisions as of the time of such registration and (ii) any
discretionary waivers or terminations of the lockup provisions contained herein
or contained in other agreements with the persons described in
16
<PAGE>
clause (i) are applied or offered to all persons subject to such lockup
restrictions on a pro rata basis based on the number of securities of the
Company held by each such person (on an as-converted to Common Stock basis, in
the case of convertible securities) subject to such lockup provisions.
Notwithstanding anything contained in this Section 6 to the contrary, during the
Market Standoff Period, each Investor, Series C Investor, Series D Investor,
Holder, Series C Holder and Series D Holder shall be permitted to effect private
sales of their Registrable Securities provided that the purchaser of such
Registrable Securities purchases such Registrable Securities subject to the
terms of this Section 6. The Company may impose stop-transfer instructions with
respect to securities subject to the restrictions contained in this Section 6
until the end of such Market Standoff Period. Notwithstanding the foregoing, the
provisions of this Section 6 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.
7. Governing Law. This Agreement and the legal relations between
-------------
the parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of New York, as applied to agreements entered into
and wholly performed in New York, without giving effect to the conflicts
principles thereof. The parties hereto agree to submit to the jurisdiction and
venue of the federal and state courts of the State of New York, County of New
York with respect to the breach or interpretation of this Agreement or the
enforcement of any and all rights, duties, liabilities, obligations, powers, and
other relations between the parties arising under this Agreement.
8. Entire Agreement. This Agreement contains the entire agreement
----------------
among the parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous arrangements or understandings with respect thereto,
including but not limited to that certain Registration Rights Agreement (the
"Registration Rights Agreement"), dated as of August 16, 1999 among the Company
and each of the persons listed on the Schedule of Investors attached thereto as
Schedule 1 and that certain First Amended and Restated Registration Rights
Agreement dated as of August 26, 1999 (the "First Amended Registration Rights
Agreement") among the Company, each of the persons listed on the Schedule of
Investors attached thereto as Schedule 1 and each of the persons listed on the
Schedule of Series C Investors attached thereto as Schedule 2, and that certain
Amendment No. 1 ("Amendment No. 1") to the First Amended and Restated
Registration Rights Agreement dated as of December 23, 1999, it being expressly
understood and agreed that upon the execution of this Agreement, each of the
Registration Rights Agreement, the First Amended Registration Rights Agreement
and Amendment No. 1 shall be automatically and irrevocably terminated in their
entirety and each such agreement shall be of no further force and effect.
9. 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, Series C Holder, at such Holder's, Series C
Holder's or Series D Holder's address or addresses as set forth in under such
Holder's, Series C Holder's or
17
<PAGE>
Series D Holder's signature below, or at such other address as such Holder,
Series C Holder or Series D Holder shall have furnished to the Company.
(b) if to the Company, to:
Phase2Media, Inc.
420 Lexington Avenue, 26/th/ floor
New York, NY 10170
Attn: Chief Executive Officer
or at such other address as the Company shall have furnished to the Holders
and Series C Holders, with a copy to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
Attn: Clifford A. Brandeis, Esq.
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 has been
deposited in a regularly maintained receptacle for the deposit of the United
States mail, addressed and mailed as aforesaid.
10. Counterparts. This Agreement may be executed in two or more
------------
original or facsimile counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
11. Successors and Assigns. Except as otherwise expressly provided
----------------------
in this Agreement, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto. In addition,
whether or not any express assignment has been made, the provisions of this
Agreement shall be binding upon any successor or assignee.
12. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be effective
only to the extent allowed by such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
12. Amendments and Waivers. Any term hereof may be amended and the
----------------------
observance of any term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the (i) Company, (ii) holders who beneficially own at least two-
thirds of the Registrable Securities then outstanding, and (iii) the affirmative
written consent of the beneficial holders representing a majority of the class
of securities
18
<PAGE>
issued and outstanding against whom enforcement of any amendment or waiver is
sought (i.e., Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock) in the event that any such waiver, change, modification or
discharge adversely affects a class of securities in a manner inconsistent or
disproportionate with the manner in which all classes of securities are affected
by such waiver, change, modification or discharge, provided, however, that in
the event that the party against whom enforcement of any amendment or waiver is
sought are the Series D Preferred Holders, the affirmative written consent of
holders who beneficially own at least two-thirds of the Series D Preferred Stock
issued and outstanding shall be required. Any amendment or waiver so effected
(or effected pursuant to Section 5.3) shall be binding upon all parties hereto.
14. Jury Waiver. The parties hereto waive all right to trial by
-----------
jury of any action, suit or proceeding brought to enforce or defend any rights
or remedies arising under or in connection with this Agreement or the
transactions contemplated hereby whether grounded in tort, contract or
otherwise.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
The Company:
Phase2Media, Inc.
a Delaware corporation
By: /s/ Richard S. Nachmias
-------------------------
Name: Richard S. Nachmias
Title: CFO
Investor:
Vector Capital II, L.P.
By: Vector Capital Partners II, L.L.C., General Partner
By: /s/ Alex Slusky
-------------------------
Alex Slusky, Managing Member
Address for Notices:
VECTOR CAPITAL
456 MONTGOMERY STREET, 19TH FLOOR
SAN FRANCISCO, CA 94104
Other Investors:
/s/ Robert Amen
-----------------------
Robert Amen
Address for Notices:
VECTOR CAPITAL
456 MONTGOMERY STREET, 19TH FLOOR
SAN FRANCISCO, CA 94104
/s/ Barbara Lewis
-----------------------
Barbara Lewis
Address for Notices:
VECTOR CAPITAL
456 MONTGOMERY STREET, 19TH FLOOR
SAN FRANCISCO, CA 94104
/s/ Christopher G. Nicholson
-----------------------
Christopher G. Nicholson
Address for Notices:
VECTOR CAPITAL
456 MONTGOMERY STREET, 19TH FLOOR
SAN FRANCISCO, CA 94104
20
<PAGE>
/s/ Jennifer Taylor
-----------------------
Jennifer Taylor
Address for Notices:
VECTOR CAPITAL
456 MONTGOMERY STREET, 19TH FLOOR
SAN FRANCISCO, CA 94104
HACHETTE FILIPACCHI INTERACTIONS S.A.
By: /s/ Herve Digne
--------------------
Name: Herve Digne
Title: President
Address for Notices:
149, Rue Anatole France
92534 Levallois - Perret Cedex
France
21
<PAGE>
Series C Investors:
Vector Capital II, L.P.
By: Vector Capital Partners II, L.L.C., General Partner
By: /s/ Alex Slusky
-------------------------
Alex Slusky, Managing Member
Address for Notices:
VECTOR CAPITAL
456 MONTGOMERY STREET, 19TH FLOOR
SAN FRANCISCO, CA 94104
STV Partners II, L.L.C.
By: /s/ Jerome C. Silvey
-------------------------
Jerome C. Silvey
General Manager
Address for Notices:
391 W. Putnam
Greenwich CT 06830
P2M, LLC
By: /s/ Kevin Eilian
-------------------------
Kevin Eilian
Managing Member
Address for Notices:
_______________________
_______________________
/s/ John W. Danner
----------------------------------------
John W. Danner as Trustee for the John W.
Danner Separate Property Trust UDT 4/6/99
Address for Notices:
147 La Sandra Way
Portola Valley, CA 94028
22
<PAGE>
Series D Investors:
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Steve Smith
----------------------
Name: Steve Smith
Title: Managing Director
Address for Notices:
120 Long Ridge Road
Stamford, CT 06972
VECTOR CAPITAL II, L.P.
By: Vector Capital Partners II, LLC, as General Partner
/s/ Alex Slusky
--------------------------
By: Alex Slusky
Title: Managing Member
Address for Notices:
VECTOR CAPITAL
456 MONTGOMERY STREET, 19TH FLOOR
SAN FRANCISCO, CA 94104
VECTOR MEMBER FUND II, LP
By: /s/ Alexander R. Slusky
-------------------------
Name: Alexander R. Slusky
Title: Managing Member, Vector Capital Partners II L.L.C.
The General Partner of Vector Member Fund II, L.P.
Address for Notices:
VECTOR CAPITAL
456 MONTGOMERY STREET, 19TH FLOOR
SAN FRANCISCO, CA 94104
23
<PAGE>
HACHETTE FILIPACCHI INTERACTIONS S.A.
By: /s/ Herve Digne
-------------------------
Name: Herve Digne
Title: President
Address for Notices:
149 Rue Anatole France
92534 Levallois - Perret Cedex France
/s/ Jeffrey D. Zukerman
----------------------------
Jeffrey D. Zukerman
Address for Notices:
C/o Zukerman Gore & Brandeis
980 Third Ave
NYC 10022
/s/ Nathaniel S. Gore
----------------------------
Nathaniel S. Gore
Address for Notices:
C/o Zukerman Gore & Brandeis
980 Third Ave
NYC 10022
/s/ Clifford A. Brandeis
----------------------------
Clifford A. Brandeis
Address for Notices:
C/o Zukerman Gore & Brandeis
980 Third Ave
NYC 10022
/s/ Andrew M. Chonoles
----------------------------
Andrew M. Chonoles
Address for Notices:
C/o Zukerman Gore & Brandeis
980 Third Ave
NYC 10022
/s/ Kent Baum
----------------------------
Kent Baum
Address for Notices:
C/o Deutche Bank Alex.Brown
101 California Street
San Francisco, CA 94111
24
<PAGE>
/s/ Herve Digne
- --------------------------------
Herve Digne
Address for Notices:
c/o Hachette Filipacchi Interactions
- ------------------------------------
149, rue Anatole France,
- ------------------------
92534 Levallois - Perret Cedex France
- -------------------------------------
/s/ Richard LeFurgy
- ---------------------------------
Richard LeFurgy
Address for Notices:
Walden VC, 750 Battery St, Suite 700
- ------------------------------------
San Francisco, CA 94111
- -----------------------
/s/ Steven Eskenazi
- ---------------------------------
Steven Eskenazi
Address for Notices:
Walden VC, 750 Battery St
- -------------------------
San Francisco, CA 94111
- -----------------------
/s/ Robert Petrocelli
- ---------------------------------
Robert Petrocelli
Address for Notices:
10 Byrd St.
- -----------------
Rye, NY 10580
- -----------------
/s/ Louis LaTorre
- ---------------------------------
Louis LaTorre
Address for Notices:
39 Eagle Ct
- -----------
W. Plains NY 10601
- ------------------
25
<PAGE>
STV PARTNERS IX, LLC
By: /s/ Jerome Silvey
-----------------------------------
Name: Jerome Silvey
Title: General Manager
Address for Notices:
391 W. Putman
Greenwich, CT 06830
- ----------------------
P2M INVESTMENT PARTNERSHIP
By: /s/ Thomas C. Janson, Jr.
-----------------------------------
Thomas C. Janson, Jr.
- ---------------------
General Partner
- ----------------------
Address for Notices:
C/O Thomas C. Janson, Jr.
- -------------------------
120 Fence Row Drive
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Fairfield, CT 06430
/s/ John W. Danner
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John W. Danner as Trustee for the John W.
Danner Separate Property Trust UDT 4/6/99
Address for Notices:
147 La Sandra Way
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Portola Valley, CA 94028
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EXHIBIT 10.1
CKG MEDIA.com, INC. LONG TERM
-----------------------------
EQUITY COMPENSATION PLAN
------------------------
1. Purpose. The purpose of the CKG Media.com, Inc. (d/b/a
-------
Phase2Media) Long Term Equity Compensation Plan (hereinafter referred to as the
"Plan") is to give Participants an opportunity to participate in the long-term
growth of CKG Media.com, Inc. (hereinafter referred to as the "Company") by
granting to the Participants options to purchase the Company's Common Stock
pursuant to the terms and conditions of the Plan.
2. Definitions. When used herein, the following terms shall have the
-----------
following meanings:
"Board" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
"Cause" means (i) the commission of a felony or a crime involving
moral turpitude or the commission of any other act involving dishonesty,
disloyalty or fraud with respect to the Company, (ii) conduct tending to bring
the Company into public disgrace or disrepute, (iii) failure to perform duties
as reasonably directed by the Board or CEO, (iv) gross negligence or willful
misconduct with respect to the Company or any of its Subsidiaries, or (v) any
other material breach of any agreement between Participant and the Company or
its Subsidiaries which is not cured within fifteen (15) days after written
notice thereof to the Participant. Notwithstanding the foregoing, if a
Participant is a party to an employment agreement with the Company or any
Subsidiary, the definition of "Cause" shall mean, with respect to such
Participant, "Cause" as defined in such Participant's employment agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee of the Board appointed by the Board to
administer the Plan with respect to the grants of Options."Common Stock" means
Common Stock ($.001 par value) of the Company, including any stock into which
such Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled preference.
"Company" means CKG Media.com, Inc., a Delaware corporation and any
company or other entity which shall succeed to or assume the obligations of the
Company as provided in Section 12.
"Convertible Securities" mean any evidences of indebtedness, shares of
stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for additional shares of Common Stock.
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<PAGE>
"Current Market Price" means, on any date specified herein, the
average of the daily Market Price during the ten (10) consecutive trading days
commencing fifteen (15) trading days before such date, except that, if on any
such date the shares of Common Stock are not listed or admitted for trading on
any national securities exchange or quoted in the over-the-counter market, the
Current Market Price shall be the Market Price on such date.
"Disability" means termination of employment as a result of a physical
or mental impairment sufficient to prevent a Participant from performing the
essential functions of his position, even after a reasonable accommodation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations thereunder, or any successor
statute.
"Expiration Date" shall be ten (10) years from Grant Date.
"Form of Election to Purchase Shares" means the form used by the
Participant to evidence his election to exercise the Option to purchase shares
of Common Stock under the Plan.
"Grant Date" means the effective date of any Option.
"Initial Closing Date" shall have the meaning given to such term in
Section 1.3 of the Purchase Agreement.
"Market Price" means, on any date specified herein, the amount per
share of the Common Stock, equal to (a) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices thereof, regular way,
on such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, or (b) if such Common Stock is not then listed or admitted for trading
on any national securities exchange but is designated as a national market
system security by the NASD, the last reported trading price of the Common Stock
on such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system or the Nasdaq SmallCap Market, or (d) if such Common Stock is not then
listed or admitted for trading on any national exchange or quoted in the over-
the-counter market, the fair value thereof (as of a date which is within twenty
(20) days of the date as of which the determination is to be made) determined in
good faith by the Board of Directors of the Company.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Normal Retirement" means a Participant's termination of employment
(with the approval of the Committee or in the absence of the Committee, the
Board) at any time after the Participant attains age 65.
"Option" means a right granted under the Plan to a Participant to
purchase a stated number of shares of Common Stock. The Committee shall have
the discretion to treat the Options granted under the Plan as "incentive stock
options" within the meaning of Section 422 of the Code and revise the Option
Agreement for such Options consistently therewith. Unless specifically stated
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<PAGE>
otherwise in an Option Agreement, the Options granted under the Plan shall not
be treated as "incentive stock options" within the meaning of Section 422 of the
Code.
"Option Agreement" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to the grant
of each Option.
"Option Exercise Price" means the price at which a share of Common
Stock may be purchased by a Participant pursuant to an Option.
"Other Securities" means any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Options at any time shall be entitled to receive, or shall have
received, upon the exercise of the Options, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 12 or otherwise.
"Participant" means an officer, director or employee of the Company or
a Subsidiary who is selected to participate in the Plan in accordance with
Section 4.
"Person" means any individual, firm, partnership, corporation, trust,
joint venture, association, joint stock company, limited liability company,
unincorporated organization or any other entity or organization, including a
government or agency or political subdivision thereof, and shall include any
successor (by merger or otherwise) of such entity.
"Plan" means the CKG Media.com, Inc. Long Term Equity Compensation
Plan, as amended from time to time.
"Purchase Agreement" means the Securities Purchase Agreement dated
August 16, 1999 by and among the Company, Vector Capital II, L.P , Richard E.
Glassberg, Robert E. Chmiel, R. Scott Ford, Thomas Mannion, Jason Liebowitz and
Matthew Spangler and each of the parties listed on Schedule A and Schedule B
attached thereto.
"Restricted Securities" mean (a) any shares of Common Stock (or Other
Securities) issued or issuable upon the exercise of Options which are (or, upon
issuance, will be) evidenced by a certificate or certificates bearing the
applicable legend set forth in Section 16, and (b) any shares of Common Stock
(or Other Securities) issued subsequent to the exercise of any of the Options as
a dividend or other distribution with respect to, or resulting from a
subdivision of the outstanding shares of Common Stock (or Other Securities) into
a greater number of shares by reclassification, stock splits or otherwise, or in
exchange for or in replacement of the Common Stock (or Other Securities) issued
upon such exercise, which are evidenced by a certificate or certificates bearing
the applicable legend set forth in such Section.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder, or any similar or
successor statute.
"Securityholders' Agreement" means the Securityholders' Agreement,
dated as of August 16, 1999, among the Company, Vector Capital II, L.P., Richard
E. Glassberg, Robert E. Chmiel, R. Scott Ford, Thomas Mannion, Jason Liebowitz,
Matthew Spangler and each of the
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<PAGE>
parties listed on Schedule A and Schedule B annexed thereto, as the same may be
amended from time to time.
"Subsidiary" means, with respect to any Person, any other Person
directly or indirectly controlled by, or under direct or indirect common control
with, such Person. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to (i) vote fifty percent
(50%) or more of the securities having ordinary voting power for the election of
directors of such corporation, or (ii) direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
3. Administration. The Plan shall be administered by the Committee.
--------------
Subject to the provisions of the Plan, the Committee shall have the authority
to:
(a) select the Participants of the Plan;
(b) determine the number of shares of Common Stock to be optioned to
each Participant; and
(c) establish from time to time rules and regulations for the
administration of the Plan, interpret the Plan, delegate in writing
administrative matters to committees of the Board or to other persons, and make
such other determinations and take such other action, as it deems necessary or
advisable for the administration of the Plan.
All actions taken and interpretations and determinations made by the
Committee in good faith shall be final and binding upon all parties.
4. Participation. Participants in the Plan shall be limited to those
-------------
officers, directors and employees the Company and its Subsidiaries who have been
notified in writing by the Committee that they have been selected to participate
in the Plan.
5. Shares Subject to the Plan. Options may be granted by the
--------------------------
Committee to Participants from time to time. The shares issued upon the exercise
of Options granted under the Plan may be authorized and unissued shares, shares
held in the treasury of the Company, or, if available, shares repurchased by the
Company (at such time or times and in such manner as it may determine). If any
Option granted under the Plan shall be canceled or expire without the exercise
thereof, new Options may thereafter be granted covering such shares.
6. Maximum Shares Available. The maximum aggregate number of shares
------------------------
available to be granted under the Plan is equal to Twelve Million Two Hundred
Eighty Five Thousand (12,285,000) shares of Common Stock and such shares shall
be reserved for Options granted under the Plan (subject to adjustment as
provided in Sections 11 and 12).
7. Grant of Options. Options may be granted under the Plan to
----------------
Participants for the purchase of shares of Common Stock. Options shall be
granted in such form and upon such terms and conditions as the Committee shall
determine from time to time.
8. Terms and Conditions of Options. Each Option granted under the
-------------------------------
Plan shall be evidenced by a written Option Agreement, in a form approved by the
Committee and executed
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<PAGE>
by the President or any Senior Vice President of the Company, which shall be
subject to the following express terms and conditions and to such other terms
and conditions as the Committee may deem appropriate:
(a) Option Term. The term of each Option granted hereunder shall be
-----------
determined by the Committee; provided, however, that, notwithstanding any other
-------- -------
provision of the Plan, in no event shall an Option be exercisable after the
Expiration Date.
(b) Option Exercise Price. The purchase price under each Option
---------------------
granted on or before the Initial Closing Date shall be $.05 per share. Options
granted after the Initial Closing Date shall have a purchase price per share
equal to the Market Price of the outstanding shares as of the Grant Date,
subject to adjustment as provided in Sections 11 and 12.
(c) Exercise of Option. Each Option shall become exercisable in
------------------
accordance with the following schedule:
Years from Grant Date Amount Exercisable
--------------------- ------------------
1 year 33 1/3%
1 1/4 years 8 1/3%
1 1/2 years 8 1/3%
1 3/4 years 8 1/3%
2 years 8 1/3%
2 1/4 years 8 1/3%
2 1/2 years 8 1/3%
2 3/4 years 8 1/3%
3 years 8 1/3%
(d) Payment of the Option Exercise Price may be made as follows (or by
any combination of the following): (i) in United States currency by cash or
delivery of a certified check or bank draft payable to the order of the Company
or by wire transfer to the Company, (ii) by cancellation of such number of the
shares of Common Stock otherwise issuable to the Participant upon such exercise
as shall be specified in such Election to Purchase Shares, such that the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the Option Exercise Price attributable to
such shares shall equal the Option Exercise Price attributable to the shares of
Common Stock to be issued upon such exercise, in which case such amount shall be
deemed to have been paid to the Company and the number of shares issuable upon
such exercise shall be reduced by such specified number, or (iii) by surrender
to the Company for cancellation certificates representing shares of Common Stock
of the Company owned by the Participant (properly endorsed for transfer in
blank) having a Current Market Price on the date of Option exercise equal to the
aggregate Option Exercise Price with respect to the shares of Common Stock being
exercised.
(e) When Exercise Effective. Each exercise of an Option shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which the Form of Election to Purchase Shares, and the Option
Exercise Price shall have been received by, the
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<PAGE>
Company as provided in Section 8(d), and at such time the Person or Persons in
whose name or names any certificate or certificates for shares of Common Stock
(or Other Securities) shall be issuable upon such exercise as provided in
Section 8(f) shall be deemed to have become the holder or holders of record
thereof for all purposes.
(f) Delivery of Stock Certificates, etc.; Charges, Taxes and Expenses.
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(a) As soon as practicable after each exercise of an Option, in whole or in
part, and in any event within five (5) Business Days thereafter, the Company
shall cause to be issued in the name of and delivered to the Participant hereof
or, as the Participant may direct, a certificate or certificates for the number
of shares of Common Stock (or Other Securities) to which the Participant shall
be entitled upon such exercise plus, in lieu of issuance of any fractional share
to which the Participant would otherwise be entitled, if any, a check for the
amount of cash equal to the same fraction multiplied by the Current Market Price
per share on the date of Option Exercise Price. Except to the extent described
in Section 21 hereof, issuance of certificates for shares of Common Stock upon
the exercise of an Option shall be made without charge to the Participant for
any issue tax or other incidental expense in respect of the issuance of such
certificates, all of which such taxes and expenses shall be paid by the Company.
(g) Termination of Employment; Death, Disability; Normal Retirement;
----------------------------------------------------------------
For Cause.
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i. In the event that a Participant's employment with the Company is
terminated by such Participant for any reason including, but not limited to,
death, Disability, Normal Retirement, or the Company terminates a Participant's
employment for any reason, the portion of such Participant's Option that was not
vested and exercisable on the date of such termination of employment shall
expire and be forfeited; provided, however, that unless a Participant's
employment was terminated by the Company for Cause and in the event the
Participant's employment with the Company is terminated on account of death,
Disability or Normal Retirement, the vested portion of such Participant's Option
on the date of such Participant's termination of employment shall continue to be
exercisable for a period of three (3) months following such termination of
employment and any portion of such Participant's vested Option which is not
exercised during such three (3) month period shall automatically be forfeited.
ii. In the event that a Participant's employment with the Company is
terminated for Cause, all unexercised Options outstanding as of the date the
Company delivers notice of termination of employment to such Participant,
whether or not vested, shall be forfeited as of the date the Company delivers
notice of termination of employment to such Participant.
(h) Transferability of Options. No Option granted under the Plan and
--------------------------
no right arising under such Option shall be transferable other than by will or
by the laws of descent and distribution. During the lifetime of the optionee an
Option shall be exercisable only by him. Any Option exercisable at the date of
the Participant's death and transferred by will or by the laws of descent and
distribution shall be exercisable in accordance with the terms of such Option by
the executor or administrator, as the case may be, of the Participant's estate
for a period of three (3) months after the date of the Participant's death and
shall then terminate.
(i) Call Right. At any time prior to a public offering of Common
----------
Stock, the Company may purchase Common Stock acquired from exercise of an Option
from any Participant whose employment has been terminated, on ninety (90) days
notice, for an amount equal to the
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Market Price of the shares as of the date the Company exercises its rights under
this Section. Any shares purchased by the Company in connection with the
exercise of the Company's call right may be paid in cash or a note payable in
three (3) equal annual installments bearing interest at the prime rate.
(j) Put Right. At any time following the death, Disability or Normal
---------
Retirement of a Participant, if no public market for the Common Stock exists,
the holder of the Common Stock acquired upon exercise of an Option may sell such
Common Stock to the Company for an amount equal to the Market Price of the
shares as of the date of put.
(k) Investment Representation. Each Option Agreement may contain an
-------------------------
undertaking that, upon demand by the Board for such a representation, the
optionee (or any person acting under Section 20) shall deliver to the Board at
the time of any exercise of an Option a written representation that the shares
to be acquired upon such exercise are to be acquired for investment and not for
resale or with a view to the distribution thereof. Upon such demand, delivery
of such representation prior to the delivery of any shares issued upon exercise
of an Option shall be a condition precedent to the right of the optionee or such
other person to purchase any shares.
9. No Dilution or Impairment. The Company shall not, by amendment of
-------------------------
its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of the assets, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Plan, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Participant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) shall not permit the par value of
any shares of stock receivable upon the exercise of an Option to exceed the
amount payable therefor upon such exercise, (b) shall take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, and (c) shall not
take any action which results in any adjustment of the Option Exercise Price if
the total number of shares of Common Stock (or Other Securities) issuable after
the action upon the exercise of all of the Options would exceed the total number
of shares of Common Stock (or Other Securities) then authorized by the Company's
certificate of incorporation and available for the purpose of issue upon such
exercise.
10. Certificate as to Adjustments. In each case of any adjustment or
-----------------------------
readjustment in the shares of Common Stock (or Other Securities) issuable upon
the exercise of an Option, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms of an Option and
prepare a certificate, signed by the Chairman of the Board, President or one of
the Vice Presidents of the Company, and by the Chief Financial Officer, the
Treasurer or one of the Assistant Treasurers of the Company, setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
by the Company for any additional shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock outstanding
or deemed to be outstanding, and (c) the Option Exercise Price in effect
immediately prior to such issue or sale and as adjusted and readjusted (if
required by Section 11) on account thereof. The Company shall forthwith mail a
copy of each such certificate to each holder of an Option and shall, upon the
written request at any time of any holder of an Option, furnish to such holder a
like certificate setting forth the Option Exercise Price at the time in effect
and showing in reasonable
7
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detail how it was calculated. The Company shall also keep copies of all such
certificates at its principal office and shall cause the same to be available
for inspection at such office during normal business hours by any holder of an
Option or any prospective purchaser of an Option designated by the holder
thereof. The Company shall, upon the request in writing of the Participant (at
the Company's expense) retain independent public accountants of recognized
national standing selected by the Board of Directors of the Company to make any
computation required in connection with adjustments under an Option, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment, which shall be binding on the Participant and the Company.
11. Adjustment of Common Stock Issuable upon Exercise.
-------------------------------------------------
(a) Adjustment of Number of Shares. Upon each adjustment of the
------------------------------
Option Exercise Price as a result of the calculations made in this Section 11,
an Option shall thereafter evidence the right to receive, at the adjusted Option
Exercise Price, that number of shares of Common Stock (calculated to the nearest
one-hundredth) obtained by dividing (i) the product of the aggregate number of
shares covered by an Option immediately prior to such adjustment and the Option
Exercise Price in effect immediately prior to such adjustment of the Option
Exercise Price by (ii) the Option Exercise Price in effect immediately after
such adjustment of the Option Exercise Price.
(b) Treatment of Stock Dividends, Stock Splits, etc. In case the
------------------------------------------------
Company at any time or from time to time after the Grant Date of an Option shall
declare any dividend on the Common Stock payable in Common Stock, or shall
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then, and in each such case, the Option
Exercise Price in effect immediately prior to the declaration of such dividend
or to such subdivision shall, concurrently with the effectiveness of such
declaration or subdivision, be proportionately decreased.
(c) Adjustments for Combinations, etc. In case the outstanding
-----------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Option Exercise
Price in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(d) De Minimis Adjustments. If the amount of any adjustment of the
----------------------
Option Exercise Price per share required pursuant to this Section 11 would be
less than one tenth (1/10) of one percent (1%) of the Option Exercise Price,
such amount shall be carried forward and adjustment with respect thereto made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
a change in the Option Exercise Price of at least one tenth (1/10) of one
percent (1%) of such Option Exercise Price. All calculations under an Option
shall be made to the nearest .001 of a cent or to the nearest one-hundredth of a
share, as the case may be.
(e) Abandoned Dividend or Distribution. If the Company shall take a
----------------------------------
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Option Exercise Price under the terms of an Option) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
8
<PAGE>
distribution, then any adjustment made to the Option Exercise Price and number
of shares of Common Stock purchasable upon Option Exercise Price by reason of
the taking of such record shall be reversed, and any subsequent adjustments,
based thereon, shall be recomputed.
12. Consolidation, Merger.
---------------------
(a) Adjustments for Consolidations and Mergers. In case the Company
------------------------------------------
after the Grant Date of an Option (i) shall consolidate with or merge into any
other Person and shall not be the continuing or surviving corporation of such
consolidation or merger, or (ii) shall permit any other Person to consolidate
with or merge into the Company and the Company shall be the continuing or
surviving Person but, in connection with such consolidation or merger, the
Common Stock or Other Securities shall be changed into or exchanged for stock or
other securities of any other Person or cash or any other property, then, and in
the case of each such transaction, proper provision shall be made so that, upon
the basis and the terms and in the manner provided in an Option, the Option,
upon the exercise thereof at any time after the consummation of such
transaction, shall be entitled to receive (at the aggregate Option Exercise
Price in effect at the time of such consummation for all Common Stock or Other
Securities issuable upon such exercise immediately prior to such consummation),
in lieu of the Common Stock or Other Securities issuable upon such exercise
prior to such consummation, the highest amount of securities, cash or other
property to which such Participant would actually have been entitled as a
shareholder upon such consummation if such Participant had exercised an Option
immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in Sections 11 and 12, provided that if a purchase, tender or exchange offer
--------
shall have been made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, and if the Participant so designates in a
notice given to the Company on or before the date immediately preceding the date
of the consummation of such transaction, the Participant of such Options shall
be entitled to receive the highest amount of securities, cash or other property
to which it would actually have been entitled as a shareholder if the
Participant of such Options had exercised such Options prior to the expiration
of such purchase, tender or exchange offer and accepted such offer, subject to
adjustments (from and after the consummation of such purchase, tender or
exchange offer) as nearly equivalent as possible to the adjustments provided for
in Sections 11 and 12.
(b) Assumption of Obligations. Notwithstanding anything contained in
-------------------------
this Plan or in the Purchase Agreement to the contrary, the Company shall not
effect any of the transactions described in clauses (i) or (ii) of Section 12(a)
unless, prior to the consummation thereof, each Person (other than the Company)
which may be required to deliver any stock, securities, cash or property upon
the exercise of an Option as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the Participant of an Option, (i)
the obligations of the Company under this Plan (and if the Company shall survive
the consummation of such transaction, such assumption shall be in addition to,
and shall not release the Company from, any continuing obligations of the
Company under this Plan), and (ii) the obligation to deliver to the Participant
such shares of stock, securities, cash or property as, in accordance with the
foregoing provisions of this Section 12, the Participant may be entitled to
receive. Nothing in this Section 12 shall be deemed to authorize the Company to
enter into any transaction not otherwise permitted by the Purchase Agreement.
9
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13. Notices of Corporate Action. In the event of:
---------------------------
(a) Any consolidation or merger involving the Company and any other
Person, any transaction or series of transactions in which more than 50% of the
voting securities of the Company are transferred to another Person, or any
transfer, sale or other disposition of all or substantially all the assets of
the Company to any other Person, or
(b) Any voluntary or involuntary dissolution, liquidation or winding-
up of the Company, the Company shall mail to each holder of an Option a notice
specifying the date or expected date on which any such consolidation, merger,
transfer, sale, disposition, dissolution, liquidation or winding-up is to take
place and the time, if any such time is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for the securities or other
property deliverable upon such consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least twenty (20)
days prior to the date therein specified.
14. Optionees to Have No Rights or Liabilities as Stockholders. No
----------------------------------------------------------
optionee shall have any rights as a stockholder with respect to any shares
subject to his Option prior to the date on which he is recorded as the holder of
such shares on the records of the Company.
15. Plan and Option Not to Confer Rights with Respect to Continuance
----------------------------------------------------------------
of Employment. Neither the Plan nor any action taken thereunder shall be
- -------------
construed as giving any employee the right to be retained in the employ of the
Company or a Subsidiary, nor shall it interfere in any way with the right of the
Company or a Subsidiary to terminate any Participant's employment at any time.
16. Stock Certificates and Restrictions on Transfer.
-----------------------------------------------
(a) Restrictive Legend. Except as otherwise permitted by this
------------------
Section 16, each certificate for Common Stock (or Other Securities) issued upon
the exercise of any Option, and each certificate issued upon the transfer of any
such Common Stock (or Other Securities), shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER (COLLECTIVELY, THE "SECURITIES ACT") OR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED,
SOLD, PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN
EFFECT WITH RESPECT THERETO UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COMPANY'S COUNSEL THAT THERE IS AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AS SET FORTH IN THAT CERTAIN SECURITYHOLDERS' AGREEMENT
DATED AS OF AUGUST 16, 1999, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY OR
FROM THE HOLDER OF THIS CERTIFICATE. NO TRANSFER OF SUCH SECURITIES WILL BE
MADE ON THE BOOKS
10
<PAGE>
OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF
SUCH AGREEMENT."
(b) Transfer to Comply With the Securities Act. Restricted
------------------------------------------
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part, except in compliance
with the provisions of the Securities Act and state securities or Blue Sky laws,
the Securityholders' Agreement and the terms and conditions hereof. The Company
may require a legal opinion, in form and substance reasonably satisfactory to
the Company, as to the availability of and compliance with such exemptions and
the state securities or blue sky laws.
(c) Termination of Restrictions. The restrictions imposed by this
---------------------------
Section 16 on the transferability of Restricted Securities to comply with the
Securities Act and state securities or Blue Sky laws shall cease and terminate
as to any particular Restricted Securities (a) when a registration statement
with respect to the sale of such securities shall have been declared effective
under the Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (b) when such securities are sold
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Participant
and counsel for the Company, such restrictions are no longer required or
necessary in order to protect the Company against a violation of the Securities
Act upon any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Participant shall be entitled to receive from the
Company, without expense, new securities of like tenor not bearing the
applicable legends required by Section 16(a).
17. Option Agreement. In the event of any conflict between the
----------------
written Option Agreement and the Plan, the terms of the Plan shall govern.
18. No Claim or Right Under the Plan. No officer, director or
--------------------------------
employee shall at any time have the right to be selected as a Participant in the
Plan nor, having been selected as a Participant and granted an Option, to be
granted any additional option.
19. Listing and Qualification of Shares. If any shares of Common
-----------------------------------
Stock required to be reserved for purposes of exercise of an Option require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company shall, at its expense and as expeditiously as possible,
use its best efforts to cause such shares to be duly registered or approved, as
the case may be. At any such time as Common Stock is listed on any national
securities exchange, or quoted in the NASD automated quotation system or the
Nasdaq SmallCap Market the Company shall, at its expense, obtain promptly and
maintain the approval for listing or trading on each such exchange or over-the-
counter market, upon official notice of issuance, the shares of Common Stock
issuable upon exercise of the then outstanding Options and maintain the listing
of such shares after their issuance; and the Company shall also list on such
national securities exchange or quoted in the over-the-counter market, shall
register under the Exchange Act and shall maintain such listing or admission for
trading of, any Other Securities that at any time are issuable upon exercise of
the Options, if and at the time that any securities of the same class shall be
listed on such national securities exchange or quoted in the over-the-counter
market by the Company.
11
<PAGE>
If timely requested in writing by the managing underwriter in an
underwritten public offering, a Participant shall not to make any short sale of,
loan, grant any option for the purchase of or effect any public sale or
distribution, including a sale pursuant to Rule 144 (or any successor provision
having similar effect) under the Securities Act of any Common Stock or Other
Securities or any other equity security of the Company (or any security
convertible into or exchangeable or exercisable for any equity security of the
Company) (except as part of such underwritten registration), during the nine
business days (as such term is used in Regulation M under the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act")) prior to, and during the time period reasonably
requested by the managing underwriter not to exceed 180 days, beginning on the
effective date of the applicable registration statement.
20. Securityholders' Agreement. A Participant, or his beneficiary or
--------------------------
legal representative, who acquires Common Stock of the Company pursuant to the
exercise of an Option granted under the Plan shall be subject to the provisions
regarding transfers of shares in Section 2 of the Securityholders' Agreement,
which Section shall be deemed to be incorporated herein by reference, and if the
Company shall so request, the Participant shall become a party to such
provisions of the Securityholders' Agreement.
21. Taxes. The Company may make such provisions and take such steps
-----
as it may deem necessary or appropriate for the withholding of all federal,
state, local and other taxes required by law to be withheld with respect to
Options under the Plan including, but not limited to (a) reducing the number of
shares of Common Stock otherwise deliverable, based upon their Fair Market Value
on the date of exercise, to permit deduction of the amount of any such
withholding taxes from the amount otherwise payable under the Plan, (b)
deducting the amount of any such withholding taxes from any other amount then or
thereafter payable to a Participant, or (c) requiring a Participant, beneficiary
or legal representative to pay to the Company the amount required to be withheld
or to execute such documents as the Company deems necessary or desirable to
enable it to satisfy its withholding obligations as a condition of releasing the
Common Stock.
22. No Liability of Board Members. No member of the Board shall be
-----------------------------
personally liable by reason of any contract or other instrument executed by such
member or on his behalf in his capacity as a member of the Board or the
Committee nor for any mistake of judgment made in good faith, and the Company
shall indemnify and hold harmless each employee, officer or director of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost or
expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Board) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
own fraud or bad faith.
23. Non-Uniform Determinations. The Committee's determinations under
--------------------------
the Plan (including, without limitation, determinations of the persons to
receive Options, the form, term, provisions, amount and the timing of the grant
of such Options and of the Option Agreements evidencing the same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Options under the Plan, whether or not such persons are
similarly situated.
12
<PAGE>
24. Amendment or Termination. The Board may, with prospective or
------------------------
retroactive effect, amend, suspend or terminate the Plan or any portion thereof
at any time; provided, however, that no amendment, suspension or termination of
the Plan shall deprive any Participant of any right with respect to any Option
granted under the Plan without his written consent.
25. Descriptive Headings, Etc. The headings in this Plan are for
--------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Plan otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof", "herein" and "hereunder"
and words of similar import when used in this Plan shall refer to this Plan as a
whole and not to any particular provision of this Plan, and Section and
paragraph references are to the Sections and paragraphs of this Plan unless
otherwise specified; (4) the word "including" and words of similar import when
used in this Plan shall mean "including, without limitation," unless otherwise
specified; (5) "or" is not exclusive; and (6) provisions apply to successive
events and transactions.
26. Governing Law. The Plan and all rights thereunder shall be
-------------
governed by and construed in accordance with the laws of the State of New York
(without giving effect to the conflict of laws principles thereof) applicable to
contracts made and to be performed entirely within such State.
27. Severability. In the event that any provision of the Plan shall
------------
be held illegal or invalid for any reason, such illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
28. Judicial Proceedings Any legal action, suit or proceeding
--------------------
brought against the Company with respect to this Plan may be brought in any
federal court of the Southern District of New York or any state court located in
New York County, State of New York, and by execution and delivery of this Plan,
the Company hereby irrevocably and unconditionally waives any claim (by way of
motion, as a defense or otherwise) of improper venue, that it is not subject
personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Plan or the subject matter may not be enforced
in or by such court. The Company hereby irrevocably and unconditionally
consents to the process of any of the aforementioned courts in any such action,
suit or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, at its address set forth or provided for in
Securityholders' Agreement, such service to become effective 10 days after such
mailing. Nothing herein contained shall be deemed to affect the right of any
party to serve process in any manner permitted by law or commence legal
proceedings or otherwise proceed against any other party in any other
jurisdiction to enforce judgment obtained in any action, suit or proceeding
brought pursuant to this Section.
29. Waiver of Trial by Jury. Each of the Company and the Participant
-----------------------
waives any right to a trial by jury in any action, proceeding or counterclaim
concerning any rights under this Plan or under any amendment, waiver, consent,
instrument, document or other agreement delivered or which in the future may be
delivered in connection with this Plan, and agrees that any such action,
proceeding or counterclaim shall be tried before a court and not before a jury.
30. Effective Date. The Plan shall become effective as of April 1,
--------------
1999.
13
<PAGE>
Exhibit 10.4
Lease made as of the 28 day of June, 1999, between SLG Graybar Sublease LLC., a
New York limited liability company having an office at 420 Lexington Avenue, New
York 10170
hereinafter referred to as "Landlord" or "Lessor", and
CKG MEDIA.COM, INC., a Delaware corporation, d/b/a PHASE2MEDIA, having an office
at 420 Lexington Avenue, New York, New York 10170
hereinafter referred to as "Tenant" or "Lessee".
Witnesseth: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord Rooms 2643-55 on the twenty-sixth (26th) floor of the building
approximately as indicated on the plan attached hereto and made a part hereof
(said space is hereinafter called the "premises") in the building known as the
Graybar Building, 420 Lexington Avenue
("the building" in the County of New York, City of New York, for a term of three
(3) yrs., two (2) mths. to commence on the 1st day of July 1999, and to expire
on the 31st day of August, 2002, or until such term shall sooner end as in
Article 12 and elsewhere herein provided, both dates inclusive, at a fixed
annual rental (subject to Articles 23 and 41) at the annual rate of $569,720.00
per annum for the period covering July 1, 1999 through August 31, 2002.
payable in equal monthly installments in advance on the first day of each month,
except that the first installment of rent due under this lease shall be paid by
Tenant upon its execution of this lease, unless this lease be a renewal.
Landlord and Tenant covenant and agree:
PURPOSE.
1. Tenant shall use and occupy the premises only for executive and
general offices relating to Tenant's business, and for no other purpose.
RENT AND ADDITIONAL RENT.
2. Tenant agrees to pay rent as herein provided at the office of Landlord
or such other place as Landlord may designate, payable in United States legal
tender, by cash, or by good and sufficient check drawn on a New York City
Clearing House Bank, and without any set off or deduction whatsoever except as
otherwise set forth herein. Any sum other than fixed rent payable hereunder
shall be deemed additional rent and due on demand.
ASSIGNMENT.
3. Neither Tenant nor Tenant's legal representatives or successors in
interest by operation of law or otherwise, shall assign, mortgage or otherwise
encumber this lease, or sublet or permit all or part of the premises to be used
by others, without the prior written consent of Landlord in each instance. The
conversion of a tenant or subleassee entity to either a limited liability
company or a limited liability partnership shall be deemed an assignment of this
lease or of such sublease. The merger or consolidation of a corporate tenant or
sublessee where the net worth of the resulting corporation is less than the net
worth of the tenant or sublessee immediately prior to such merger or
consolidation shall be deemed an assignment of this lease or of such sublease.
If without Landlord's written consent this lease is assigned, or the premises
are sublet or occupied by anyone other than Tenant, Landlord may accept the rent
from such assignee, subtenant or occupant, and apply the net amount thereof to
the rent herein reserved, but no such assignment, subletting, occupancy or
acceptance of rent shall be deemed a waiver of this covenant. Consent by
Landlord to an assignment or subletting shall not relieve Tenant from the
obligation to obtain Landlord's written consent to any further assignment or
subletting. In no event shall any permitted sublessee assign or encumber its
sublease or further sublet all or any portion of its sublet space, or otherwise
suffer or permit the sublet space or any part thereof to be used or occupied by
others, without Landlord's prior written consent in each instance. A
modification, amendment or extension of a sublease shall be deemed a sublease.
DEFAULT.
4. Landlord may terminate this lease on five (5) days' notice: (a) if rent
or additional rent is not paid within five (5) days after written notice from
Landlord; or (b) if Tenant shall have failed to cure a default in the
performance of any covenant of this lease (except the payment of rent), or any
rule or regulation hereinafter set forth, within thirty (30) days after written
notice thereof from Landlord, or if default cannot be completely cured in such
time, if Tenant shall not promptly proceed to cure such default within said
thirty (30) days, or shall not complete the curing of such default with due
diligence; or (c) when and to the extent permitted by law, if a petition in
bankruptcy shall be filed by or against Tenant or if Tenant shall make a general
assignment for the benefit of creditors, or receive the benefit of any
insolvency or reorganization act; or (d) if a receiver or trustee is appointed
for any portion of Tenant's property and such appointment is not vacated within
twenty (20) days; or (e) if an execution or attachment shall be issued under
which the premises shall be taken or occupied or attempted to be taken or
occupied by anyone other than Tenant; or (f) if the premises become abandoned or
(g) if Tenant shall default beyond any grace period under any other lease
between Tenant and Landlord;
At the expiration of the five (5) day notice period, this lease and any
rights of renewal or extension thereof shall terminate as completely as if that
were the date originally fixed for the expiration of the term of this lease, but
Tenant shall remain liable as hereinafter provided.
RELETTING, ETC.
5. If Landlord shall re-enter the premises on the default of Tenant after
notice and beyond the expiration of any applicable cure period set forth herein
by summary proceedings or otherwise: (a) Landlord may re-let the premises or any
part thereof as Tenant's agent, in the name of Landlord, or otherwise, for a
term shorter or longer than the balance of the term of this lease, and may grant
concessions or free rent. (b) Tenant shall pay Landlord any deficiency between
the rent hereby reserved and the net amount of any rents collected by Landlord
for the remaining term of this lease, through such re-letting. Such deficiency
shall become due and payable monthly, as it is determined. Landlord shall have
no obligation to re-let the premises, and its failure or refusal to do so, or
failure to collect rent on re-letting, shall not affect Tenant's liability
hereunder. In computing the net amount of rents collected through such
re-letting, Landlord may deduct all expenses incurred in obtaining possession or
re-letting the premises, including legal expenses and fees, brokerage fees, the
cost of restoring the premises to good order, and the cost of all alterations
and decorations deemed necessary by Landlord to effect re-letting. In no event
shall Tenant be entitled to a credit or repayment for rerental income which
exceeds the sums payable by Tenant hereunder or which covers a period after the
original term of this lease. (c) Tenant hereby expressly waives any right of
redemption granted by any present or future law. "Re-enter" and "re-entry" as
used in this lease are not restricted to their technical legal meaning. In the
event of a breach or threatened breach of any of the covenants or provisions
hereof Landlord shall have the right of injunction. Mention herein of any
particular remedy shall not preclude Landlord from any other available remedy.
(d) Landlord shall recover as liquidated damages, in addition to accrued rent
and other charges, if Landlord's re-entry is the result of Tenant's bankruptcy,
insolvency, or reorganization, the full rental for the maximum period allowed by
any act relating to bankruptcy, insolvency or reorganization.
If Landlord re-enters the premises for any cause, or if Tenant abandons or
vacates the premises, and after the expiration of the term of this lease, any
property left in the premises by Tenant shall be deemed to have been abandoned
by Tenant, and Landlord shall have the right to retain or dispose of such
property in any manner without any obligation to account therefor to Tenant. If
Tenant shall at any time default hereunder after notice and beyond the
expiration of any applicable cure period set forth herein and if Landlord shall
institute an action or summary proceedings against Tenant based upon such
default, then Tenant will reimburse Landlord for the reasonable legal expenses
and fees thereby incurred by Landlord.
LANDLORD MAY CURE DEFAULTS.
6. If Tenant shall default in performing any covenant or condition of this
lease after notice and beyond the expiration of any applicable cure period
Landlord may perform the same for the account of Tenant, and if Landlord, in
connection therewith, or in connection with any default by Tenant, after notice
and beyond the expiration of any applicable cure period makes any expenditures
or incurs any obligations for the payment of money, including but not limited to
reasonable attorney's fees, such sums so paid or obligations incurred shall be
deemed to be additional rent hereunder, and shall be paid by Tenant to Landlord
within ten (10) days of rendition of any bill or statement therefor, and if
Tenant's lease term shall have expired at the time of the making of such
expenditures or incurring of such obligations as shall be coverable by Landlord
as damages.
<PAGE>
ALTERATIONS.
7. Tenant shall make no decoration, alteration, addition or improvement in
the premises, without the prior written consent of Landlord, and then only by
contractors or mechanics and in such manner and with such materials as shall be
approved by Landlord, which shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, however, Landlord's prior negative experience
with, concerns regarding the financial stability of, and any criminal
proceedings pending against, any such contractor or mechanic shall be deemed to
be a reasonable basis upon which for Landlord to refuse to grant its approval.
All alterations, additions or improvements to the premises, including window and
central air conditioning equipment and duct work, except movable office
furniture and equipment installed at the expense of Tenant, shall, unless
Landlord elects otherwise in writing, become the property of Landlord, and shall
be surrendered with the premises at the expiration or sooner termination of the
term of this lease. Any such alterations, additions and improvements which
Landlord shall designate, shall be removed by Tenant and any damage repaired at
Tenant's expense, prior to the expiration of the term of this lease.
Notwithstanding anything to the contrary set forth above, Landlord agrees that
it shall not require Tenant to remove any alterations, additions or improvements
made in and/or to the Premises other than (i) those which are not customarily
found in premises used for the purposes permitted under this Lease and those
which are not of a building standard nature, (ii) those which would require
extraordinary effort for Landlord to remove, (iii) those raised computer floors,
internal staircases, dumbwaiters, pneumatic tubes, vertical and horizontal
transportation systems, vaults, safes, and medical installations, if any, and
any alterations, additions or improvements made specifically in connection with
any food service and/or food preparation facilities installed by Tenant (e.g.,
without limitation, vents, hoods, grease traps, sinks, etc.) in the Premises
(herein collectively called "Special Alterations"), and (iv) those which are
installed or performed without the prior written consent of Landlord where same
is required by the terms of this Lease. In any of the foregoing events Tenant
shall remove the foregoing from the Premises at Tenant's expense prior to the
expiration or sooner termination of this Lease. Upon such removal Tenant shall
immediately and at its expense, repair and restore the Premises to the condition
existing prior to such alteration, addition or improvement and repair any and
all damage to the Premises or the Building due to such removal.
LIENS
8. Prior to commencement of its work in the demised premises, Tenant
shall obtain and deliver to Landlord a written letter of authorization, in form
reasonably satisfactory to Landlord's counsel, signed by architects, engineers
and designers to become involved in such work, which shall confirm that any of
their drawings or plans are to be removed from any filing with governmental
authorities, on request of Landlord, in the event that said architect, engineer,
or designer thereafter no longer is providing services with respect to the
demised premises. With respect to contractors, subcontractors, materialmen and
laborers, and architects, engineers and designers, for all work or materials to
be furnished to Tenant at the premises, Tenant agrees to obtain and deliver to
Landlord written and unconditional waiver of mechanics liens upon the premises
or the building, after payments to the contractors, etc., subject to any then
applicable provisions of the Lien law. Notwithstanding the foregoing, Tenant at
its expense shall cause any lien filed against the premises or the building, for
work or materials claimed to have been furnished to Tenant, to be discharged of
record within twenty (20) days after notice hereof.
REPAIRS
9. Tenant shall take good care of the premises and the fixtures and
appurtenances therein, and shall make all repairs necessary to keep them in good
working order and condition, including structural repairs when those are
necessitated by the act, omission or negligence of Tenant or its agents,
employees or invitees, other than due to a casualty covered by Landlord's
insurance. During the term of this lease, Tenant may have the use of any
air-conditioning equipment located in the premises, and Tenant, at its own cost
and expense, shall maintain and repair such equipment and shall reimburse
Landlord, in accordance with Article 41 of this lease, for electricity consumed
by the equipment. The exterior walls of the building, the windows and the
portions of all window sills outside same and areas above any hung ceiling are
not part of the premises demised by this lease and Landlord hereby reserves all
rights to such parts of the building. Landlord agrees that during the term of
this Lease, it shall be responsible for the maintenance and repair of the common
areas of the Building and those portions of building wide systems not located
within the Premises, provided same does not in any way modify or reduce
Landlord's obligations with respect to the air conditioning equipment and
facilities servicing the Premises, as expressly set forth in Article 46 hereof.
DESTRUCTION
10. If the premises shall be partially damaged by fire or other casualty,
the damage to the Building and to the core and shell of the Premises (excluding
the Tenant improvements and betterments and Tenant's personal property) shall be
repaired at the expense of Landlord, but without prejudice to the rights of
subrogation, if any, of Landlord's insurer. Landlord shall not be required to
repair or restore any of Tenant's property or any alteration or leasehold
improvement made by or for Tenant at Tenant's expense. The rent shall abate in
proportion to the portion of the premises not usable by Tenant or, if elevator
access to the Premises is unavailable and renders the Premises inaccessible,
fixed annual rent and additional rent shall abate until the Premises becomes
accessible. Landlord shall not be liable to Tenant for any delay in restoring
the premises, Tenant's sole remedy being the right to an abatement of rent, as
above provided. If the premises are rendered wholly unatenantable by fire or
other casualty and if Landlord shall decide not to restore the core and shell of
the Premises (excluding the tenant improvements and betterments and Tenant's
personal property) or if the building shall be so damaged that Landlord shall
decide to demolish it or to rebuild it (whether or not the premises have been
damaged), Landlord may within sixty (60) days after such fire or other cause
give written notice to Tenant of its election that the term of this lease shall
automatically expire no less than fifteen (15) days after such notice is given.
If the Premises are rendered wholly untenantable due to fire or other casualty
and Landlord has not substantially restored the core and shell of the Premises
or elevator access thereto within one hundred and eighty (180) days of such fire
or casualty, then, and in such event, Tenant may elect to cancel this Lease upon
giving written notice to Landlord within thirty (30) days after the end of such
one hundred and eighty (180) day period and the term of this Lease shall expire
on the date set forth therein which shall be not less than thirty (30) days
after the date such notice is given (the "Cancellation Date") provided that
Landlord does not substantially restore the core and shell of the Premises prior
to the Cancellation Date. Notwithstanding the foregoing, Landlord and Tenant
acknowledge and agree in the event that the Premises are rendered wholly
untenantable or Landlord is unable to provide elevator access thereto, and as a
result Tenant cannot and does not use the entire Premises, due to fire or other
casualty during the last six (6) months of the term of this Lease, Tenant may
elect to cancel this Lease upon giving ten (10) days written notice to Landlord
that the term of this Lease shall expire on the date set forth therein which
shall be not less than ten (10) days after the date such notice is given.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law,
Landlord and Tenant each hereby releases and waives all right of recovery
against the other or any one claiming through or under each of them by way of
subrogation or otherwise. The foregoing release and waiver shall be in force
only if both releasors' insurance policies contain a clause providing that such
a release or waiver shall not invalidate the insurance and also, provided that
such a policy can be obtained without additional premiums, but if an additional
premium is required, Landlord or Tenant, as the case may be, shall be entitled
to pay same if it so desires. Tenant hereby expressly waives the provisions of
Section 227 of the Real Property law and agrees that the foregoing provisions of
this Article shall govern and control in lieu thereof.
END OF TERM.
11. Tenant shall surrender the premises to Landlord at the expiration or
sooner termination of this lease in good order and condition, except for
reasonable wear and tear and damage by fire or other casualty, and Tenant shall
remove all of its property. Tenant agrees it shall indemnify and save Landlord
harmless against all costs, claims, loss or liability resulting from delay by
Tenant in so surrendering the premises, including, without limitation, any
claims made by any succeeding tenant founded on such delay. Additionally, the
parties recognize and agree that other damage to Landlord resulting from any
failure by Tenant timely to surrender the premises will be substantial, will
exceed the amount of monthly rent theretofore payable hereunder, and will be
impossible of accurate measurement. Tenant therefore agrees that if possession
of the premises is not surrendered to Landlord within one (1) day after the date
of the expiration or sooner termination of the term of this lease, then Tenant
will pay Landlord as liquidated damages for each month and for each portion of
any month during which Tenant holds over in the premises after expiration or
termination of the term of this lease, a sum equal to two (2) times the average
rent and additional rent which was payable per month under this lease during the
last six months of the term thereof. The aforesaid obligations shall survive the
expiration or sooner termination of the term of this lease. At any time during
the term of this lease, upon prior reasonable notice to Tenant, during business
hours and provided Tenant has an opportunity to have a representative present.
Landlord may exhibit the premises to prospective purchasers or mortgages of
Landlord's interest therein. During the last year of the term of this lease,
Landlord may exhibit the premises to prospective tenants upon prior reasonable
notice to Tenant, during business hours and provided Tenant has an opportunity
to have a representative present.
SUBORDINATION AND ESTOPPEL, INC.
12. Tenant has been informed and understands that Landlord is the
SubTenant under a lease of the land and entire building of which the premises
form a part (hereinafter called the "Master Lease"). This lease is and shall be
subject and subordinate to the Master Lease and all other ground and underlying
leases and to all mortgages which may now or hereafter affect such leases or the
real property of which the premises form a part, and to all renewals,
modifications, consolidations, replacements and extensions thereof. This Article
shall be self-operative and no further instrument of subordination shall be
necessary. In confirmation of such subordination, Tenant shall execute promptly
any certificate that Landlord may request. Tenant hereby appoints Landlord as
tenant's irrevocable attorney-in-fact to execute any document of subordination
on behalf of Tenant, provided that Tenant fails to execute and return to
Landlord any such document within twenty-one (21) days of its receipt of same.
In the event that the Master Lease or any other ground or underlying lease is
terminated or any mortgage foreclosed, this lease shall not terminate or be
terminable by Tenant (except as hereinafter provided as to Master Lease
expiration of term) unless Tenant was specifically named in any termination or
foreclosure judgment or final order. In the event that the Master Lease or any
other ground or underlying lease is terminated as aforesaid, or expires (as
hereinafter provided), or in the interests of Landlord under this lease are
transferred by reason of or assigned in lieu of foreclosure or other proceedings
for enforcement of any mortgage, or if the holder of any mortgage acquires a
lease in substitution therefor, then tenant will, at the option to be exercised
in writing by the landlord under the Master Lease or such purchaser, assignee or
lessee, as the case may be, (i) attorn to it and will perform for its benefit
all the terms, covenants and conditions of this lease on the Tenant's part to be
performed with the same force and effect as if said landlord or such purchaser,
assignee or lessee, were the landlord originally named in this lease, or (ii)
enter into a new lease with said lessor or such purchaser, assignee or lessee,
as landlord, for the remaining term of this lease and otherwise on the same
terms, conditions and rentals as herein provided. If the current term of the
Master Lease shall expire prior to the date set forth herein for the expiration
of this lease, then, unless Landlord, at its sole option, shall have elected to
extend or renew the term of the Master Lease, or unless the lessor under the
Master Lease elects that the Tenant attorn or enter into a new lease as
aforesaid, the term of this lease shall expire on the date of expiration of the
Master Lease, notwithstanding the later expiration date hereinabove set forth.
If the Master Lease is renewed, then the term of this lease shall expire as
hereinabove set forth: From time to time, Tenant, on at least ten (10) days'
prior written request by Landlord will deliver to Landlord a statement in
writing certifying that this lease is unmodified and in full force and effect
(or if there shall have been modifications, that the same is in full force and
effect as modified and stating the modification) and the dates to which the rent
and other charges have been paid and stating whether or not the Landlord is in
default in performance of any covenant, agreement, or condition contained in
this lease and, if so, specifying each such default of which Tenant may have
knowledge. Landlord represents that the term of the Master Lease is scheduled to
expire after the term of this Lease is set to expire, that the execution of this
Lease does not violate any provision of the Master Lease, and that Landlord's
execution of this Lease is not prohibited by the terms of the Master Lease.
CONDEMNATION.
13. If the whole or any substantial part (substantial being any such
portion that prevents Tenant from operating its business in the Premises for the
uses permitted hereunder) of the premises shall be condemned by eminent domain
or acquired by private purchase in lieu thereof for any public or quasi-public
purpose, this lease shall terminate on the date of the vesting of title through
such proceeding or purchase, and Tenant shall have no claim against Landlord for
the value of any unexpired portion of the term of this lease, nor shall Tenant
be entitled to any part of the condemnation award or private purchase price. If
less than a substantial part of the premises is condemned, this lease shall not
terminate, but rent shall abate in proportion to the portion of the premises
condemned.
REQUIREMENTS OF LAW.
14. (a) Tenant at its expense shall comply with all laws, orders and
regulations of any governmental authority having or asserting jurisdiction over
the premises, which shall impose any violation, order or duty upon Landlord or
Tenant with respect to the premises or the use or occupancy thereof including,
without limitation, compliance in the premises with all City, State and Federal
laws, rules and regulations on the disabled or handicapped, on fire safety and
on hazardous materials. The foregoing shall not require Tenant to do structural
work. Landlord shall use reasonable efforts, at its sole cost and expense to
cure within thirty (30) days after the commencement of the term of this Lease,
any New York City Building Department violations pertaining to the Premises
which are a matter of public record as of the commencement of the term of this
Lease. In connection with the foregoing Landlord shall use reasonable efforts to
minimize interference with Tenant's business, provided, however, that Tenant
acknowledges and agrees that all such efforts shall be performed on normal
business days during normal business hours.
(b) Terms shall require every person engaged by him to clean any window in
the premises from the outside, to use the equipment and safety devices required
by Section 202 of the labor law and the rules of any governmental authority
having or asserting jurisdiction.
(c) Tenant at its expense shall comply with all requirements of the New
York Board of Fire Underwriters, or any other similar body affecting the
premises and shall not use the premises in a manner which shall increase the
rate of fire insurance of Landlord or of any other tenant, over that in effect
prior to this lease. If Tenant's use of the premises increases the fire
insurance rate, Tenant shall reimburse Landlord for all such increased costs.
That the premises are being used for the purpose set forth in Article 1 hereof
shall not relieve Tenant from the foregoing duties, obligations and expenses.
CERTIFICATE OF OCCUPANCY.
15. Tenant will at no time use or occupy the premises in violation of the
certificate of occupancy issued for the building. The statement in this lease of
the nature of the business to be conducted by Tenant shall not be deemed to
constitute a representation or guaranty by Landlord that such use is lawful or
permissible in the premises under the certificate of occupancy for the building.
<PAGE>
POSSESSION.
16. If Landlord shall be unable to give possession of the premises on the
commencement date of the term because of the retention of possession of any
occupant thereof alteration or construction work, or for any other reason except
as hereinafter provided, Landlord shall not be subject to any liability for such
failure. In such event, this lease shall stay in full force and effect, without
extension of its term. However, the rent hereunder shall not commence until the
premises are available for occupancy by Tenant. If delay in possession is due to
work, changes or decorations being made by or for Tenant, or is otherwise caused
by Tenant; there shall be no rent abatement and the rent shall commence on the
date specified in this lease. If permission is given to Tenant to occupy the
demised premises or other premises prior to the date specified as the
commencement of the term, such occupancy shall be deemed to be pursuant to the
terms of this lease, except that the parties shall separately agree as to the
obligation of Tenant to pay rent for such occupancy. The provisions of this
Article are intended to constitute an "express provision to the contrary" within
the meaning of Section 223(a), New York Real Property Law. Notwithstanding
anything contained herein to the contrary, Landlord and Tenant acknowledge and
agree that if Landlord shall not have delivered to Tenant possession of the
Premises on or before October 1, 1999, then Tenant may within thirty (30) days
thereafter unequivocally and unconditionally notify Landlord that Tenant elects
to terminate and cancel this Lease effective as of the date which is thirty (30)
days after the delivery of the notice (the "Cancellation Date"), provided,
however, that the Cancellation Date shall be extended by one (1) day for each
day of delay by Landlord which is due to any acts or omissions of Tenant. If
Tenant duly exercises such option, this Lease shall be null and void and neither
Landlord nor Tenant shall have an further liability hereunder except that the
representations and indemnifications contained in Article 50 hereof shall
survive and any security deposited hereunder shall be returned to Tenant.
However, in the event that Landlord gives Tenant notice that the Premises will
be delivered to Tenant prior to the Cancellation Date, and same occurs prior to
the Cancellation Date then, in such event, Landlord's notice shall negate and
nullify Tenant's notice.
QUIET ENJOYMENT.
17. Landlord covenants that if Tenant pays the rent and performs all of
Tenant's other obligations under this lease prior to the expiration of any
applicable notice and beyond the cure period set forth therein Tenant may
peaceably and quietly enjoy the demised premises, subject to the terms,
covenants and conditions of this lease and to the ground leases, underlying
leases and mortgages hereinbefore mentioned.
RIGHT OF ENTRY.
18. Tenant shall permit Landlord to erect and maintain pipes and conduits
in and through the premises provided that they are concealed, erected along
perimeter walls wherever possible and are installed in a manner which does not
interfere with Tenant's use of the Premises. Landlord or its agents shall have
the right to enter or pass through the premises at all times, by master key,
upon reasonable oral prior notice to Tenant at reasonable times and by
reasonable force in the event of an Emergency Situation without notice to
Tenant, to examine the same, and to make such repairs, alterations or additions
as it may deem necessary or desirable to the premises or the building, and to
take all material into and upon the premises that may be required therefor. Such
entry and work shall not constitute an eviction of Tenant in whole or in part,
shall not be grounds for any abatement of rent, and shall impose no liability on
Landlord by reason of inconvenience or injury to Tenant's business. Landlord
shall have the right at any time, without the same constituting an actual or
constructive eviction, and without incurring any liability to Tenant, to
change the arrangement and/or location of entrances or passageways, windows,
corridors, elevators, stairs, toilets, or other public parts of the building,
and to change the name or number by which the building is known. Landlord shall
exercise due diligence to prosecute to completion any repairs which it is
obligated or permitted to make pursuant to this Lease and when performing such
repairs shall do so in a good and workmanlike manner using new, equal or better
quality materials to those then existing in the Premises in accordance with all
applicable laws and shall use reasonable efforts to minimize interference with
Tenant's permitted use of the Premises, provided, however, that Tenant
acknowledges and agrees that all such efforts shall be performed on normal
business days during normal business hours.
VAULT SPACE.
19. Anything contained in any plan or blueprint to the contrary
notwithstanding, no vault or other space not within the building property line
is demised hereunder. Any use of such space by Tenant shall be deemed to be
pursuant to a license, revocable at will by Landlord, without diminution of the
rent payable hereunder. If Tenant shall use such vault space, the Percentage
(hereinafter defined) of any fees taxes or charges made by any governmental
authority for such space shall be paid by Tenant.
INDEMNITY.
20. Tenant shall indemnify, defend and save Landlord harmless from and
against any liability or reasonable expense arising from the use or occupation
of the premises by Tenant, or anyone on the premises with Tenant's permission,
or from any breach of this lease beyond notice and the expiration of any
applicable cure periods set forth therein.
LANDLORD'S LIABILITY.
21. This lease and the obligations of Tenant hereunder shall, except as
otherwise set forth herein in no way be affected because Landlord is unable to
fulfill any of its obligations or to supply any service, by reason of strike or
other cause not within Landlord's control. Landlord shall have the right,
without incurring any liability to Tenant, to stop any service because of
accident or emergency, or for repairs, alterations or improvements, necessary or
desirable in the judgment of Landlord, until such repairs, alterations or
improvements shall have been completed. Landlord shall not be liable to Tenant
or anyone else, for any loss or damage to person, property or business, unless
due to the negligence or willful misconduct of Landlord nor shall Landlord be
liable for any latent defect in the premises or the building. Tenant, during the
term of this lease, shall carry public liability and property damage insurance,
from a company authorized to do business in New York, with limitations
acceptable to Landlord, which policy or policies shall name the Landlord and its
designees as additional insureds. Evidence of the policies, and of their timely
renewal, shall be delivered to Landlord. All such insurance shall contain an
agreement by the insurance company that the policy or policies will not be
cancelled or the coverage changed, without thirty (30) days' prior written
notice to the Landlord. Tenant agrees to look solely to Landlord's estate and
interest in the land and building, or the lease of the building or of the land
and building, and the demised premises, including rentals, refinancing proceeds,
condemnation awards and insurance proceeds for the satisfaction of any right or
remedy of Tenant for the collection of a judgment (or other judicial process)
requiring the payment of money by Landlord, in the event of any liability by
Landlord, and no other property or assets of Landlord shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this lease, the relationship of landlord and
tenant herein hereunder, or Tenant's use and occupancy of the demised premises
or any other liability of Landlord to Tenant (except for negligence).
CONDITION OF PREMISES.
22. Tenant acknowledges that Landlord has made no representation or
promise, except as herein expressly set forth. Tenant agrees to accept the
premises "as is", except for any work which Landlord has expressly agreed in
writing to perform. Landlord shall be responsible for compliance with all
applicable laws, rules and regulations (including, without limitation,
environmental laws and the American with Disabilities Act) in the common areas
of the Building.
TAX ESCALATION.
23. Tenant shall pay to Landlord, as additional rent, tax escalation in
accordance with this Article:
(a) For purposes of this lease the rentable square foot area of the
presently demised premises shall be deemed to be 14,243 square feet.
(b) Definitions: For the purpose of this Article, the following
definitions shall apply:
(i) The term "base tax year" as hereinafter set forth for the
determination of real estate tax escalation, shall mean the New York City
real estate tax year commencing July 1, 1999 and ending June 30, 2000.
<PAGE>
(ii) The term "The Percentage", for purposes of computing tax
escalation, shall mean 1.28 percent (1.28%). The Percentage has been
computed on the basis of a fraction, the numerator of which is the
rentable square foot area of the demised premises and the denominator of
which is the total rentable square foot area of the office and commercial
space in the building project. The parties acknowledge and agree that the
total rentable square foot area of the office and commercial space in the
building project shall be deemed to be 1,112,424 sq. ft.
(iii) The term "the building project" shall mean the aggregate
combined parcel of land on a portion of which are the improvements of
which the demised premises form a part, with all the improvements thereon,
said improvements being a part of the block and lot for tax purposes which
are applicable to the aforesaid land.
(iv) The term "comparative year" shall mean the twelve (12) months
following the base tax year, and each subsequent Period of twelve (12)
months (or such other Period of twelve (12) months occurring during the
term of this lease as hereafter may be duly adopted as the tax year for
real estate tax purposes by the City of New York).
(v) The term "real estate taxes" shall mean the total of all taxes
and special or other assessments levied, assessed or imposed at any time
by any governmental authority upon or against the building project, and
also any tax or assessment levied, assessed or imposed at any time by any
governmental authority in connection with the receipt of income or rents
from said building project to the extent that same shall be in lieu of all
or a portion of any of the aforesaid taxes or assessments, or additions or
increases thereof, upon or against said building project. If, due to a
future change in the method of taxation or in the taxing authority, or for
any other reason, a franchise, income, transit, profit or other tax or
governmental imposition, however designated, shall be levied against
landlord in substitution in whole or in part for the real estate taxes, or
in lieu of additions to or increases of said real estate taxes, then such
franchise, income transit, profit or other tax or governmental imposition
shall be deemed to be included within the definition of "real estate
taxes" for the purposes hereof. As to special assessments which are
payable over a period of time extending beyond the term of this lease,
only a pro rata portion thereof covering the portion of the term of this
lease unexpired at the time of the imposition of such assessment, shall be
included in "real estate taxes". If by law, any assessment may be paid in
installments, then, for the purposes hereof (a) such assessment shall be
deemed to have been payable in the maximum number of installments
permitted by law and (b) there shall be included in real estate taxes, for
each comparative year in which such installments may be paid, the
installments of such assessment so becoming payable during such
comparative year, together with interest payable during such comparative
year. Notwithstanding anything contained herein to the contrary, real
estate taxes shall not, for purposes of this Lease, be deemed to include
franchise taxes, excise taxes, gift taxes, capital stock taxes,
inheritance taxes or estate taxes. In addition, Tenant shall have no
obligation to pay any interest or penalties on real estate taxes imposed
on Landlord as a result of late payments by Landlord (unless resulting
from a late payment by Tenant).
(vi) Where more than one assessment is imposed by the City of New
York for any tax year, whether denominated an "actual assessment" or a
"transitional assessment" or otherwise, then the phrases herein "assessed
value" and "assessments" shall mean whichever of the actual, transitional
or other assessment is designated by the City of New York as the taxable
assessment for that tax year.
(c) 1. In the event that the real estate taxes payable for any comparative
year shall exceed the amount of the real estate taxes payable during the base
tax year, tenant shall pay to landlord, as additional rent for such comparative
year, an amount equal to The Percentage of the excess. Before or after the start
of each comparative year, Landlord shall furnish to Tenant a statement of the
real estate taxes payable for such comparative year, and a statement of the real
estate taxes payable during the base tax year. If the real estate taxes payable
for such comparative year exceed the real estate taxes payable during the base
tax year, additional rent for such comparative year, in an amount equal to The
Percentage of the excess, shall be due from Tenant to Landlord, and such
additional rent shall be payable by Tenant to Landlord within ten (10) days
after receipt of the aforesaid statement. The benefit of any discount for any
earlier payment or prepayment of real estate taxes shall accrue solely to the
benefit of Landlord, and such discount shall not be subtracted from the real
estate taxes payable for any comparative year.
Additionally, Tenant shall pay to Landlord, on demand, a sum equal to The
Percentage of any business improvement district assessment payable by the
building project.
2. Should the real estate taxes payable during the base tax year be
reduced by final determination of legal proceedings, settlement or otherwise,
then, the real estate taxes payable during the base tax year shall be
correspondingly revised, the additional rent theretofore paid or payable
hereunder for all comparative years shall be recomputed on the basis of such
reduction, and tenant shall pay to Landlord as additional rent, within ten (10)
days after being billed therefor, any deficiency between the amount of such
additional rent as theretofore computed and the amount thereof due as the result
of such recomputations. Should the real estate taxes payable during the base tax
year be increased by such final determination of legal proceedings, settlement
or otherwise, then appropriate recomputation and adjustment also shall be made.
3. If after Tenant shall have made a payment of additional rent under this
subdivision (c), Landlord shall receive a refund of any portion of the real
estate taxes payable for any comparative year after the base tax year on which
such payment of additional rent shall have been based, as a result of a
reduction of such real estate taxes by final determination of legal proceedings,
settlement or otherwise, Landlord shall within ten (10) days after receiving the
refund pay to Tenant The Percentage of the refund.
4. The statements of the real estate taxes to be furnished by Landlord as
provided above shall be certified by Landlord and shall constitute a final
determination as between Landlord and Tenant of the real estate taxes for the
Periods represented thereby, unless Tenant within ninety (90) days after they
are furnished shall give a written notice to Landlord that it disputes their
accuracy or their appropriateness, which notice shall specify the particular
respects in which the statement is inaccurate or inappropriate. If Tenant shall
so dispute said statement then, pending the resolution of such dispute, tenant
shall pay the additional rent to Landlord in accordance with statement furnished
by Landlord.
5. In no event shall the fixed annual rent under this lease (exclusive of
the additional rents under this Article) be reduced by virtue of this Article.
6. If the commencement date of the term of this lease is not the first day
of the first comparative year, then the additional rent due hereunder for such
first comparative year shall be a proportionate share of said additional rent
for the entire comparative year, said proportionate share to be based upon the
length of time that the lease term will be in existence during such first
comparative year. Upon the date of any expiration or termination of this lease
(except termination because of Tenant's default) whether the same be the date
hereinabove set forth for the expiration of the term or any prior or subsequent
date, a proportionate share of said additional rent for the comparative year
during which such expiration or termination occurs shall immediately become due
and payable by Tenant to Landlord, if it was not theretofore already billed and
paid. The said proportionate share shall be based upon the length of time that
this lease shall have been in existence during such comparative year. Landlord
shall promptly cause statements of said additional rent for that comparative
year to be prepared and furnished to lessee. Landlord and Tenant shall thereupon
make appropriate adjustments of amounts then owing.
7. Landlord's and Tenant's obligations to make the adjustments referred to
in subdivision (6) above shall survive any expiration or termination of this
lease.
8. Any delay or failure of lessor in billing any tax escalation
hereinabove provided shall not constitute a waiver of or in any way impair the
continuing obligation of lessee to pay such tax escalation hereunder (provided
such statement is rendered within two (2) years of the expiration of the term of
this Lease.)
9. In addition to all fixed annual rent and additional rent payable
pursuant to the terms of this Lease and this Article, Tenant shall pay to
Landlord, as additional rent, within ten (10) days after Landlord shall have
delivered to Tenant a statement therefor, the Percentage of all out of pocket
expenses incurred by Landlord in reviewing or contesting the validity or amount
of any Real Estate Taxes, including without limitation, the reasonable
attorneys' fees and fees and disbursements of attorneys, third party
consultants, experts and others.
SERVICES.
25. Tenant acknowledges that it has been advised that the cleaning
contractor for the building may be a division or affiliate of Landlord. Subject
to Article 32 hereof, Tenant agrees to employ said contractor, or such other
contractor as Landlord shall from time to time designate, for any waxing,
polishing and other maintenance work of the demised premises and of the Tenant's
furniture, fixtures and equipment, provided that the prices charged by said
contractor are comparable to the prices charged by other contractors for the
same work. Tenant agrees that it shall not employ any other cleaning and
maintenance contractor, nor any individual, firm or organization for such
purpose. If Landlord and Tenant cannot agree on whether the prices being charged
by the Contractor designated by the Landlord are comparable to those charged by
other contractors, Landlord and Tenant shall each obtain two bona fide bids for
such work from reputable contractors, and the average of the four bids thus
obtained shall be the standard of comparison.
JURY WAIVER.
26. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim involving any matter whatsoever arising out of or in
any way connected with this lease, the relationship of landlord and tenant,
Tenant's use or occupancy of the premises (except for personal injury or
property damage) or involving the right to any statutory relief or remedy.
Tenant will not interpose any counterclaim of any nature in any summary
proceeding, except for compulsory counterclaims.
NO WAIVER, ETC.
27. No act or omission of Landlord or its agents shall constitute an
actual or constructive eviction, unless Landlord shall have first received
written notice of Tenant's claim and shall have had a reasonable opportunity to
meet such claim. In the event that any payment herein provided for by Tenant to
Landlord shall become overdue for a period in excess of ten (10) days, then at
Landlord's option a "late charge" shall become due and payable to Landlord, as
additional rent, from the date it was due until payment is made at the following
rates; for individual and partnership Tenants, said late charge shall be
computed at the maximum legal rate of interest; for corporate or governmental
entity Tenants the late charge shall be computed at two percent per month unless
there is an applicable maximum legal rate of interest; which then shall be used.
No act or omission of Landlord or its agents shall constitute an acceptance of a
surrender of the premises, except a writing signed by Landlord. The delivery of
keys to Landlord or its agents shall not constitute a termination of this lease
or a surrender of the premises. Acceptance by Landlord of less than the rent
herein provided shall at Landlord's option be deemed on account of earliest rent
remaining unpaid. No endorsement on any check, or letter accompanying rent,
shall be deemed an accord and satisfaction, and such check may be cashed without
prejudice to Landlord. No waiver of any provision of this lease shall be
effective,
<PAGE>
unless such waiver be in writing signed by Landlord. This lease contains the
entire agreement between the parties, and no modification thereof shall be
binding unless in writing and signed by the party concerned. Tenant shall comply
with the rules and regulations printed in this lease, and any reasonable
modifications thereof or additions thereto. Landlord shall not be liable to
Tenant for the violation of such rules and regulations by any other tenant.
Failure of Landlord to enforce any provision of this lease, or any rule or
regulation, shall not be construed as the waiver of any subsequent violation of
a provision of this lease, or any rule or regulation. This lease shall not be
affected by nor shall Landlord in any way be liable for the closing, darkening
or bricking up of windows in the premises, for any reason, including as the
result of construction on any property of which the premises are not a part of
by Landlord's own acts. Notwithstanding anything contained herein to the
contrary, Landlord and Tenant agree that if seventy (70%) percent or more of the
windows located in the Premises are brickened up in excess of thirty (30) days,
then, and in such event, Tenant may elect to cancel this Lease upon giving
written notice to Landlord within fifteen (15) days after the end of such thirty
(30) day period and the term of this Lease shall expire on the date set forth
therein which shall be not less than fifteen (15) days after the date such
notice is given (the "Cancellation Date") provided that Landlord does not
substantially restore any such brickening prior to the Cancellation Date.
OCCUPANCY AND USE BY TENANT.
28(A). Tenant further agrees that if it abandons the Premises during the
term of this lease, without the prior written consent of the Landlord, then all
rent and additional rent reserved in this lease from the date of such breach to
the expiration date of this lease shall become immediately due and payable to
the Landlord.
(C) If Tenant breaches the covenant in subdivision (A) above, and this
lease be terminated because of such default, then, in addition to Landlord's
rights of reentry, restoration, preparation for and rerental, and anything
elsewhere in this lease to the contrary notwithstanding, Landlord shall retain
its right to judgement on and collection of Tenant's aforesaid obligation to
make a single payment to Landlord of a sum equal to the total of all rent and
additional rent reserved for the remainder of the original term of this lease,
subject to future credit or repayment to Tenant in the event of any rerenting of
the premises by Landlord, after first deducting from rerental income all
expenses incurred by Landlord in reducing to judgment or otherwise collecting
Tenant's aforesaid obligation, and in obtaining possession of restoring,
preparing for and re-letting the premises. In no event shall Tenant be entitled
to a credit or repayment for rerental income which exceeds the sums payable by
Tenant hereunder or which covers a period after the original term of this lease.
NOTICES.
29. Any bill, notice or demand from Landlord to Tenant, may be delivered
personally at the premises or sent by registered or certified mail, or by FedEx
or other reputable overnight courier. Such bill, notice or demand shall be
deemed to have been given at the time of delivery or three (3) days after
mailing. An additional copy of all notices sent by Landlord to Tenant shall
simultaneously be sent in like manner to Zukerman, Gore & Brandeis, LLP, 900
Third Avenue, New York, New York 10022, Attention: Andrew M. Chonoles, Esq. Any
notice from Tenant to Landlord must be sent by registered or certified mail to
the last address designated in writing by Landlord.
WATER.
30. Tenant shall pay the amount of Landlord's cost for all water used by
Tenant for any purpose other than ordinary lavatory and pantry uses, and any
sewer rent or tax based thereon. Landlord may install a water meter to measure
Tenant's water consumption for all purposes and Tenant agrees to pay for the
installation and maintenance thereof and for water consumed as shown on said
meter. If water is made available to Tenant in the building or the demised
premises through a meter which also supplies other premises, or without a meter,
then Tenant shall pay to Landlord $ a reasonable charge per month for water.
SPRINKLER SYSTEM.
31. If there shall be a "sprinkler system" in the demised premises for any
period during this lease, Tenant shall pay $ a reasonable charge per month, for
sprinkler supervisory service. If such sprinkler system is damaged by any act or
omission of Tenant or its agents, employees, licensees or visitors, Tenant shall
restore the system to good working condition at its own expense. If the New York
Board of Fire Underwriters, the New York Fire Insurance Exchange, the Insurance
Services Office or any governmental authority requires the installation of any
alteration to a sprinkler system by reason of Tenant's occupancy or use of the
premises, including any alteration necessary to obtain the full allowance for a
sprinkler system in the fire insurance rate of Landlord, or for any other
reason. Tenant shall make such installation or alteration promptly, and at its
own expense.
HEAT, ELEVATOR, ETC.
32. Landlord shall provide a minimum of one (1) passenger elevator twenty
four hours a day seven days a week and provide elevator service during all usual
business hours including Saturdays until 1 P.M. except on Sundays, State
holidays, Federal holidays, or Building Service Employees Union Contract
holidays. Landlord shall furnish heat to the premises during the same hours on
the same days in the cold season in each year. Landlord shall cause the premises
to be kept clean in accordance with Landlord's customary standards for the
building, provided they are kept in order by Tenant. Landlord, its cleaning
contractor and their employees shall have after-hours access to the demised
premises and the use of Tenant's light, power and water in the demised premises
as may be reasonably required for the purpose of cleaning the demised premises.
Landlord may remove Tenant's extraordinary refuse from the building and Tenant
shall pay the cost thereof. If the elevators in the building are manually
operated, Landlord may covert to automatic elevators at any time, without in any
way affecting Tenant's obligations hereunder.
SECURITY DEPOSIT.
33. Tenant has deposited with Landlord the sum of $47,477.00 as security
for the performance by Tenant of the terms of this lease. Landlord may use any
part of the Security to satisfy any default of Tenant, which is not cured after
notice and beyond the expiration of any applicable cure period set forth herein
and any reasonable expenses arising from such default which was not so cured
within any applicable cure period including but not limited to any damages or
rent deficiency before or after re-entry by Landlord. Tenant shall, upon demand,
deposit with Landlord the full amount so used, in order that Landlord shall have
the full security deposit on hand at all times during the term of this lease. If
Tenant shall comply fully with the terms of this lease, the security shall be
returned to Tenant within thirty (30) days after the date fixed as the end of
the lease. In the event of a sale or lease of the building containing the
premises, Landlord may transfer the security to the purchaser or tenant, and
Landlord shall thereupon, provided any such transferee assumes in writing all
obligations of Landlord under this Lease be released from all liability for the
return of the security. This provision shall apply to every transfer or
assignment of the security to a new Landlord. Tenant shall have no legal power
to assign or encumber the security herein described.
ELECTRICITY.
34. Terms and conditions with respect to electricity rent inclusion, or
with respect to sub-metering, as the case may be, and general conditions with
respect to either, are set forth in Article 41 in the Rider annexed to and made
part of this lease.
RENT CONTROL.
35. In the event the fixed annual rent or additional rent or any part
thereof provided to be paid by Tenant under the provisions of this lease during
the demised term shall become uncollectible or shall be reduced or required to
be reduced or refunded by virtue of any Federal, State, County or City law,
order or regulation, or by any direction of a public officer or body pursuant to
law, or the orders, rules code or regulations of any organization or entity
formed pursuant to law, whether such organization or entity be public or
private, then Landlord, at its option, may at any time thereafter terminate this
lease, by not less than thirty (30) days' written notice to Tenant, on a date
set forth in said notice, in which event this lease and the term hereof shall
terminate and come to an end on the date fixed in said notice as if the said
date were the date originally fixed herein for the termination of the demised
term. Landlord shall not have the right so to terminate this lease if Tenant
within such period of thirty (30) days shall in writing lawfully agree that the
rentals herein reserved are a reasonable rental and agree to continue to pay
said rentals, and if such agreement by Tenant shall then be legally enforceable
by Landlord.
SHORING.
36. Tenant shall permit any person authorized to make an excavation on
land adjacent to the building containing the premises to do any work within the
premises necessary to preserve the wall of the building from injury or damage,
and Tenant shall have no claim against Landlord for damages or abatement of rent
by reason thereof.
EFFECT OF CONVEYANCE, ETC.
37. If the building containing the premises shall be sold, transferred or
leased, or the lease thereof transferred or sold, Landlord shall be relieved of
all future obligations and liabilities hereunder and the purchaser, transferee
or tenant of the building shall be deemed to have assumed and agree to perform
all such obligations and liabilities of Landlord hereunder. In the event of such
sale, transfer or lease, Landlord shall also be relieved of all existing
obligations and liabilities hereunder, provided that the purchaser, transferee
or tenant of the building assumes in writing such obligations and liabilities.
RIGHTS OF SUCCESSORS AND ASSIGNS.
38. This lease shall bind and inure to the benefit of the heirs,
executors, administrators, successors, and, except as otherwise provided herein,
the assigns of the parties hereto. If any provision of any Article of this lease
or the application thereof to any person or circumstances shall, to any extent,
be invalid or unenforceable, the remainder of that Article, or the application
of such provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each provision
of said Article and of this lease shall be valid and be enforced to the fullest
extent permitted by law.
CAPTIONS.
39. The captions herein are inserted only for convenience, and are in no
way to be construed as a part of this lease or as a limitation of the scope of
any provision of this lease.
LEASE SUBMISSION.
40. Landlord and Tenant agree that this lease is submitted to Tenant on
the understanding that it shall not be considered an offer and shall not bind
Landlord in any way unless and until (i) Tenant has duly executed and delivered
duplicate originals thereof to Landlord and (ii) Landlord has executed and
delivered one of said originals to Tenant.
<PAGE>
SEE RIDER(S) HERETO AND MADE A PART HEREOF CONSISTING OF PAGES 1 THROUGH
39, CONTAINING RULES & REGULATIONS, ARTICLES 41 THROUGH 60 A LOCATION PLAN &
CLEANING SPECIFICATIONS.
In Witness thereof, Landlord and Tenant have executed this lease as of the
day and year first above written.
SLG GRAYBAR SUBLEASE, LLC., CKG MEDIA.COM, INC. d/b/a
a New York limited liability company ----------------------------------(L.S.)
PHASE2MEDIA
By: SLG Graybar Sublease Corp.,
A New York corporation, its BY: /s/ Robert [ILLEGIBLE] President
Managing Member ------------------------------(L.S.)
(NAME) (TITLE)
By: /s/ [ILLEGIBLE] Robert [ILLEGIBLE] President
-------------------------------- ------------------------------(L.S.)
(Name) (Title)
ACKNOWLEDGEMENTS.
State of New York )
)ss.:
County of New York )
On the day of , 19 , before me personally came to me known and known
to me to be the individual described in, and who executed, the foregoing
instrument, and acknowledged to me that he executed the same.
...................................
Notary Public
State of New York )
)ss.:
County of New York )
On the day of , 19 , before me personally came to me known, who,
being by me duly sworn, did depose and say that he resides at No.
that he is the of the
corporation described in, and which executed, the foregoing instrument; and
that he signed h name thereof by authority of the Board of Directors of
said corporation.
...................................
Notary Public
..........................................................................(L.S.)
..........................................................................(L.S.)
State of New York )
)ss.:
County of New York )
On the day of , 19 , before me personally came to me
known and known to me to be the individual described in, and who executed, the
foregoing instrument, and acknowledged to me that he executed the same.
...................................
Notary Public
66 Rev.9-94
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RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN
SLG GRAYBAR SUBLEASE LLC LANDLORD
-------------------------------------------
AND CKG MEDIA.COM. INC., d/b/a PHASE 2 MEDIA TENANT
--------------------------------------------
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RULES AND REGULATIONS REFERRED TO IN THIS LEASE
1. No animals, birds, bicycles or vehicles shall be brought into or kept
in the premises. The premises shall not be used for manufacturing of commercial
repairing or for sale or display of merchandise or as a lodging place, or for
any immoral or illegal purpose, nor shall the premises be used for a public
stenographer or typist; barber or beauty shop; telephone, secretarial or
messenger service; employment, travel or tourist agency; school or classroom;
commercial document reproduction; or for any business other than specifically
provided for in the tenant's lease. Tenant shall not cause or permit in the
premises any disturbing noises which may interfere with occupants of this or
neighboring buildings, any cooking or objectionable odors, or any nuisance of
any kind, or any inflammable or explosive fluid, chemical or substance.
Canvassing, soliciting and peddling in the building are prohibited, and each
tenant shall cooperate so as to prevent the same.
2. The toilet rooms and other water apparatus shall not be used for any
purposes other than those for which they were constructed, and no sweepings,
rags, ink, chemicals or other unsuitable substances shall be thrown therein.
Tenant shall not throw anything out of doors, windows of skylights, or into
hallways, stairways or elevators, nor place foot or objects on outside window
sills. Tenant shall not obstruct or cover the halls, stairways and elevators, or
use them for any purpose other than ingress and egress to or from tenant's
premises, nor shall skylights, windows, doors and transoms that reflect or admit
light into the building be covered or obstructed in any way.
3. Tenant shall not place a load upon any floor of the premises in excess
of the load per square foot which such floor was designed to carry and which is
allowed by law. Landlord reserves the right to prescribe the weight and position
of all safes in the premises. Business machines and mechanical equipment shall
be placed and maintained by tenant, at tenant's expense, only with Landlord's
consent which consent Landlord shall not unreasonably withhold, condition or
delay and in settings approved by Landlord which approval shall not be
unreasonably withheld to control weight, vibration, noise and annoyance. Smoking
or carrying lighted cigars, pipes or cigarettes in the elevators of the building
is prohibited. If the premises are on the ground floor of the building the
tenant thereof at its expense shall keep the sidewalks and curb in front of the
premises clean and free from ice, snow, din and rubbish.
4. Tenant shall not move any heavy or bulky materials into or out of the
building without Landlord's prior written consent, which consent Landlord shall
not unreasonably withhold, condition or delay and then only during such hours
and in such manner as Landlord shall approve which approval shall not be
unreasonably withheld. If any material or equipment requires special handling,
tenant shall employ only persons holding a Master Rigger's License to do such
work, and all such work shall comply with all legal requirements. Landlord
reserves the right to inspect all freight to be brought into the building, and
to exclude any freight which violates any rule, regulation or other provision of
this lease.
5. No sign, advertisement, notice or thing shall be inscribed, painted or
affixed on any part of the building, without the prior written consent of
Landlord which consent Landlord shall not unreasonably withhold, condition or
delay. Landlord may remove anything installed in violation of this provision,
and Tenant shall pay the cost of such removal. Interior signs on doors and
directories shall be inscribed or affixed by Landlord at Tenant's reasonable
expense. Landlord shall control the color, size, style and location of all
signs, advertisements and notices. No advertising of any kind by Tenant shall
refer to the building, (other than its address) unless first approved in writing
by Landlord.
6. No article shall be fastened to, or holes drilled or nails or screws
driven into, the ceilings, walls, doors or other portions of the premises, nor
shall any part of the premises be painted, papered or otherwise covered, or in
any way marked or broken, without the prior written consent of Landlord.
7. No existing locks shall be changed, nor shall any additional locks or
bolts of any kind be placed upon any door or window by Tenant, without the prior
written consent of Landlord, which consent shall not be reasonably withheld,
conditioned or delayed, provided that a copy of all such keys are delivered
simultaneously to Landlord. At the termination of this lease, Tenant shall
deliver to Landlord all keys for any portion of the premises or building. Before
leaving the premises at any time, Tenant shall close all windows and close and
lock all doors.
8. No Tenant shall purchase or obtain for use in the premises any spring
water, ice, towels, food, bootblacking, barbering or other such service
furnished by any company or person not approved by Landlord. Any necessary
exterminating work in the premises shall be done at Tenant's expense, at such
times, in such manner and by such company as Landlord shall require. Landlord
reserves the right to exclude from the building, from 6:00 p.m. to 8:00 am., and
at all hours on Sunday and legal holidays, all persons who do not present a pass
to the building signed by Landlord. Landlord will furnish passes to all persons
reasonably designated by Tenant. Tenant shall be responsible for the acts of all
persons to whom passes are issued at Tenant's request.
9. Whenever Tenant shall submit to Landlord any plan, agreement or other
document for Landlord's consent or approval, Tenant agrees to pay Landlord as
additional rent, on demand, an administrative fee equal to the sum of the
reasonable fees of any architect, engineer or attorney employed by Landlord to
review said plan, agreement or document and Landlord's administrative costs for
same.
10. The use in the demised premises of auxiliary heating devices, such as
portable electric heaters, heat lamps or other devices whose principal function
at the time of operation is to product space heating, is prohibited.
In case of any conflict or inconsistency between any provisions of
this lease and any of the rules and regulations as originally or as hereafter
adopted, the provisions of this lease shall control.
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RULES AND REGULATIONS (continued)
---------------------
11. Tenant shall keep all doors from the hallway to the Premises closed at
all times except for use during ingress to and egress from the Premises. Tenant
acknowledges that a violation of the terms of this paragraph may also constitute
a violation of codes, rules or regulations of governmental authorities having or
asserting jurisdiction over the Premises, and Tenant agrees to indemnify
Landlord from any fines, penalties, claims, action or increase in fire insurance
rates which might result from Tenant's violation of the terms of this paragraph.
12. Tenant shall be permitted to maintain an "in-house" messenger or
delivery service within the Premises, provided that Tenant shall require that
any messengers in its employ affix identification to the breast pocket of their
outer garment, which shall bear the following information: name of Tenant, name
of employee and photograph of the employee. Messengers in Tenant's employ shall
display such identification at all time. In the event that Tenant or any agent,
servant or employee of Tenant, violates the terms of this paragraph, Landlord
shall be entitled to terminate Tenant's permission to maintain within the
Premises in-house messenger or delivery service upon written notice to Tenant.
13. Tenant will be entitled to five (5) listings on the building lobby
directory board and the directory board on the floor of the Building on which
the Premises is located, without charge. Any additional directory listing (if
space is available), or any change in a prior listing, with the exception of a
deletion, will be subject to a fourteen ($14.00) dollar service charge, payable
as additional rent.
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ELECTRICITY
-----------
41. Tenant agrees that Landlord may, subject to the provisions of this
article, furnish electricity to Tenant on a "submetering" basis or on a "rent
inclusion basis". Electricity and electric service, as used herein, shall mean
any element affecting the generation, transmission, and/or distribution or
redistribution of electricity, including but not limited to services which
facilitate the distribution of service. Landlord covenants that it shall not
alter the method by which it presently furnishes electricity to the Premises for
Tenant's use therein from a "rent inclusion" basis to a "submetering" basis
unless it alters the method by which it furnishes electricity from a " rent
inclusion" basis to a " submetering" basis for tenants' leasing fifty (50%)
percent or more of the rentable space in the Building.
(A). Submetering: If and so long as Landlord provides electricity to
the demised premises on a submetering basis, Tenant covenants and agrees to
purchase the same from Landlord or Landlord's designated agent at charges, terms
and rates set, from time to time, during the term of this lease by Landlord but
not more than those specified in the service classification in effect on January
1, 1970 pursuant to which Landlord then purchased electric current from the
public utility corporation serving the part of the city where the building is
located; provided however, said charges shall be increased in the same
percentage as any percentage increase in the billing to Landlord for electricity
for the entire building, by reason of increase in Landlord's electric rates or
service classifications, subsequent to January 1, 1970, and so as to reflect any
increase in Landlord's electric charges, including changes in market prices for
electricity from utilities and/or other providers, in fuel adjustments or by
taxes or charges of any kind imposed on Landlord's electricity purchases or
redistribution, or for any other such reason, subsequent to said date. Any such
percentage increase in Landlord's billing for electricity due to changes in
rates, service classifications, or market prices, shall be computed by the
application of the average consumption (energy and demand) of electricity for
the entire building for the twelve (12) full months immediately prior to the
rate and/or service classification change, or any changed methods of or rules on
billing for same, applied on a consistent basis to the new rate and/or service
classification or market price, and to the classification and rate in effect on
January 1, 1970. If the average consumption of electricity for the entire
building for said prior twelve (12) months cannot reasonably be applied and used
with respect to changed methods of or rules on billing, then the percentage
shall be computed by the use of the average consumption (energy and demand) for
the entire building for the first three (3) months after such change, projected
to a full twelve (12) months, so as to reflect the different seasons; and that
same consumption, so projected, shall be applied to the service classification
and rate in effect on January 1, 1970. Where more than one meter measures the
service of Tenant in the building, the service rendered through each meter may
be computed and billed separately in accordance with the rates herein specified.
Bills therefore shall be rendered at such times as Landlord may elect and the
amount, as computed from a meter, shall be deemed to be, and be paid as,
additional rent. In the event that such bills are not paid within thirty (30)
days after the same are rendered, Landlord may, without further notice,
discontinue the service of electric current to the demised premises without
releasing Tenant from any liability under this lease and without Landlord or
Landlord's agent incurring any liability for any damage or loss sustained by
Tenant by such discontinuance of service. If any tax is imposed upon Landlord's
receipt from the sale, resale or redistribution of electricity or gas or
telephone service to Tenant by any Federal, State, or Municipal authority,
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Tenant covenants and agrees that where permitted by law, Tenant's pro-rata share
of such taxes shall be passed on to and included in the bill of, and paid by,
Tenant to Landlord.
(B). Rent Inclusion: If and so long as Landlord provides electricity
to the demised premises on a rent inclusion basis, Tenant agrees that the fixed
annual rent shall be increased by the amount of the Electricity Rent Inclusion
Factor ("ERIF"), as hereinafter defined. Tenant acknowledges and agrees (i) that
the fixed annual rent hereinabove set forth in this lease does not yet, but is
to include an ERIF of $3.00 per rentable square foot to compensate Landlord for
electrical wiring and other installations necessary for, and for its obtaining
and making available to Tenant the redistribution of electric current as an
additional service; and (ii) that said ERIF, which shall be subject to periodic
adjustments as hereinafter provided, has been partially based upon an estimate
of the Tenant's connected electrical load, in whatever manner delivered to
Tenant, which shall be deemed to be the demand (KW), and hours of use thereof,
which shall be deemed to be the energy (KWH), for ordinary lighting and light
office equipment and the operation of the usual small business machines,
including facsimile machines, desk top personal computers and printers, desk top
document scanners, Xerox or other copying machines (such lighting and equipment
are hereinafter called "Ordinary Equipment") during ordinary business hours
("ordinary business hours") shall be deemed to mean 50 hours per week), with
Landlord providing an average connected load of 4 1/2 watts of electricity for
all purposes per rentable square foot. Any installation and use of equipment
other than Ordinary Equipment and/or any demand load and/or energy usage by
Tenant in excess of the foregoing shall result in adjustment of the ERIF as
hereinafter provided. For purposes of this lease the rentable square foot area
of the presently demised premises shall be deemed to be 14,243 square feet.
If the cost to Landlord of electricity shall have been, or shall be,
increased or decreased subsequent to May 1, 1999 (whether such change occurs
prior to or during the term of this Lease), by change in Landlord's electric
rates or service classifications, or electricity charges, including changes in
market prices, or by an increase, subsequent to the last such electric rate or
service classification change or market price change, in fuel adjustments or
charges of any kind, or by taxes, imposed on Landlord's electricity purchases or
on Landlord's electricity redistribution, or for any other such reason, then the
aforesaid ERIF portion of the fixed annual rent shall be changed in the same
percentage as any such change in cost due to changes in electric rates, service
classifications or market prices, and, also Tenant's payment obligation, for
electricity redistribution, shall change from time to time so as to reflect any
such increase in fuel adjustments or charges, and such taxes. Any such
percentage change in Landlord's cost due to change in Landlord's electric rate
or service classifications or market prices, shall be computed on the basis of
the average consumption of electricity for the building for the twelve full
months immediately prior to the rate change or other such changes in cost,
energy and demand, and any changed methods of or rules on billing for same,
applied on a consistent basis to the new electric rate or service classification
or market price and to the immediately prior existing electric rate or service
classification or market price. If the average consumption (energy and demand)
for the entire building for said prior (12) months cannot reasonably be applied
and used with respect to changed methods of or rules on billing, then the
percentage increase shall be computed by the use of the average consumption
(energy and demand) for the entire building for the first three (3) months after
such change, projected to a full twelve (12) months, so as to reflect the
different seasons; and that same consumption, so projected, shall be applied to
the rate and/or service classification or market price which existed immediately
prior to the change. The parties agree
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<PAGE>
that a reputable, independent electrical consultant firm, selected by Landlord,
("Landlord's electrical consultant"), shall determine the percentage change for
the changes in ERIF due to Landlord's changed costs, and that Landlord's
electrical consultant may from time to time make surveys in the demised premises
at Landlord's sole cost and expense of the electrical equipment and fixtures and
use of current, except in the event that any such survey is made at Tenant's
request, in which event, Tenant shall pay on demand as additional rent hereunder
the cost of any such survey. (i) If such survey shall reflect a demand
electrical load in the demised premises in excess of 4 1/2 watts of electricity
for all purposes per rentable square foot and/or energy usage in excess of
ordinary business hours (each such excess hereinafter called "excess
electricity") then the demand electrical load and/or the hours of use portion(s)
of the then existing ERIF shall be increased by an amount which is equal to a
fraction of the then existing ERIF, the numerator of which is the excess
electricity (i.e. excess demand load and/or excess usage) and the denominator of
which is the demand load and/or the energy usage which was the basis of the then
existing ERIF. Such fractions shall be determined by Landlord's electrical
consultant. The fixed annual rent shall then be appropriately adjusted,
effective as of the date of any such change in demand load and/or usage, as
disclosed by said survey (ii) If such survey shall disclose installation and use
of other than Ordinary Equipment, then effective as of the date of said survey,
there shall be added to the ERIF portion of fixed annual rent (computed and
fixed as hereinbefore described) an additional amount equal to what would be
paid under the SC-4 Rate I Service Classification in effect on May 1, 1999 (and
not the time-of day rate schedule) or the comparable rate schedule (and not the
time-of-day rate schedule) of any utility other than Con Ed then providing
electrical service to the building as same shall be in effect on the date of
such survey for such load and usage of electricity, with the connected
electrical load deemed to be the demand (KW) and the hours of use thereof deemed
to be the energy (KWH), as hereinbefore provided, (which addition to the ERIF
shall be increased or decreased by all electricity cost changes of Landlord, as
hereinabove provided, from May 1, 1999 through' the date of billing).
In no event, whether because of surveys, rates or cost changes, or
for any reason, is the originally specified $3.00 per rentable square foot ERIF
portion of the fixed annual rent to be reduced.
(C). General Conditions: The determinations by Landlord's electrical
consultant shall be binding and conclusive on Landlord and Tenant from and after
the delivery of copies of such determinations to Landlord and Tenant, unless,
within thirty (30) days after delivery thereof, Tenant disputes such
determination. If Tenant so disputes the determination, it shall, at its own
expense, obtain from a reputable, independent electrical consultant its own
determinations in accordance with the provisions of this Article. Tenant's
consultant and Landlord's consultant then shall seek to agree. If they cannot
agree within thirty (30) days they shall choose a third reputable electrical
consultant, whose cost shall be shared equally by the parties, to make similar
determinations which shall be controlling. (If they cannot agree on such third
consultant within ten (10) days, than either party may apply to the Supreme
Court in the County of New York for such appointment.) However, pending such
controlling determinations Tenant shall pay to Landlord the amount of additional
rent or ERIF in accordance with the determinations of Landlord's electrical
consultant. If the controlling determinations differ from Landlord's electrical
consultant, then the parties shall promptly make adjustment for any deficiency
owed by Tenant or overage paid by Tenant.
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Supplementing Article 35 hereof, if all or part of the submetering
additional rent or the ERIF payable in accordance with Subdivision (A) or (B) of
this Article becomes uncollectible or reduced or refunded by virtue of any law,
order or regulations, the parties agree that, at Landlord's option, in lieu of
submetering additional rent or ERIF, and in consideration of Tenant's use of the
building's electrical distribution system and receipt of redistributed
electricity and payment by Landlord of consultant's fees and other
redistribution costs, the fixed annual rental rate(s) to be paid under this
lease shall be increased by an "alternative charge" which shall be a sum equal
to $3.00 per year per rentable square foot of the demised premises, changed in
the same percentage as any increase in the cost to Landlord for electricity for
the entire building subsequent to May 1, 1999, because of electric rate, service
classification or market price changes, such percentage change to be computed as
in Subdivision (B) provided.
Landlord shall not be liable to Tenant for any loss or damage or
expense which Tenant may sustain or incur if either the quantity or character of
electric service is changed or is no longer available or suitable for Tenant's
requirements unless resulting from Landlord's negligence or willful misconduct.
Tenant covenants and agrees that at all times its use of electric current shall
never exceed the capacity of existing feeders to the building or wiring
installation. Tenant agrees not to connect any additional electrical equipment
to the building electric distribution system, other than lamps, typewriters,
facsimile machines, desk top personal computers and printers, desk top document
scanners and other small office machines which consume comparable amounts of
electricity, without Landlord's prior written consent, which consent shall not
be unreasonably withheld, conditioned or delayed. Any riser or risers to supply
Tenant's electrical requirements, upon written request of Tenant, will be
installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord's
sole judgment, the same are necessary and will not cause permanent damage or
injury to the building or demised premises or cause or create a dangerous or
hazardous condition or entail excessive or unreasonable alterations, repairs or
expense or interfere with or disturb other tenants or occupants. In addition to
the installation of such riser or risers, Landlord will also at the sole cost
and expense of Tenant, install all other equipment proper and necessary in
connection therewith subject to the aforesaid terms and conditions. The parties
acknowledge that they understand that it is anticipated that electric rates,
charges, etc., may be changed by virtue of time-of-day rates or changes in other
methods of billing, and/or electricity purchases and the redistribution thereof,
and fluctuation in the market price of electricity, and that the references in
the foregoing paragraphs to changes in methods of or rules on billing are
intended to include any such changes. Anything hereinabove to the contrary
notwithstanding, in no event is the submetering additional rent or ERIF, or any
"alternative charge", to be less than an amount equal to the total of Landlord's
payments to public utilities and/or other providers for the electricity consumed
by Tenant (and any taxes thereon or on redistribution of same) plus 5% thereof
for transmission line loss, plus 15% thereof for other redistribution costs. The
Landlord reserves, subject to the introductory paragraph of this Article 41, the
right, at any time upon sixty (60) days written upon written notice, to change
its furnishing of electricity to Tenant from a rent inclusion basis to a
submetering basis, or vice versa, or to change to the distribution of less than
all the components of the existing service to Tenant. The Landlord reserves the
right to terminate the furnishing of electricity on a rent inclusion,
submetering, or any other basis at any time, upon sixty (60) days written notice
to the Tenant, provided the foregoing change (i) is required by law, (ii) is
required by the public utility company supplying electricity to the Building or
(iii) applies to fifty (50%) percent or more of the office tenants in the
building, in which event the Tenant may make application directly to the public
utility and/or other providers for the Tenant's entire separate supply of
electric current and Landlord shall
6
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permit its wires and conduits, to the extent available and safely capable, to be
used for such purpose, but only to the extent of Tenant's then authorized load.
Any meters, risers, or other equipment or connections necessary to furnish
electricity on a submetering basis or to enable Tenant to obtain electric
current directly from such utility and/or other providers shall be installed at
Landlord's sole cost and expense. Only rigid conduit or electricity metal tubing
(EMT) will be allowed. The Landlord, upon the expiration of the aforesaid
forty-five (45) days written notice to the Tenant may discontinue furnishing the
electric current but this lease shall otherwise remain in full force and effect,
provided such direct service is available to Tenant. If Tenant was provided
electricity on a rent inclusion basis when it was so discontinued, then
commencing when Tenant receives such direct service and as long as Tenant shall
continue to receive such service, the fixed annual rent payable under this lease
shall be reduced by the amount of the ERIF which was payable immediately prior
to such discontinuance of electricity on a rent inclusion basis.
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DEFAULT
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42. Supplementing Article 4 hereof:
A. In the event that Tenant is in arrears for rent or any item of
additional rent after notice and beyond the expiration of any applicable cure
period set forth herein, Tenant waives its right, if any, to designate the items
against which payments made by Tenant are to be credited and Landlord may apply
any payments made by Tenant to any items due hereunder which Landlord in its
sole discretion may elect irrespective of any designation by Tenant as to the
items against which any such payment should be credited.
B. If Landlord, as a result of any default by Tenant in its
performance of any of the terms, covenants, conditions and provisions of this
Lease (which default continues after applicable notice and the expiration of any
applicable cure period) makes any expenditures or incurs any obligations for the
payment of money including, without limitation, reasonable attorneys' fees, then
any such cost, expense or disbursement shall be deemed to be additional rent
hereunder and paid by Tenant to Landlord upon demand and, if Tenant's lease term
shall have expired after such expenditures or obligations have been incurred,
such sums shall be recoverable from Tenant as damages.
C. Tenant shall not seek to remove and/or consolidate any summary
proceeding brought by Landlord with any action commenced by Tenant in connection
with this Lease or Tenant's use and/or occupancy of the Premises.
D. In the event of a default by Landlord hereunder, no property or
assets of Landlord, or any principals, shareholders, officers, or directors of
Landlord, whether disclosed or undisclosed, other than the building in which the
premises are located and the land upon which the building is situated, and any
refinancing proceeds, insurance proceeds, condemnation awards and rents relating
to the land and/or Building shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this Lease, the relationship of Landlord and Tenant hereunder or
Tenant's use and occupancy of the Premises.
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DESTRUCTION
-----------
43. Supplementing Article 10 hereof:
In the event that the Premises or portion thereof are damaged by
fire or other casualty and Landlord has elected not to terminate this Lease,
Tenant shall cooperate with Landlord in the restoration of the Premises and
shall remove from the Premises as promptly as reasonably possible all of
Tenant's salvageable inventory, movable equipment, furniture and other property.
Tenant's liability for rent shall resume sixty (60) days after written notice
from Landlord that Landlord's restoration work to the core and shell of the
Premises shall have been substantially completed, provided that Landlord
includes in such restoration all components of work in the Premises performed by
Landlord prior to its delivery of possession to Tenant at the commencement of
the term of this Lease.
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INSURANCE
---------
44. A. Tenant shall not violate, or permit the violation of, any condition
imposed by the standard fire insurance policy then issued for office buildings
in the Borough of Manhattan, City of New York, and shall not do, or permit
anything to be done, or keep or permit anything to be kept in the Premises which
would subject Landlord to any liability or responsibility for personal injury or
death or property damage, or which would increase the fire or other casualty
insurance rate on the building or the property therein over the rate which would
otherwise then be in effect (unless Tenant pays the resulting premium as
provided in Section C hereof) or which would result in insurance companies of
good standing refusing to insure the building or any of such property in amounts
reasonably satisfactory to Landlord.
B. Tenant covenants to provide on or before the earlier to occur
of (i) the commencement of the term of this Lease, and (ii) ten (10) days from
the date of this Lease, and to keep in force during the term hereof the
following insurance coverage which coverage shall be effective on the
Commencement Date:
(a) A comprehensive policy of liability insurance naming
Landlord as an additional insured protecting Landlord and Tenant against any
liability whatsoever occasioned by accident on or about the Premises or any
appurtenances thereto. Such policy shall have limits of liability of not less
than Three Million ($3,000,000.00) Dollars combined single limit coverage on a
per occurrence basis, including property damage. Such insurance may be carried
under a blanket policy covering the Premises and other locations of Tenant, if
any, provided such a policy contains an endorsement (i) naming Landlord as an
additional insured, (ii) specifically referencing the Premises; and (iii)
guaranteeing a minimum limit available for the Premises equal to the limits of
liability required under this Lease;
(b) Fire and Extended coverage in an amount adequate to cover the
cost of replacement of all personal property, fixtures, furnishings and
equipment, including Tenant's Alteration Work, located in the Premises.
All such policies shall be issued by companies of recognized
responsibility licensed to do business in New York State and rated by Best's
Insurance Reports or any successor publication of comparable standing and
carrying a rating of A- VIII or better or the then equivalent of such rating,
and all such policies shall contain a provision whereby the same cannot be
canceled or modified unless Landlord and any additional insured are given at
least thirty (30) days prior written notice of such cancellation or
modification.
Prior to the time such insurance is first required to be carried by
Tenant and thereafter, at least fifteen (15) days prior to the expiration of any
such policies, Tenant shall deliver to Landlord either duplicate originals of
the aforesaid policies or certificates evidencing such insurance, together with
evidence of payment for the policy. If Tenant delivers certificates as aforesaid
Tenant, upon reasonable prior notice from Landlord, shall make available to
Landlord, at the Premises, duplicate originals of such policies from which
Landlord may make copies thereof, at Landlord's cost. Tenant's failure to
provide and keep in force the
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aforementioned insurance shall be regarded as a material default hereunder,
entitling Landlord to exercise any or all of the remedies as provided in this
Lease in the event of Tenant's default. In addition, in the event Tenant fails
to provide and keep in force the insurance required by this Lease, at the times
and for the durations specified in this Lease, Landlord shall have the right,
but not the obligation, at any time and from time to time, and without notice,
to procure such insurance and/or pay the premiums for such insurance in which
event Tenant shall repay Landlord within five (5) days after demand by Landlord,
as additional rent, all sums so paid by Landlord and any costs or expenses
incurred by Landlord in connection therewith without prejudice to any other
rights and remedies of Landlord under this Lease.
C. Landlord and Tenant shall each endeavor to secure an appropriate
clause in, or an endorsement upon, each fire or extended coverage policy
obtained by it and covering the building, the Premises or the personal property,
fixtures and equipment located therein or thereon, pursuant to which the
respective insurance companies waive subrogation or permit the insured, prior to
any loss, to agree with a third party to waive any claim it might have against
said third party. The waiver of subrogation or permission for waiver of any
claim hereinbefore referred to shall extend to the agents of each party and its
employees and, in the case of Tenant, shall also extend to all other persons and
entities occupying or using the Premises in accordance with the terms of this
Lease. If and to the extent that such waiver or permission can be obtained only
upon payment of an additional charge then, except as provided in the following
two paragraphs, the party benefiting from the waiver or permission shall pay
such charge upon demand, or shall be deemed to have agreed that the party
obtaining the insurance coverage in question shall be free of any further
obligations under the provisions hereof relating to such waiver or permission.
In the event that Landlord shall be unable at any time to obtain
one of the provisions referred to above in any of its insurance policies, at
Tenant's option, Landlord shall cause Tenant to be named in such policy or
policies as one of the insureds, but if any additional premium shall be imposed
for the inclusion of Tenant as such an insured, Tenant shall pay such additional
premium upon demand. In the event that Tenant shall have been named as one of
the insureds in any of Landlord's policies in accordance with the foregoing,
Tenant shall endorse promptly to the order of Landlord, without recourse, any
check, draft or order for the payment of money representing the proceeds of any
such policy or any other payment growing out of or connected with said policy
and Tenant hereby irrevocably waives any and all rights in and to such proceeds
and payments.
In the event that Tenant shall be unable at any time to obtain
one of the provisions referred to above in any of its insurance policies, Tenant
shall cause Landlord to be named in such policy or policies as one of the
insureds, but if any additional premium shall be imposed for the inclusion of
Landlord as such an assured, Landlord shall pay such additional premium upon
demand or Tenant shall be excused from its obligations under this paragraph with
respect to the insurance policy or policies for which such additional premiums
would be imposed. In the event that Landlord shall have been named as one of the
insureds in any of Tenant's policies in accordance with the foregoing, Landlord
shall endorse promptly to the order of Tenant, without recourse, any check,
draft or order for the payment of money representing the proceeds of any such
policy or any other payment growing out of or connected with said policy and
Landlord hereby irrevocably waives any and all rights in and to such proceeds
and payments.
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Subject to the foregoing provisions of this Section C, and
insofar as may be permitted by the terms of the insurance policies carried by
it, each party hereby releases the other with respect to any claim (including a
claim for negligence) which it might otherwise have against the other party for
loss, damages or destruction with respect to its property by fire or other
casualty (including rental value or business interruption, as the case may be)
occurring during the term of this Lease.
D. If, by reason of a failure of Tenant to comply with the
provisions of Article 14 or Section A above, the rate of fire insurance with
extended coverage on the building or equipment or other property of Landlord
shall be higher than it otherwise would be, Tenant shall reimburse Landlord, on
demand, for that part of the premiums for fire insurance and extended coverage
paid by Landlord because of such failure on the part of Tenant.
E. Landlord may, from time to time, require that the amount of the
insurance to be provided and maintained by Tenant under Section B hereof be
increased so that the amount thereof adequately protects Landlord's interest,
but in no event in excess of the amount that would be required by other tenants
in other similar office buildings in the borough of Manhattan. Notwithstanding
the foregoing, Landlord and Tenant acknowledge and agree that in no event shall
the amount of insurance to be provided and maintained by Tenant under the terms
of this Article be increased prior to the first anniversary of the commencement
of the term of this Lease and in no event shall the amount of said insurance
provided and maintained by Tenant during the term of this Lease be greater than
the sum of Five Million ($5,000,000.00) Dollars.
F. A schedule or make up of rates for the building or the Premises,
as the case may be, issued by the New York Fire Insurance Rating Organization or
other similar body making rates for fire insurance and extended coverage for the
premises concerned, shall be conclusive evidence of the facts therein stated and
of the several items and charges in the fire insurance rate with extended
coverage then applicable to such premises.
G. Each policy evidencing the insurance to be carried by Tenant
under this Lease shall contain a clause that such policy and the coverage
evidenced thereby shall be primary with respect to any policies carried by
Landlord, and that any coverage carried by Landlord shall be excess insurance.
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<PAGE>
SUBORDINATION
-------------
45. Supplementing the provisions of Article 12 hereof:
A. This lease is and shall be subject and subordinate to all present
and future ground leases, underlying leases and to all subleases of the entire
premises demised by that certain ground lease (hereinafter referred to as the
"Mesne Lease") dated December 30, 1957 and recorded in the office of the
Register of the City of New York in the County of New York on December 31, 1957,
in Liber 5024 of Conveyances, Page 430 of which the premises hereby demised form
a part (the Mesne Lease and any or all present and future ground leases
underlying leases and subleases of the entire premises demised by the Mesne
Lease are hereunder referred to as the "ground leases" and the lessors and
lessees thereunder are hereinafter referred to respectively as the "ground
lessors" and "ground lessees" ) and to all renewals, modifications, replacements
and extensions of the ground leases, and to all present and future mortgages
affecting such ground leases (such mortgage are hereinafter referred to as the
"mortgages" and the mortgagees thereunder are hereinafter referred to as the
"the mortgagees" and to all renewals, modifications, replacements and extensions
thereof. Landlord represents that the Mesne Lease is in full force and effect
and that the term thereof is scheduled to expire after the term of this Lease is
scheduled to expire.
B. Notwithstanding the subordination of this lease to all ground
leases and mortgages, this lease shall not terminate or be terminable by Tenant
by reason of the expiration or earlier termination or cancellation of any ground
lease in accordance with its terms or by reason of the foreclosures of any
mortgage, except that this lease may be terminated if Tenant is named as a party
and served with process in a summary or other proceeding brought by the lessor
under the Mesne Lease (hereinafter referred to as the "Mesne Lessor") for the
possession of the premises demised by the Mesne Lease or the space occupied by
Tenant, or in such proceeding brought with the written consent of the Mesne
Lessor delivered to Tenant, and a final order or judgment is entered, and a
warrant for possession of such space issued and executed against the defendants
or respondents in such proceedings.
C. Tenant agrees that if this lease terminates, expires or is canceled
for any reason or by any means whatsoever (other than by a summary or other
proceeding brought by the Mesne Lessor or with the Mesne Lessor's written
consent delivered to Tenant, in which summary or other proceeding Tenant is made
a party and in which a final order or judgment is entered and warrant for
possession is issued and executed against Tenant) and Mesne Lessor or a ground
lessor so elects by written notice to Tenant, this lease shall automatically be
reinstated for the balance of the term which would have remained but for such
termination, expiration or cancellation, at the same rental, and upon the same
agreements, covenants, conditions, restrictions and provisions herein contained,
with the same rental, and upon the same agreements, covenants, conditions,
restrictions and provisions herein contained, with the same force and effect as
if no such termination, expiration or cancellation had taken place. Tenant
covenants to execute and deliver any instrument required to confirm the validity
of the foregoing. Anything herein contained to the contrary notwithstanding,
this lease shall not be deemed to be automatically reinstated as aforesaid, nor
shall Tenant be obligated to execute and deliver any
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<PAGE>
instrument confirming such reinstatement, if Tenant has delivered to the Mesne
Lessor and any ground lessor so electing a notice that in Tenant's option this
lease has so terminated, expired or been canceled, and neither the Mesne Lessor
nor such other ground lessor has, within thirty (30) days after receipt of such
notice from Tenant, delivered notice to Tenant of its election automatically to
reinstate this Lease.
D. Tenant hereby consents to any and all assignment of Landlord's
interest in this lease to any ground lessor or mortgagee as collateral security
for the payment of the ground rent or monies due under any mortgage. Tenant
agrees to attorn to and pay rent to any such ground lessor's or mortgagee in
accordance with the provisions of any such assignment provided such rental
payments shall be applied against rent due hereunder.
E. Tenant agrees that no act, or failure to act, on the part of
Landlord, which would entitle Tenant under the terms of this Lease, or by law to
be relieved of Tenant's obligations hereunder or to terminate this lease, shall
result in a release or termination of such obligations or termination of this
lease unless (i) Tenant shall have first given written notice of Landlord's act
or failure to act to the ground lessors under all then existing ground leases,
and to all then existing mortgagees whose names and addresses have been supplied
to Tenant in writing and who have requested such notice from Tenant, specifying
the act or failure to act on the part of Landlord which could or would given
basis to Tenant's rights and (ii) the ground lessors and such mortgagees, after
receipt of such notice, have failed or refused to correct or cure the condition
complained of within a reasonable time thereafter but nothing herein contained
shall be deemed to impose any obligation on any ground lessor or such mortgagee
to correct or cure any such condition.
F. This lease may not be modified or amended so as to reduce the
rent, shorten the term, or otherwise materially affect the rights of Landlord
hereunder, or be canceled or surrendered except as provided in subparagraph (E)
of this Article 45, without the prior written consent in each instance of the
ground lessors and of any mortgagees whose mortgages shall require such consent.
Any such modification, agreement, cancellation or surrender made without such
prior written consent shall be null and void.
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AIR CONDITIONING
----------------
46. Supplementing the provisions of Article 9 hereof, Landlord shall
provide air-conditioning to the premises, through the presently existing
equipment and facilities servicing the Premises, from May 15th to October 15th
in each year during the term of the lease, Monday through Friday from 8 a.m. to
6 p.m., and on Saturdays from 8 a.m. to 12:00 Noon (after hours air conditioning
to be furnished, after reasonable advance request by Tenant in writing, at
Landlord's then standard Building rates for same). Tenant shall reimburse
Landlord, in accordance with Article 41 of this Lease, for electricity consumed
by such equipment and facilities in providing air conditioning to the Premises.
Tenant acknowledges and agrees that the air conditioning equipment and
facilities servicing the Premises are Landlord's property, however Tenant shall
keep, maintain and repair such equipment and all of the facilities including,
without limitation, the ducts, dampers, registers, grilles and appurtenances
utilized in connection therewith: In connection therewith, Tenant shall at all
times during the term hereof contract for and maintain regular service of said
air conditioning equipment and related facilities through an independent,
licensed, professional third party maintenance company approved by Landlord and
shall, within thirty (30) days of the commencement of the term of this Lease,
forward to Landlord a fully executed original copy of such contract. Tenant
shall also forward to Landlord within thirty (30) days of their execution by the
parties thereto any and all renewals and modifications thereof. Said contract
shall include the thorough overhauling of the air conditioning system and
facilities servicing the Premises at least once each year during the term of
this Lease. Any restoration or replacement by Tenant of all or any part of the
air conditioning equipment shall be in quality and class equal to the original
work or installations. In the event that Tenant fails to perform the
aforementioned maintenance and repair of the existing air conditioning equipment
and facilities servicing the Premises or fails to enter into and maintain the
referenced service contract Landlord may following twenty (20) days written
notice to Tenant and Tenant's failure to cure such nonperformance, at Tenant's
sole cost and expense payable by Tenant upon demand as additional rent
hereunder, perform any necessary maintenance or enter into such service contract
for the premises. Provided that Tenant performs the referenced maintenance and
repair of the existing air conditioning equipment and enters into the above
referenced service contract, Landlord shall be responsible for the replacement,
as necessary, of major components of the air-conditioning mechanical equipment
(e.g., without limitation, the compressor and pumps), provided that any such
replacement are not necessitated by the negligence or willful misconduct of
Tenant, its employees, representatives, servants or invitees, in which event
Tenant shall be solely responsible for the cost of same. If supplementary air-
conditioning equipment and/or facilities are required to accommodate Tenant's
special usage areas (e.g., without limitation computer rooms, conference rooms,
cafeteria/lunchrooms or any special usage which subjects a portion or the entire
premises to a high density of office personnel and/or heat generating machinery
or appliances), it shall be Tenant's responsibility to furnish, install,
maintain, repair and operate, subject to Landlord's written approval, which
approval shall not be unreasonably withheld, any necessary supplementary air-
conditioning equipment and/or facilities at its sole cost and expense. Landlord
reserves the right to suspend the operation of all air-conditioning equipment
and facilities at any time that Landlord, in its sole judgment, deems it
necessary, including without limitation, accidents, emergencies, repairs,
alterations, or improvements in the Premises or the building. Tenant agrees that
any such suspension in the operation of the air-conditioning equipment and/or
facilities may continue until such time as the
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<PAGE>
basis for such suspension has been remedied and that Landlord shall not be
responsible or liable to Tenant for any damages suffered by Tenant in connection
therewith subject to the terms of this Lease and unless resulting from
Landlord's negligence or willful misconduct. Tenant further agrees that Landlord
shall not be responsible or liable for any damages suffered by Tenant if
operation of the air-conditioning equipment and/or facilities is prevented by
labor unrest, strikes, shortages or accidents or any cause beyond Landlord's
reasonable control, or by the orders or regulations of any federal, state,
county or local authority or by failure of the equipment and/or facilities or
electrical current, steam and/or water or other necessary power source.
16
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CHANGES AND ALTERATIONS
-----------------------
47. Anything in Article 7 to the contrary notwithstanding, Landlord will
not unreasonably withhold, condition or delay approval of written requests of
Tenant to make nonstructural interior alterations, decorations, additions and
improvements (herein referred to as "alterations") in the demised premises,
provided that such alterations do not affect utility services or plumbing and
electrical lines or other systems of the building. All alterations shall be
performed in accordance with the following conditions:
(a) All alterations costing more than $15,000.00 shall be performed
in accordance with plans and specifications first submitted to Landlord for its
prior written approval. Landlord shall be given, in writing, a good description
of all other alterations.
(b) All alterations shall be done in a good and workmanlike manner.
Tenant shall, prior to the commencement of any such alterations, at its sole
cost and expense, obtain (or cause to be obtained) and exhibit to Landlord any
governmental permit required in connection with such alterations.
(c) All alterations shall be done in compliance with all other
applicable provisions of this Lease and with all applicable laws, ordinances,
directions, rules and regulations of governmental authorities having
jurisdiction, including, without limitation, the Americans with Disabilities Act
of 1990 and New York City Local Law No. 57/87 and similar present or future
laws, and regulations issued pursuant thereto, and also New York City Local Law
No. 76 and, subject to the terms of Article 56, similar present or future laws,
and regulations issued pursuant thereto, on abatement, storage, transportation
and disposal of asbestos, which work, if required, shall be effected at Tenant's
sole cost and expense, by contractors and consultants approved by Landlord and
in strict compliance with the aforesaid rules and regulations and with
Landlord's rules and regulations thereon.
(d) All work shall be performed with union labor having the proper
jurisdictional qualifications.
(e) Tenant shall keep the building and the demised premises free and
clear of all liens for any work or material claimed to have been furnished to
Tenant or to the demised premises.
(f) Prior to the commencement of any work by or for Tenant, Tenant
shall furnish to Landlord certificates evidencing the existence of the following
insurance:
(i) Workmen's compensation insurance covering all persons
employed for such work and with respect to whom death or bodily injury claims
could be asserted against Landlord, Tenant or the demised premises.
(ii) Broad form general liability insurance written on an
occurrence basis naming Tenant as an insured and naming Landlord and its
designees as additional insureds,
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with limits of not less than $3,000,000 combined single limit for personal
injury in any one occurrence, and with limits of not less than $500,000 for
property damage (the foregoing limits may be revised from time to time by
Landlord to such higher limits as Landlord from time to time reasonably
requires). Tenant, at its sole cost and expense, shall cause all such insurance
to be maintained at all time when the work to be performed for or by Tenant is
in progress. All such insurance shall be obtained from a company authorized to
do business in New York and shall provide that it cannot be canceled without
thirty (30) days prior written notice to Landlord. All polices, or certificates
therefor, issued by the insurer and bearing notations evidencing the payment of
premiums, shall be delivered to Landlord. Blanket coverage shall be acceptable,
provided that coverage meeting the requirements of this paragraph is assigned to
Tenant's location at the demised premises.
(g) All work to be performed by Tenant shall be done in a manner
which will not unreasonably interfere with or disturb other tenants and
occupants of the building.
(h) Any alterations or other work and installations in and for the
demised premises, which shall be consented to by Landlord as provided herein if
effected on Tenant's behalf at Tenant's request by Landlord, its agents or
contractors shall be paid for by Tenant promptly when billed, at cost plus ten
(10%) percent thereof for supervision and overhead, plus ten (10%) percent for
general conditions, as additional rent hereunder.
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LANDLORD'S WORK
---------------
48. (a) Tenant has examined and agrees to accept the leased premises in
their existing condition and state of repair and understands that no work is to
be performed by Landlord, except that Landlord's designated, wholly owned
affiliate Emerald City Construction Corp., with reasonable dispatch, subject to
delay by causes beyond its control or by the action or inaction of Tenant, shall
perform the following work at Landlord's expense, subject to the provisions of
(b), below:
(i) repair/ and or replace, as necessary any damaged, missing or
stained ceiling tiles in the Premises in a building standard
manner utilizing building standard materials;
(ii) reinstall any air conditioning convector covers in the
Premises, as necessary in a building standard manner
utilizing building standard materials;
(iii) deliver the existing air conditioning mechanical equipment
servicing the Premises, exclusive of duct work, in good
working order;
(iv) deliver the presently existing light fixtures located in the
Premises in good working order as of the commencement of the
term of this Lease;
(v) deliver the presently existing electrical outlets located in
the Premises in good working order as of the commencement of
the term of this Lease; and
(vi) deliver the presently existing windows located in the
Premises in good working order as of the commencement of the
term of this Lease.
The performance by Landlord of the above work ("Landlord's Work")
is expressly conditioned upon compliance by Tenant with all the terms and
conditions of this lease, including payment of rent. Landlord covenants that it
shall use reasonable efforts to complete Landlord's Work by July 1, 1999.
(b) Any changes in or additions to the work and installations
mentioned in paragraph (a) above which shall be consented to by Landlord as
provided in Article 7 hereof, and
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<PAGE>
further changes in or additions to the demised premises after said work has been
completed which shall be so consented to if made at Tenant's request by
Landlord, or its agents, but shall be paid for by Tenant promptly when billed at
cost plus 1 1/4% for insurance, 10% for overhead and 10% for general conditions,
- -------------------------------------------------------------------------------
and in the event of the failure of Tenant so to pay for said changes or
additions, Landlord at its option may consider the cost thereof, plus the above
--------------
percentages, as additional rent payable by Tenant and collectible as such
- -----------
hereunder, as part of the rent for the next ensuing months.
(c) If Landlord's Work is not substantially completed and is delayed
by acts, omissions or changes made or requested by Tenant, its agents,
designers, architects or any other party acting or apparently acting on Tenant's
behalf, then notwithstanding the foregoing, the term of this Lease, Tenant's
obligation to pay rent and additional rent under this Lease, and the rent credit
in accordance with Article 53 hereof, shall nevertheless commence on July 1,
1999.
(d) Landlord's Work shall be deemed to be substantially completed
notwithstanding that (i) minor or non-material details of construction,
mechanical adjustment or decoration remain to be performed, provided, that said
"Punch List Items" shall be completed by Landlord within a reasonable time
thereafter or (ii) a portion of Landlord's Work is incomplete because
construction scheduling requires that such work be done after incomplete
finishing or after other work to be done by or on behalf of Tenant is completed.
(e) Tenant acknowledges and agrees that Landlord may be performing
Landlord's Work or portions thereof simultaneously with Tenant's performance of
its initial alteration work in the Demised Premises, and that Tenant shall use
reasonable efforts to coordinate with Landlord's affiliate, Emerald City
Construction Corp., any such work performed by or on behalf of Tenant in the
Demised Premises.
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SIGNS
-----
49. Supplementing Article 5 of the Rules and Regulations:
Tenant shall be permitted to affix a suitable sign, plaque or
applied lettering made of brass or bronze on the entrance door to the demised
premises, subject to the prior written approval of Landlord with respect to
location, number, type, size, shape and design thereof, and subject, also, to
compliance by Tenant, at its expense, with all applicable legal requirements or
regulations.
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BROKERAGE
---------
50. A. Tenant represents and warrants to Landlord that it did not consult
or negotiate with any broker, finder, or consultant with regard to the Premises
other than SL Green Leasing, Inc., and Insignia/ESG, Inc., and that no other
broker, finder or consultant participated in procuring this Lease. Tenant hereby
indemnifies and agrees to defend and hold Landlord, its agents, servants and
employees harmless from any suit, action, proceeding, controversy, claim or
demand whatsoever at law or in equity that may be instituted against Landlord by
anyone for recovery of compensation or damages for procuring this Lease or by
reason of a breach or purported breach of the representations and warranties
contained herein.
B. Landlord represents and warrants to Tenant that it did not
consult or negotiate with any broker, finder, or consultant with regard to the
Premises other than SL Green Leasing, Inc., and Insignia/ESG, Inc., and that no
other broker, finder or consultant participated in procuring this Lease.
Landlord hereby indemnifies and agrees to defend and hold Tenant, its agents,
servants and employees harmless from any suit, action, proceeding, controversy,
claim or demand whatsoever at law or in equity that may be instituted against
Tenant by those who dealt with Tenant for recovery of compensation or damages
for procuring this Lease or by reason of a breach or purported breach of the
representations and warranties contained herein. Landlord covenants that it
shall pay any sums due SL Green Leasing, Inc., and Insignia/ESG, Inc., in
connection with this Lease pursuant to a separate agreements.
22
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FAILURE TO PROVIDE CONSENT
--------------------------
51. In no event shall Tenant be entitled to make, nor shall Tenant make any
claim, and Tenant hereby waives any claim for money damages (nor shall Tenant
claim any money damages by way of set-off, counterclaim or defense) based upon
any claim or assertion by Tenant that Landlord had unreasonably withheld,
delayed or conditioned its consent or approval to any request by Tenant made
under a provision of this Lease. Tenant's sole remedy shall be an action or
proceeding to enforce any such provision, or for specific performance or
declaratory judgment which may be sought by arbitration before the American
Arbitration Association on an expedited basis. In the event that Tenant demands
arbitration under this Article, Landlord and Tenant shall jointly select an
independent arbitrator (the "Arbitrator") In the event that Landlord and Tenant
shall be unable to jointly agree on the designation of the Arbitrator within
five (5) days after they are requested to do so by either party, then the
parties agree to allow the American Arbitration Association, or any successor
organization to designate the Arbitrator in accordance with the rules,
regulations and/or procedures for expedited proceedings then obtaining of the
American Arbitration Association of any successor organization. The Arbitrator
shall conduct such hearings and investigations as he may deem appropriate and
shall, within ten (10) days after the date of designation of the Arbitrator
issue a determination as to whether Landlord's refusal to consent was
unreasonable. The determination of the Arbitrator shall be conclusive and
binding upon Landlord and Tenant and shall be set forth, along and with the
Arbitrator's rationale for such choice, in a written report delivered to
Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if
any, in connection with any arbitration under this Article. The Arbitrator
appointed pursuant to this Article shall be an independent real estate
professional with at least ten (10) years' experience in leasing of properties
which are similar in character to the Building. The Arbitrator shall not have
the power to add to, modify or change any of the provisions of this Lease but
shall have the power to direct Landlord to consent to such request.
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Supplementing Articles 3 and 28 hereof:
ASSIGNMENT AND SUBLETTING
-------------------------
52. A. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns , expressly
covenants that it shall not assign, mortgage or encumber this Lease, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used or occupied by others, without the prior written consent of Landlord in
each instance. The merger or consolidation of a corporate Tenant or subtenant
where the net worth of the resulting or surviving corporation is less than the
net worth of the Tenant or subtenant immediately prior to such merger or
consolidation shall be deemed an assignment of this lease or of such sublease.
If this Lease be assigned, or if the demised premises or any part thereof be
underlet or occupied by anybody other than Tenant, Landlord may, after default
by Tenant after notice any beyond the expiration of any applicable cure period,
collect rent from the assignee, undertenant or occupant, and apply the net
amount collected to the rent herein reserved, but no assignment, underletting,
occupancy or collection shall be deemed a waiver of the provisions hereof, the
acceptance of the assignee, undertenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of covenants on the part of Tenant
herein contained. The consent by Landlord to an assignment or underletting shall
not in any way be construed to relieve Tenant from obtaining the express consent
in writing of landlord to any further assignment or underletting. In no event
shall any permitted subtenant assign or encumber its sublease or further sublet
all or any portion of its sublet space, or otherwise suffer or permit the sublet
space or any part thereof to be used or occupied by others, without Landlord's
prior written consent in each instance. A modification, amendment or extension
of a sublease shall be deemed a sublease. If any lien is filed against the
demised premises or the building of which the same form a part for brokerage
services claimed to have been performed for Tenant, (other than by SL Green
Leasing, Inc., and/or Insignia/ESG, Inc., in connection with this Lease) whether
or not actually performed, the same shall be discharged by Tenant within ten
(10) days after Tenant receives notice thereof at Tenant's expense, by filing
the bond required by law, or otherwise, and paying any other necessary sums, and
Tenant agrees to indemnify Landlord and its agents and hold them harmless form
and against any and all claims, losses or liability resulting from such lien for
brokerage services rendered.
B. If Tenant desires to assign this Lease or to sublet all or any
portion of the demised premises, it shall first submit in writing to Landlord
the documents described in Section C hereof, and shall offer in writing, (i)
with respect to a prospective assignment, to assign this Lease to Landlord
without any payment of moneys or other consideration therefor, or, (ii) with
respect to a prospective subletting, to sublet to Landlord the portion of the
demised premises or the entire demised premises ("Leaseback Area") for the
balance of the term of the Lease less one (1) day, and at the lower of (a)
Tenant's proposed subrental or (b) at the same rate of fixed rent and additional
rent, and otherwise on the same terms, covenants and conditions (including
provisions relating to escalation rents), as are contained herein and as are
allocable and applicable to the portion of the demised premises to be covered by
such subletting (it being the intention of the parties hereto that this
Paragraph B shall not apply to a proposed sublet by Tenant of less than the
entire Premises for less than entire remaining lease term, less one (1)
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day). The offer shall specify the date when the Leaseback Area will be made
available to Landlord, which date shall be in no event earlier than thirty (30)
days nor later than one hundred eighty (180) days following the acceptance of
the offer. If an offer of sublease is made, and if the proposed sublease will
result in all or substantially all of the demised premises being sublet, then
Landlord shall have the option to extend the term of its proposed sublease for
the balance of the term of this Lease less one (1) day.
Landlord shall have a period thirty (30) days from the receipt
of such offer to either accept or reject the same. If Landlord shall accept such
offer Tenant shall then execute and deliver to Landlord, or to anyone designated
or named by Landlord, an assignment or sublease, as the case may be, in either
case in a form reasonably satisfactory to Landlord's counsel.
If a sublease is so made it shall expressly:
(a) permit Landlord to make further subleases of all or any
part of the Leaseback Area and (at no cost or expense to Tenant) to make and
authorize any and all changes, alterations, installations and improvements in
such space as necessary, provided that Tenant shall have no liability to restore
any alterations made by Landlord or its subtenant;
(b) provide the Tenant will at all times permit reasonably
appropriate means of ingress to and egress from the Leaseback Area;
(c) negate any intention that the estate created under such
sublease be merged with any other estate held by either of the parties;
(d) provide that Landlord shall accept the Leaseback Area "as
is" except that Landlord, at Tenant's reasonable expense, shall perform all such
work and make all such alterations as may be required physically to separate the
Leaseback Area from the remainder of the demised premises and to permit lawful
occupancy, it being intended that Tenant shall have no other cost or expense in
connection with the subletting of the Leaseback Area;
(e) provide that at the expiration of the term of such
sublease (which shall be one day prior to the expiration date of this Lease)
Tenant will accept the Leaseback Area in its then existing condition subject to
the foregoing, and subject to the obligations of Landlord to make such repairs
thereto as may be necessary to preserve the Leaseback Area in good order and
condition, ordinary wear and tear excepted.
Landlord shall indemnify and save Tenant harmless from all
obligations under this Lease as to the Leaseback Area during the period of time
it is so sublet, except for fixed annual rent and additional rent, if any, due
under the within Lease, which are in excess of the rents and additional sums due
under such sublease.
Subject to the foregoing, performance by Landlord, or its
designee, under a sublease of the Leaseback Area shall be deemed performance by
Tenant of any similar obligation under this Lease and any default under any such
sublease shall not give rise to a default under a similar obligation contained
in this Lease, nor shall Tenant be liable for any default under this Lease or
deemed to be in default hereunder if such default is occasioned by or
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<PAGE>
arises from any act or omission of the tenant under such sublease or is
occasioned by or arises from any act or omission of any occupant holding under
or pursuant to any such sublease.
C. If Tenant requests Landlord's consent to a specific assignment or
subletting, it shall submit in writing to Landlord (i) the name and address of
the proposed assignee or subtenant, (ii) a duly executed counterpart of the
proposed agreement of assignment or sublease, (iii) reasonably satisfactory
information as to the nature and character of the business of the proposed
assignee or subtenant and as to the nature of its proposed use of the space, and
(iv) banking, financial or other credit information relating to the proposed
assignee or subtenant reasonably sufficient to enable Landlord to determine the
financial responsibility and character of the proposed assignee or subtenant.
D. If Landlord shall not have accepted Tenant's offer, as provided
in Section B, then Landlord will not unreasonably withhold or delay its consent
to Tenant's request for consent to such specific assignment or subletting. Any
consent of Landlord under this Article shall be subject to the terms of this
Article and conditioned upon there being no default by Tenant, beyond any grace
period, under any of the terms, covenants and conditions of this Lease at the
time that Landlord's consent to any such subletting or assignment is requested
and on the date of the commencement of the term of any proposed sublease or the
effective date of any proposed assignment.
E. Tenant understands and agrees that no assignment or subletting
shall be effective unless and until Tenant, upon receiving any necessary
Landlord's written consent (and unless it was theretofore delivered to Landlord)
causes a duly executed copy of the sublease or assignment to be delivered to
Landlord within ten (10) days after execution thereof. Any such sublease shall
provide that the subtenant shall comply with all applicable terms and conditions
of this Lease to be performed by the Tenant hereunder with respect to the space
so sublet. Any such assignment of lease shall contain an assumption by the
assignee of all of the terms, covenants and conditions of this Lease to be
performed by the Tenant arising from and after the effective date of such
assignment.
F. Anything herein contained to the contrary notwithstanding:
1. Tenant shall not advertise (but may list with brokers) its
space for assignment or subletting at a rental rate lower than the greater of
the then building rental rate for such space or the rental rate then being paid
by Tenant to Landlord.
2. The transfer of a majority of the issued and outstanding
capital stock of, or a controlling interest in, any corporate tenant or
subtenant of this Lease or a majority of the total interest in any partnership
tenant or subtenant, however accomplished, and whether in a single transaction
or in a series of related or unrelated transactions, shall be deemed an
assignment of this Lease or of such sublease. The transfer or sale of
outstanding capital stock of any corporate tenant for purposes of this Article,
shall not include sale of such stock pursuant to any public or private offering,
or the issuance of any capital stock by any corporate tenant or subtenant upon
the exercise of stock options, warrants or any other derivative securities or
upon the conversion of any securities, or sale of such stock by persons other
than those deemed "insiders" within the meaning of the Securities Exchange Act
of 1934 as amended, and which
26
<PAGE>
sale is effected through "over-the-counter market" or through any recognized
stock exchange. Notwithstanding anything contained herein to the contrary, the
offer back to Landlord pursuant to the provisions of Section B hereof shall not
apply to, and Landlord and Tenant agree that Landlord's consent shall not be
necessary in connection with, a transfer of a majority of the issued and
outstanding capital stock of, or a controlling interest in, any corporate tenant
or subtenant of this Lease or a majority of the total interest in any
partnership tenant or subtenant, conditioned upon and provided that (i) Landlord
is delivered reasonable advance written notice of each such transaction
accompanied by reasonably satisfactory proof that the net worth of Tenant
hereunder, after such transaction, is equal to or greater than its net worth
immediately prior to such transaction, (ii) after any such transaction the
Premises shall be used solely for the uses permitted under this Lease, and in a
manner which is equal or superior to that of Tenant immediately prior to such
transaction, and (iii) any such transaction complies with the other provisions
of this Article.
3. No assignment or subletting shall be made:
(a) To any person or entity which shall at that time be a
tenant, subtenant or other occupant of any part of the building of which the
demised premises form a part, or who dealt with Landlord or Landlord's agent
(directly or through a broker) with respect to space in the building during the
six (6) months immediately preceding Tenant's request for Landlord's consent;
(b) By the legal representatives of the Tenant or by any
person to whom Tenant's interest under this Lease passes by operation of law,
except in compliance with the provisions of this Article;
(c) To any person or entity for the conduct of a business
which is not in keeping with the standards and the general character of the
building of which the demised premises form a part.
G. Anything hereinabove contained to the contrary notwithstanding,
the offer back to Landlord pursuant to the provisions of Section B hereof shall
not apply to, and Landlord will not unreasonably withhold or delay its consent
to an assignment of this Lease, or sublease of all or part of the demised
premises, to the parent of Tenant or to a wholly-owned subsidiary of Tenant or
of said parent of Tenant, provided the net worth of transferor or sublandlord,
after such transaction, is equal to or greater than its net worth immediately
prior to such transaction, and provided also that any such transaction complies
with the other provisions of this Article.
H. Anything hereinabove contained to the contrary notwithstanding,
the offer back to Landlord pursuant to the provisions of Section B hereof shall
not apply to, and Landlord will not unreasonably withhold or delay its consent
to an assignment of this Lease, or sublease of all or part of the demised
premises, to any corporation (i) to which substantially all the assets of Tenant
are transferred or (ii) into which Tenant may be merged or consolidated,
provided that the net worth, experience and reputation of such transferee or of
the resulting or surviving corporation, as the case may be, is equal to or
greater than the net worth experience and reputation of Tenant and of any
guarantor of this Lease immediately prior to such transfer and provided, also,
that any such transaction complies with the other provisions of this Article.
27
<PAGE>
No consent from Landlord shall be necessary under Subdivisions
G and H hereof where (i) reasonably satisfactory proof is delivered to Landlord
that the net worth and other provisions of G or H, as the case may be, and the
other provisions of this Article, have been satisfied and (ii) Tenant, in a
writing reasonably satisfactory to Landlord's attorneys, agrees to remain
primarily liable jointly and severally with any transferee or assignee, for the
obligations of Tenant under this Lease, except that such writing shall not be
necessary with regard to Subdivision H(ii).
28
<PAGE>
I. If Landlord shall not have accepted any required Tenant's offer
and/or Tenant effects any assignment or subletting, then Tenant thereafter shall
pay to Landlord a sum equal to fifty (50%) percent of (a) any rent or other
consideration paid to Tenant by any subtenant which (after (i) deducting the
cost of Tenant, if any, in effecting the subletting, including reasonable
alteration costs, commissions and legal fees and (ii) excluding from such
consideration any costs paid for the sale of Tenant's stock or Tenant's business
or Tenant's assets) is in excess of the rent allocable to the subleased space
which is then being paid by Tenant to Landlord pursuant to the terms hereof, and
(b) any other profit or gain (after deducting any necessary expenses incurred)
realized by Tenant from any such subletting or assignment. All sums payable
hereunder by Tenant shall be payable to Landlord as additional rent upon receipt
thereof by Tenant, provided that Tenant shall be entitled to recoup all of its
costs so incurred prior to paying any such profits to Landlord.
J. In no event shall Tenant be entitled to make, nor shall Tenant
make, any claim, and Tenant hereby waives any claim, for money damages (nor
shall Tenant claim any money damages by way of set-off, counterclaim or defense)
based upon any claim or assertion by Tenant that Landlord has unreasonably
withheld or unreasonably delayed its consent or approval to a proposed
assignment or subletting as provided for in this Article. Tenant's sole remedy
shall be an action or proceeding to enforce any such provision, or for specific
performance, injunction or declaratory judgment which may be sought by
arbitration before the American Arbitration Association on an expedited basis.
In the event that Tenant demands arbitration under this Article, Landlord and
Tenant shall jointly select an independent arbitrator (the "Arbitrator"). In the
event that Landlord and Tenant shall be unable to jointly agree on the
designation of the Arbitrator within five (5) days after they are requested to
do so by either party, then the parties agree to allow the American Arbitration
Association, or any successor organization to designate the Arbitrator in
accordance with the rules, regulations and/or procedures for expedited
proceedings then obtaining of the American Arbitration Association of any
successor organization. The Arbitrator shall conduct such hearings and
investigations as he may deem appropriate and shall, within ten (10) days after
the date of designation of the Arbitrator issue a determination as to whether
Landlord's refusal to consent was unreasonable. The determination of the
Arbitrator shall be conclusive and binding upon Landlord and Tenant and shall be
set forth, along and with the Arbitrator's rationale for such choice, in a
written report delivered to Landlord and Tenant. Each party shall pay its own
counsel fees and expenses, if any, in connection with any arbitration under this
Article. The Arbitrator appointed pursuant to this Article shall be an
independent real estate professional with at least ten (10) years' experience in
leasing of properties which are similar in character to the Building. The
Arbitrator shall not have the power to add to, modify or change any of the
provisions of this Lease but shall have the power to direct Landlord to consent
to such request.
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RENT CREDIT
-----------
53. If and so long as Tenant is not in default under this Lease beyond any
grace period, Tenant shall be entitled to a rent credit in the amount of
$94,953.33, to be applied against the first (1/st/) and second (2/nd/) monthly
installments of fixed annual rent (without electricity) accruing under this
Lease after possession of the Premises is delivered to Tenant with Landlord's
Work having been substantially completed, so that Tenant shall occupy the
demised premises free of such fixed annual rent for that period; except that
Tenant shall nevertheless be obligated, from and after the commencement date of
the term, to pay additional rents hereunder and to make payment of the ERIF
portion of the fixed annual rent due under Article 41 hereof, (anything in said
--
Article 41 to the contrary notwithstanding).
--
Anything contained hereinabove to the contrary notwithstanding, if
Tenant at any time during the term of this Lease, breaches any material
covenant, condition or provision of this Lease and fails to cure such breach
within any applicable grace period, and provided that this Lease is terminated
by Landlord because of such material default, then, in addition to all other
damages and remedies herein provided and to which Landlord may be otherwise
entitled, Landlord shall also be entitled to the repayment in full of any rent
credit theretofore enjoyed by Tenant, which repayment Tenant shall make upon
demand therefor provided, however, that the amount of such rent credit to be
repaid hereunder shall be multiplied by a fraction, the denominator of which is
38, and the numerator of which is the number of months, including portions
thereof, remaining in the originally stated term of this Lease following such
breach.
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PORTER'S WAGE ESCALATION
------------------------
54. Tenant shall pay to Landlord, as additional rent, Porter's Wage
escalation, in accordance with this Article:
(a) Definitions: For the purpose of this Article the following
-----------
definitions shall apply:
(i) The term "Base Rate" as hereinafter set forth for the
determination of Porter's Wage escalation, shall mean the labor rate determined
as hereinafter provided, as of the first day of the calendar year 1999 (the
"base year"). The term "comparative year" shall mean each calendar year, or
portion thereof, subsequent to the base year.
(ii) For purposes of this Lease, the rentable square foot area
of the presently demised premises shall be deemed to be 14,243 square feet.
(iii) The term "labor rate" shall mean the average of the
minimum regular hourly wage rate (excluding fringe benefits for purposes of this
Lease), plus any taxes applicable thereto, (1) for a porter and (2) for an
office cleaner, determined as follows:
(1) The minimum regular hourly wage rate for porters with 5
years service in Class A office buildings, from time to
time established by Agreement between the Realty
Advisory Board on Labor Relations, Inc., and Local 32B-
32J of the Building Service Employees International
Union AFL-CIO or by the successors to either or both of
them; (this rate shall be used in computations under
this Article whether or not porters' wages are actually
paid by or for the Landlord or by independent
contractors who furnish such services to the demised
premises or to the Building).
(2) The minimum regular hourly wage rate for office cleaners
with 5 years service in Class A office buildings, from
time to time established by agreement between the Realty
Advisory Board on Labor Relations, Inc., and Local 32B-
32J of the Building Service Employees International
Union AFL-CIO or by the successors to either or both of
them; (this rate shall be used in computations under
this Article whether or not office cleaners' wages are
actually paid by or for the Landlord or by independent
contractors who furnish such services to the demised
premises or to the Building).
(3) As used herein, the term "porters" and the term "office
cleaners" shall mean, respectively, that classification
of
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employee engaged in the general maintenance and
operation of office buildings most nearly comparable to
that classification now applicable to porters or office
cleaners, as the case may be, in the 1996-98 Agreement
with said Local 32B-32J (which classification is
presently termed "others" in said Agreement).
(4) If any such union agreement shall require the regular
employment of porters or office cleaners on days or
during hours when overtime or other premium pay rates
are in effect, then the minimum "regular hourly wage
rate" as used above and subject to the other adjustments
provided for herein, shall be deemed to mean the average
hourly wage rate for the hours in a calendar week during
which porters or office cleaners are required to be
regularly employed (e.g., if, for example, as of October
1, 1997, an agreement between RAB and Local 32B-32J
shall require the regular employment of building porters
for forty (40) hours during a calendar week at a regular
hourly rate of $3.00 for the first thirty (30) hours,
and premium or overtime hourly wage rate of $4.50 for
the remaining ten hours, then the regular straight time
hourly wage rate under this Article, as of October 1,
1998, shall be deemed to be the total weekly wage rate
of $135.00, divided by the total number of required
hours of employment, forty (40) or $3.375).
(5) Subject to the provisions herein contained, and at
Landlord's option, computation of the minimum regular
hourly wage rate shall be based on the number of hours
that a porter or office cleaner is expected to work in
any comparison year. In determining said number of
hours, Landlord may make reasonable estimates of the
average number of days or hours not worked by an average
porter or office cleaner, where such days or hours are
not specified by, or vary with individual circumstances
pursuant to, the union agreement.
If there is no such union agreement in effect at any time during or
prior to the term of this Lease, then all computations and payments shall,
nevertheless, be made, but shall be on the basis of the regular hourly wage
rates, plus any taxes applicable thereto, actually being paid or accrued at such
time by the Landlord or by the contractor performing the cleaning services for
Landlord for such porters or office cleaners, as the case may be, or, if there
are no such persons employed at the building, then such computation shall be
based on the wage rates (without fringe benefits) of porters or office cleaners,
as the case may be, at the Empire State Building, New York, New York.
Appropriate retroactive adjustment shall thereafter be made if and when the
minimum regular hourly wage rate pursuant to such agreement is finally
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<PAGE>
determined; provided, however, that if as of the last day of any comparative
year, no union agreement shall be in effect January 1, occurring in such
comparative year, then the minimum regular hourly wage rate computed as
aforedescribed shall for all purposes hereof be deemed to be the minimum regular
hourly wage rate for purposes of this Article, and that no retroactive
adjustment shall be made with respect thereto.
(b) The parties acknowledge that the labor rate is intended to be an
index in the nature of a cost of living or other such index; it is not intended
to reflect the actual costs of wages or expenses for the building.
(c) In the event that the labor rate in effect for the comparative
year 2000 and any comparative year thereafter following the base year shall
exceed the Base Rate, then Tenant shall pay to Landlord, as additional rent for
such comparative year, an amount equal to the product obtained by multiplying
(i) the rentable square foot area of the demised premises, by (ii) one cent for
each cent (including any fraction of a cent) by which the labor rate in effect
during such comparative year exceeds the Base Rate. Subject to subdivision (f)
hereof, each such annual amount of additional rent shall commence to be payable,
in equal monthly installments, as of the first day of the period for which such
labor rate shall have changed; and, after Landlord shall furnish Tenant with an
escalation statement relating to such increase in the labor rate, all monthly
installments of rent shall contain an item of additional rent equal to one-
twelfth (1/12) of the annual amount determined above, until a new change shall
take place in the labor rate. In the event that the escalation statement is
furnished to the Tenant after the commencement or effective date of any change
in the labor rate, there shall be promptly paid by Tenant to Landlord the amount
theretofore accrued or allocable to the period prior to the furnishing of the
said escalation statement. In the event that the labor rate shall be changed or
shall change more frequently than once a year, the adjustment hereunder shall
similarly be made by Landlord in an additional escalation statement furnished by
Landlord, so as to reflect such change in the monthly installments, as of the
effective date of each such change.
(d) The statements furnished by Landlord to Tenant, as provided
above, shall be prepared in reasonable detail by Landlord. The statements thus
furnished to Tenant shall constitute a final determination as between Landlord
and Tenant of the labor rate and Porter's Wage escalation additional rent for
the periods represented thereby, unless Tenant within ninety (90) days after
they are furnished shall in writing challenge their accuracy or their
appropriateness, which notice shall specify the particular respects in which the
statement is inaccurate or inappropriate.
If Tenant shall so dispute said statements then, pending the
resolution of such dispute, Tenant shall pay the additional rent to Landlord in
accordance with the statements furnished by Landlord.
(e) In no event shall the fixed annual rent payable under this Lease
be reduced by virtue of this Article.
(f) If the rent commencement date of this Lease is not the first day
of the first comparative year, then the additional rent due hereunder for such
first comparative year shall be a proportionate share of said additional rent
for the entire comparative year, said proportionate
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share to be based upon the length of time that this Lease's term will be in
existence during such first comparative year. Upon the date of any expiration or
termination of this Lease (except termination because of Tenant's default),
whether the same be the date hereinabove set forth for the expiration of the
term or any prior or subsequent date, a proportionate share of said additional
rent for the comparative year during which such expiration or termination occurs
shall immediately become due and payable by Tenant to Landlord. The said
proportionate share shall be based upon the length of time that this Lease shall
have been in existence during such comparative year. Prior to or promptly after
said expiration or termination, Landlord shall compute the additional rent, if
any, due from Tenant as aforesaid, which computations shall either be based on
that comparative year's labor rate(s) or be an estimate, based upon the most
recent statements theretofore prepared by Landlord and furnished to Tenant. If
an estimate is used, then Landlord thereafter shall cause statements to be
prepared on the basis of that comparative year's actual labor rate(s) and, upon
Landlord's furnishing such statement to Tenant. Landlord and Tenant shall make
appropriate adjustments of amounts then owing or estimated payments theretofore
made.
(g) Notwithstanding any cancellation or termination of the term of
this Lease prior to the Lease's expiration date (except in the case of a
cancellation by mutual agreement or Tenant's cancellation as of right) Tenant's
obligation to pay any and all additional rent under this Article shall continue
and shall cover all periods up to the Lease expiration date. Landlord's and
Tenant's obligation to make the adjustments referred to in subdivision (f) above
shall survive any expiration or sooner termination of the term of this Lease.
(h) Any delay or failure of Landlord in billing for any additional
rent payable as hereinabove provided shall not constitute a waiver of or in any
way impair the continuing obligation of Tenant to pay such additional rent
hereunder (provided such failure does not continue for two (2) years beyond the
expiration of the term of this Lease).
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MISCELLANEOUS
-------------
55. A. This Lease constitutes the entire agreement between the parties
hereto and no earlier statement or prior written matter shall have any force or
effect. Tenant agrees that it is not relying on any representations or
agreements other than those contained in this Lease. This agreement shall not be
modified or canceled except by written instrument subscribed by both parties.
The covenants, conditions and agreements contained in this Lease shall bind and
inure to the benefit of Landlord and Tenant and their respective heirs,
distributees, executors, administrators, successors and their permitted assigns.
B. This Rider modifies and supersedes certain provisions of the
printed portion of this Lease. In the event any term, covenant, condition or
agreement contained in this Rider to the Lease shall conflict or be inconsistent
with any term, covenant, condition or agreement contained in the printed portion
of this Lease, then the parties agree that the Rider provision shall prevail.
C. This Lease shall be construed without regard to any presumption
or other rule requiring construction against the party causing this Lease to be
drafted.
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ACM
---
56. Notwithstanding anything to the contrary contained in this Lease, in
the event of the existence of any asbestos or asbestos-containing material
(collectively, "ACM") within the Premises, Landlord shall (at its sole cost and
expense) remove, enclose, encapsulate or otherwise manage such ACM as required
by applicable law and shall use reasonable efforts to minimize interference with
Tenant's permitted use of the Premises in complying with its obligations
pursuant to said law, provided, however, that Tenant acknowledges and agrees
that all such efforts shall be performed on normal business days during normal
business hours, and provided to the extent that Tenant has not (i) disturbed
such ACM, (ii) caused such ACM to become friable by the performance of any work
or alterations in the Premises or (iii) installed same; in the event that any of
the foregoing occur, then Tenant shall remove, enclose, encapsulate or otherwise
manage such ACM as required by applicable law at its sole cost and expense.
Landlord shall provide Tenant with an ACP-5 certificate covering the Premises as
of the commencement of the term of this Lease.
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<PAGE>
EARLY ACCESS
------------
57. Upon the execution and delivery of this Lease by the parties
hereto and prior to the date set for the commencement of the term of this Lease,
provided Tenant is not in default of this Lease after notice and beyond the
expiration of any applicable cure period set forth herein, Tenant shall be
permitted access to the Premises, without rent or additional rent accruing, for
the purpose of completing, without limitation, the installation of Tenant's
telephone system, wiring and any alterations or improvements installed at
Tenant's sole cost and expense, except that Tenant shall not be permitted access
to the Premises for purposes of conducting its business therein, and provided
that from and after the date that Tenant is first granted access to the
Premises, Tenant shall comply fully with, and such access shall be governed by
and subject to all terms, covenants and conditions of this Lease.
37
<PAGE>
HAZARDOUS SUBSTANCES
--------------------
58. Notwithstanding anything contained herein to the contrary,
Landlord represents and warrants to Tenant that no proceeding has been
instituted and, to the best of Landlord's knowledge, no proceeding is
threatened, by any party or governmental body in any way relating to the
existence of substances in the Premises deemed to be hazardous as a matter of
law.
38
<PAGE>
INTERRUPTION OF SERVICES
------------------------
59. If Landlord fails to make any repair or provide any service
Landlord is obligated to provide under this Lease and as a result thereof,
Tenant shall be not able to use and shall have discontinued its occupancy of all
or any affected portion of the Premises for a period of thirty (30) consecutive
days or more after notice thereof to Landlord then, except as provided in
Article 10 hereof, Tenant shall be entitled to an abatement of rent with respect
to the Fixed Annual Rent and Additional Rent allocable to such portion of the
Premises which is not usable and is unoccupied for each day after said thirty
(30) consecutive day period until said repair is substantially completed or
services substantially restored by Landlord provided further, however, Tenant
shall not be entitled to an abatement of rent in the event that such failure
results from (i) any installation, alteration or improvement which is not
performed by Tenant in a good workmanlike manner; (ii) Tenant's failure to
perform its obligations hereunder; or (iii) the negligence or tortious conduct
of Tenant.
39
<PAGE>
FREIGHT ELEVATOR
----------------
Supplementing Article 4 of the Rules and Regulations:
60. No heavy or bulky materials including, but not limited to
furniture, office equipment, packages, or merchandise ("Freight Items") shall be
received in the Premises or Building by Tenant or removed from the Premises or
Building by Tenant except on Mondays through Fridays between the hours of 7:30
a.m. and 5:00 p.m. ("Freight Hours") and by means of the freight elevators only.
In the event that Tenant requires additional freight elevator service at hours
other than those set forth above, Tenant shall provide Landlord with at least
twenty-four (24) hours prior notice. In such event, Tenant agrees that it shall
pay to Landlord the charge prescribed for such additional freight service and
further agrees that, in the event that additional freight service is requested
for a weekend, the minimum charge prescribed by Landlord shall be for four (4)
hours. Any damage done to the Building or Premises by Tenant, its employees,
agents, servants, representatives and/or contractors in the course of moving any
Freight Items shall be paid by Tenant upon demand by Landlord. Notwithstanding
anything to the contrary contained in this Lease and the Rules and Regulations,
at the time Tenant commences or vacates occupancy of the Premises all Freight
Items and other personal property of Tenant shall be delivered to or removed
from the Building or Premises upon not less than 24 hours prior notice to
Landlord and at times prescribed by Landlord.
Tenant shall not be charged for its use of freight service during its
move into the Premises in connection with its initial occupancy thereof,
provided that such use is during normal Freight Hours and provided that Tenant
acknowledges and agrees that such use shall be on a non-exclusive, first-come,
first-served basis.
40
<PAGE>
LETTER OF CREDIT
----------------
61. At any time during the term of this Lease, Tenant shall have the
option to deposit with Landlord in substitution for or in lieu of the cash
security deposit, deposited with Landlord pursuant to Article 33 hereof
simultaneously with the execution of this Lease by Tenant, an unconditional,
irrevocable, negotiable commercial letter of credit in a sum equal to $47,477.00
(any such letter of credit deposited hereunder hereinafter called the "Credit"),
to be held and used under the security deposit provisions of the Lease. Any such
Credit shall be issued by a bank which is a member of the New York Clearing
House Association, naming Landlord (or its successor as Landlord) as beneficiary
and authorizing the beneficiary to draw on the bank in said amount, or any
portion thereof, available by the sight draft of the beneficiary (which may be
executed on behalf of the beneficiary by its agent), without presentation of any
other documents, statements or authorizations. The Credit shall have a term of
at least twelve (12) months, and it shall by its terms be renewed,
automatically, each year, by the bank, the last renewal of which shall be for a
term set to expire not earlier than the date occurring ninety (90) days
following the expiration of the term of this Lease, unless the bank gives
written notice to the beneficiary, at least forty-five (45) days prior to the
expiration date of the then existing Credit, that the bank elects that it not so
be renewed. The Credit shall be transferable. All transfer fees shall be payable
by Tenant. The bank shall further agree with drawers, endorsers, and all bona
fide holders that drafts drawn under and in compliance with the terms of the
Credit will be duly honored upon presentation to the bank at its main office
located in New York, New York. The Credit shall be subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision) International
Chamber of Commerce Publication No. 500.
B. If during the term of this Lease, the Credit and/or the proceeds
of all or part of said Credit become less than the full amount of the security
hereinabove required, then and in such event Tenant shall, upon demand, deposit
with Landlord the amount of any security/Credit theretofore used or applied by
Landlord pursuant to the terms hereof in order that Landlord shall have the full
security on hand at all times during the term of this Lease. If at the
expiration of the term of this Lease, Landlord holds all or part of said Credit,
and Tenant is not in default under any of the terms, covenants and conditions of
this Lease, then Landlord will turn over said Credit to Tenant or assign it to
the designee of Tenant.
C. It shall be the obligation of Tenant during the term of this
Lease to deliver to Landlord at least thirty (30) days prior to the expiration
date of the then existing Credit, a renewal or extension of said Credit or a
substitute Credit (each fully complying with the foregoing). If for any reason
Landlord has not received such renewal or extension or substitute Credit within
twenty (20) days prior to the expiration date of the then existing Credit, then
and in such event Landlord shall be free to draw on the Credit and hold and use
and apply the proceeds thereof in accordance with the security deposit
provisions of this Lease. Tenant agrees to reimburse Landlord for any reasonable
attorneys' fees incurred by Landlord in connection with reviewing the Credit and
any renewals, extensions or substitutions therefor, ensuring that the provisions
of the Credit and any renewals, extensions or substitutions therefor comply with
the provisions of this Article, drawing down upon the proceeds of Credit, or any
renewals, extensions or substitution therefor, or ensuring that the
security/Credit is maintained as required under this Lease.
41
<PAGE>
D. Notwithstanding anything contained herein to the contrary, in the
event that any Credit hereunder does not have affixed to it a specimen form for
use in connection with the transfer of the Credit (a "Transfer Form"), then in
the event that Landlord intends to transfer the Credit Tenant shall, at its sole
cost and expense no later than two (2) business days after its receipt of
written request from Landlord, obtain and deliver to Landlord a Transfer Form
from the issuer of the Credit. Tenant agrees that if Tenant fails to so obtain
and deliver to Landlord a Transfer Form within said two (2) business days, then
in such event, Landlord shall be entitled to immediately draw down upon the
entire Credit or any remaining balance thereof, as the case may be, and hold and
use the proceeds thereof in accordance with the security deposit provisions of
this Lease. In the event that less than the entire original face amount of the
Credit is available to Landlord, Tenant shall, no later than two (2) business
days after its receipt of written notice thereof from Landlord, replenish its
security deposit by depositing with Landlord a cash payment in the amount of the
deficiency between (i) the amount of the Credit available to Landlord and (ii)
the original face amount of the Credit. Tenant acknowledges and agrees that its
failure to so replenish the security deposit within the time frame set forth
herein shall constitute a material default under this Lease.
42
<PAGE>
CLEANING SPECIFICATIONS
-----------------------
A) GENERAL CLEANING - NIGHTLY
--------------------------
- - Dust sweep all stone, ceramic tile, marble terrazzo, asphalt tile,
linoleum, rubber, vinyl and other types of flooring
- - Carpet sweep all carpets and rugs four (4) times per week
- - Vacuum clean all carpets and rugs, once (1) per week
- - Police all private stairways and keep in clean condition
- - Empty and clean all wastepaper baskets, ash trays and receptacles; damp
dust as necessary
- - Clean all cigarette urns and replace sand or water as necessary
- - Remove all normal wastepaper and tenant rubbish to a designated area in the
premises. (Excluding cafeteria waste, bulk materials, and all special
materials such as old desks, furniture etc.)
- - Dust all furniture, and window sills as necessary
- - Dust clean all glass furniture tops
- - Dust all chair rails, trim and similar objects as necessary
- - Dust all baseboards as necessary
- - Wash clean all water fountains
- - Keep locker and service closets in clean and orderly condition
B) LAVATORIES-NIGHTLY (EXCLUDING PRIVATE & EXECUTIVE LAVATORIES)
-------------------------------------------------------------
- - Sweep and mop all flooring
- - Wipe clean all mirrors, powder shelves and brightwork, including
flushometers, piping toilet seat hinges
<PAGE>
CLEANING SPECIFICATIONS
-----------------------
A) GENERAL CLEANING - NIGHTLY
--------------------------
- - Dust sweep all stone, ceramic tile, marble terrazzo, asphalt tile,
linoleum, rubber, vinyl and other types of flooring
- - Carpet sweep all carpets and rugs four (4) times per week
- - Vacuum clean all carpets and rugs, once (1) per week
- - Police all private stairways and keep in clean condition
- - Empty and clean all wastepaper baskets, ash ways and receptacles; damp dust
as necessary
- - Clean all cigarette urns and replace sand or water as necessary
- - Remove all normal wastepaper and tenant rubbish to a designated area in the
premises. (Excluding cafeteria waste, bulk materials, and all special
materials such as old desks, furniture etc.)
- - Dust all furniture, and window sills as necessary
- - Dust clean all glass furniture tops
- - Dust all chair rails, trim and similar objects as necessary
- - Dust all baseboards as necessary
- - Wash clean all water fountains
- - Keep locker and service closets in clean and orderly condition
B) LAVATORIES-NIGHTLY (EXCLUDING PRIVATE & EXECUTIVE LAVATORIES)
-------------------------------------------------------------
- - Sweep and mop all flooring
- - Wipe clean all minors, powder shelves and brightwork, including
flushometers, piping toilet scat hinges
<PAGE>
- - Wash and disinfect all basins, bowls and urinals
- - Wash both sides of all toilet seats
- - Dust all partitions, tile walls, dispensers and receptacles
- - Empty and clean paper towel and sanitary disposal receptacles
- - Fill toilet tissue holders, soap dispensers and towel dispensers; materials
to be furnished by Landlord
- - Remove all wastepaper and refuse to designated area in the premises
C) LAVATORIES-PERIODIC CLEANING (EXCLUDES PRIVATE & EXECUTIVE LAVATORIES)
----------------------------------------------------------------------
- - Machine scrub flooring as necessary
- - Wash all partitions, tile walls, and enamel surfaces periodically, using
proper disinfectant when necessary
D) DAY SERVICES - DUTIES OF THE DAY PORTERS
----------------------------------------
- - Police ladies' restrooms and lavatories, keeping them in clean condition
- - Fill toilet dispensers; materials to be furnished by Landlord
- - Fill sanitary napkin dispensers; materials to be furnished by Landlord
E) SCHEDULE OF CLEANING
--------------------
- - Upon completion of the nightly chores, all lights shall be turned off,
windows closed, doors locked and offices left in a neat and orderly
condition
- - All day, nightly and periodic cleaning services as listed herein, to be
done five nights each week, Monday through Friday, except Union and Legal
Holidays
- - All windows from the 2nd floor to the roof will be cleaned inside out
quarterly, weather permitting
<PAGE>
[FLOOR PLAN APPEARS HERE]
<PAGE>
LEASE MODIFICATION AGREEMENT
----------------------------
LEASE MODIFICATION AGREEMENT (this "Agreement") dated as of the 1
day of January 2000 between SLG Graybar Sublease LLC, having an office in care
of SL Green Realty Corp., 420 Lexington Avenue, New York, New York 10170
(hereinafter referred to as "Landlord") and PHASE2MEDIA, INC., (hereinafter
referred to as "Tenant") formerly known as CKG Media.com, Inc., d/b/a
Phase2Media. (hereinafter "CKG") having an office at 420 Lexington Avenue, New
York, New York 10170.
W I T N E S S E T H:
-------------------
WHEREAS, Landlord and CKG entered into that certain lease agreement
dated as of June 28, 1999, covering premises more particularly described in said
lease agreement (the "Demised Premises") in the building known as the Graybar
Building, 420 Lexington Avenue, New York, New York ("the Building"), under the
terms and conditions contained therein (hereinafter referred to as the "Lease");
and
WHEREAS, Tenant desires to and Landlord is agreeable to extend the
term of the Lease for the period commencing as of September 1, 2002 and expiring
December 31, 2004 (the "Extended Term"), and
WHEREAS, Tenant desires to and Landlord is agreeable to add to the
Demised Premises certain space on the 26th floor of the Building known as Room
2635-42 approximately as indicated by hatch marks on the floor plan annexed
hereto and made a part hereof as Exhibit A, the rentable square foot area of
which Landlord and Tenant acknowledge and agree shall be deemed to be 4,147
rentable square feet (the "Additional Space"), and
1
<PAGE>
WHEREAS, Tenant and Landlord wish to modify the Lease as set forth
below,
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Term: The term of the Lease shall be extended for the period of
----
the Extended Term and Tenant shall pay to Landlord fixed annual rent for the
Extended Term for the Demised Premises at the annual rate of (i) $598,206.00 per
annum for the period commencing September 1,2002 through December 31, 2002 and
(ii) $640,935.00 per annum for the period commencing January 1, 2003 through
December 31, 2004.
2. Addition of Space. A. The Additional Space is hereby added to the
-----------------
Demised Premises effective as of January 1, 2000 (the "Additional Space
Commencement Date") under the same terms, covenants and conditions of the Lease,
except as specifically modified by this Agreement. Notwithstanding anything
contained herein to the contrary, Landlord and Tenant acknowledge and agree that
if Landlord shall not have delivered to Tenant possession of the Additional
Space on or before November 1, 2000, then Tenant may within thirty (30) days
thereafter unequivocally and unconditionally notify Landlord that Tenant elects
to terminate and cancel this Agreement effective as of the date which is thirty
(30) days after the delivery of the notice (the "Cancellation Date"), provided,
however, that the Cancellation Date shall be extended by one (1) day for each
day of delay by Landlord which is due to any acts or omissions of Tenant. If
Tenant duly exercises such option, this Agreement shall be terminated and
neither Landlord nor Tenant shall have any further liability hereunder except
that the representations and indemnifications contained in Article 15 hereof
shall survive and any additional security deposited hereunder shall be returned
to Tenant. However, in the event that Landlord gives
2
<PAGE>
Tenant notice that the Additional Space will be delivered to Tenant prior to the
Cancellation Date, and same occurs prior to the Cancellation Date then, in such
event, Landlord's notice shall negate and nullify Tenant's notice.
B. Effective as of the Additional Space Commencement Date in order
to reflect the addition of the Additional Space to the Demised Premises: (i) the
fixed annual rent payable under the Lease (exclusive of electricity) shall be
increased by the sum of (a) $174,174.00 per annum for the period commencing on
the Additional Space Commencement Date through December 31, 2002; the first
monthly installment of which shall be paid to Landlord by Tenant upon its
execution of this Agreement and (b) by the sum of $186,615.00 per annum for the
period commencing January 1, 2003 through December 31, 2004; and (ii) the
Percentage, as defined in Article 24(b)(ii) of the Lease, shall be amended and
increased by the percentage .3728% to the Percentage 1.653%; and (iii) the
deemed rentable square foot area of the Demised Premises shall be amended and
increased by 4,147 deemed rentable square feet to 18,390 deemed rentable square
feet for purposes of Articles 24(a) and 41(B) of the Lease; and (iv) it shall be
a material obligation of Tenant under this Agreement and the Lease that it shall
increase the security deposited with Landlord pursuant to Article 33 of the
Lease by means of cash payment or amendment to the Credit (as defined in Article
61 of the Lease) in the sum of $29,029.00 to be delivered to Landlord within ten
(10) days of the execution and delivery of this Agreement by the parties hereto,
to be held by Landlord in accordance with the provisions of Article 33 of the
Lease, so that the aggregate amount of security deposited with Landlord shall be
$76,506.00 and, accordingly, the amount of the Credit which Tenant may
substitute in place and stead of the security deposit, pursuant to said Article
61 shall also be increased by the sum of
3
<PAGE>
$29,029.00 so that the amount of said Credit shall be $76,506.00; and (v) Tenant
shall pay to Landlord additional rent for the Additional Space based upon the
Porter's Wage Escalation contained in Article 54 of the Lease, except that for
purposes of the Additional Space (a) the "rentable square foot area of the
demised premises" set forth in Section 54(a)(ii) shall be deemed to be 4,147
square feet, (b) the "base year" set forth in Section 54(a)(i) shall be the
calendar year 2000, (c) the dates "October 1, 1997" and "October 1, 1998" set
forth in Section 54(a)(iii)(4) shall be changed to "October 1, 1998" and
"October 1, 1999", respectively, and (d) the comparative year 2000", set forth
in Section 54(c) shall be changed to "comparative year 2001".
3. Landlord's Additional Space Work (a) Tenant has examined and
--------------------------------
agrees to accept the Additional Space in its existing condition and state of
repair and understands that no work is to be performed by Landlord, except that
Landlord's designated, wholly owned affiliate Emerald City Construction Corp.,
with reasonable dispatch, subject to delay by causes beyond its control or by
the action or inaction of Tenant, shall perform the following work at Landlord's
expense, subject to the provisions of (b), below:
(i) remove the corridor entrance door to the Additional Space
in a building standard manner utilizing building standard
materials;
(ii) seal the opening which is left by the removal of the
corridor entrance door as set forth in Section (i) above in
a building standard manner utilizing building standard
materials;
(iii) patch the corridor as a result of the removal of the
corridor by Landlord as set forth in section (i) above to
match the presently building standard finish in a building
standard manner utilizing building standard materials;
(iv) reinstall any radiator convector covers in the Additional
Space, as necessary in a building standard manner utilizing
building standard materials;
4
<PAGE>
(v) deliver the presently existing air conditioning
mechanical equipment servicing the Additional Space,
exclusive of duct work, in good working order within
five (5) days of the Additional Space Commencement Date;
(vi) deliver the presently existing light fixtures located in
the Additional Space in good working order within five
(5) days of the Additional Space Commencement Date;
(vii) deliver the presently existing windows located in the
Additional Space in good working order within five (5)
days of the Additional Space Commencement Date.
The performance by Landlord of the above work ("Landlord's
Additional Space Work") is expressly conditioned upon compliance by Tenant with
all the terms and conditions of the Lease and this Agreement, including payment
of rent. Landlord shall use reasonable efforts to complete Landlord's Additional
Space Work within thirty (30) days of the Additional Space Commencement Date,
except that Landlord shall complete those items of Landlord's Additional Space
Work as set forth in subsections (v), (vi) and (vii) above in accordance with
the provisions set forth herein.
(b) Any changes in or additions to Landlord's Additional Space Work
which shall be consented to by Landlord as provided in Article 7 of the Lease,
and further changes in or additions to the Additional Space after Landlord's
Additional Space Work has been completed which shall be so consented to if made
at Tenant's request by Landlord, or its agents, but shall be paid for by Tenant
promptly when billed at cost plus 1 1/4% for insurance, 10% for overhead and 10%
--------------------------------------------------------
for general conditions, and in the event of the failure of Tenant so to pay for
- ----------------------
said changes or additions, Landlord at its option may consider the cost thereof,
plus the above percentages, as
- --------------------------
5
<PAGE>
additional rent payable by Tenant and collectible as such hereunder, as part of
the rent for the next ensuing months.
(c) If Landlord's Additional Space Work is not substantially
completed and is delayed by acts, omissions or changes made or requested by
Tenant, its agents, designers, architects or any other party acting or
apparently acting on Tenant's behalf, then notwithstanding the foregoing, the
term of this Agreement, Tenant's obligation to pay rent and additional rent
under this Agreement, and the rent credit in accordance with Article 5 hereof,
shall nevertheless commence on January 1, 2000.
(d) Landlord's Additional Space Work shall be deemed to be
substantially completed notwithstanding that (i) minor or non-material details
of construction, mechanical adjustment or decoration remain to be performed,
provided, that said "Punch List Items" shall be completed by Landlord within a
reasonable time thereafter or (ii) a portion of Landlord's Additional Space Work
is incomplete because construction scheduling requires that such work be done
after other work to be done by or on behalf of Tenant is completed.
(e) Tenant acknowledges and agrees that Landlord may be performing
Landlord's Additional Space Work or portions thereof simultaneously with
Tenant's performance of its initial alteration work in the Additional Space, and
that Tenant shall use reasonable efforts to coordinate with Landlord's
affiliate, Emerald City Construction Corp., any such work performed by or on
behalf of Tenant in the Additional Space.
4. Landlord's Contribution. (A) With respect to Tenant's
-----------------------
installation of alterations, installations, decorations and improvements in the
Additional Space to prepare the same for Tenant's initial occupancy thereof
("Tenant's Alterations"), within forty-five (45) days
6
<PAGE>
of Tenant's receipt of a fully executed counterpart of this Lease, Tenant shall
submit full architectural and engineering plans and specifications to Landlord
for Landlord's approval ("Tenant's Plans"). All such construction plans and
specifications and all such work shall be effected in accordance with Article 7,
as supplemented, and the other provisions of the Lease. If and so long as Tenant
is not in default of this Agreement and the Lease after notice in accordance
with the terms of this Lease (in which event Tenant's rights under this Article
shall not be extinguished but, rather, suspended through the earlier of the cure
by Tenant and the expiration of the applicable cure period) of any of the terms,
covenants and conditions of the Lease then, subject to and in accordance with
the provisions of this Article, Landlord will contribute a sum up to but not
exceeding the sum of $49,764.00 to be applied to the costs for labor and
materials for the portion of Tenant's Alterations which constitute permanent
leasehold improvements (including paint, carpeting, wall coverings and telephone
wiring) made in the Additional Space prior to Tenant's initial occupancy thereof
("Landlord's Contribution"). Without limitation, for purposes of this Article,
-----------------------
permanent leasehold improvements shall be deemed not to include, and Landlord's
Contribution shall not be applied to the cost of professional fees, trade
fixtures, equipment, filing fees or interest relating to or in connection with
Tenant's Alterations.
(B) Tenant may from time to time during the performance of
Tenant's Alterations submit to Landlord contractor's invoices for work completed
in connection with Tenant's Alterations. The submission must include the
following documents covering the invoiced work and materials.
1. Contractor's Application For Payment (AIA G702 - See Exhibit B).
7
<PAGE>
2. Lien Waiver from Contractor and from subcontractors or suppliers
who have supplied materials or performed work in the Premises (AIAG7O6A - See
Exhibit B).
3. Receipt for Payment from Contractor and from subcontractors or
suppliers who have supplied materials or performed work in the Premises (Payment
Receipt - See Exhibit B)
4. Architect's Certificate For Payment (AIAG7O2 - See Exhibit B).
Provided that Tenant is not in default under any of the terms, covenants,
provisions and conditions of this Lease after notice in accordance with the
terms of this Lease (in which event Tenant's rights under this Article shall not
be extinguished but, rather, suspended through the earlier of the cure by Tenant
and the expiration of the applicable cure period), Landlord shall make payment
to Tenant (collectively, the "Progress Payments") no more than ten (10) business
days after Tenant has completed all requirements set forth herein for the
funding therefor, ninety (90%) percent of the aggregate amount for which
invoices have been submitted (including any retainage specified in such
invoices). In no event shall Progress Payments exceed ninety (90%) percent of
the Landlord's Contribution in the aggregate.
(C) The balance of the Landlord's Contribution shall be
payable within ten (10) business days after the substantial completion of
Tenant's Alterations provided that all of the following conditions have been
met:
(1) Tenant is not then in default under the terms, covenants and
conditions of this Agreement and the Lease, after notice in accordance with the
terms of this Lease (in which event Tenant's rights under this Article shall not
be extinguished but, rather, suspended through the earlier of the cure by Tenant
and the expiration of the applicable cure period);
8
<PAGE>
(2) Tenant shall have substantially completed all construction and
installations substantially in accordance with Tenant's Plans as approved by
Landlord;
(3) Tenant shall have submitted to Landlord a breakdown of Tenant's
final and total construction costs, detailed by contractor and major
subcontractors and suppliers;
(4) The submission for the balance of Landlord's Contribution is
accompanied by the same documentation required under Section (B) 1, 2, 3, and 4
of this Article for the remaining monies due, except that documents will be
marked "Final". In addition, the submission must include a letter of completion
of Tenant's Alterations from the City of New York Department of Buildings, if
required by applicable law.
(D) It is expressly understood and agreed that if the amount
of Landlord's Contribution is less than the cost of Tenant's Alterations, Tenant
shall remain solely responsible for the payment and completion of, and shall
complete at its sole cost and expense, Tenant's Alterations. Any portion of
Landlord's Contribution not credited (or disbursed) shall be retained by
Landlord.
(E) Landlord consents in concept only and as part of Tenant's
Alterations, to Tenant's installation of a recessed intercom system located
outside of and adjacent to the entrance door of the Demised Premises provided,
however, that Tenant shall first submit plans and specifications to Landlord for
the installation of same in accordance with the provisions hereof for Landlord's
prior written approval and provided that all other aspects of construction and
installation are performed in accordance with the terms of this Agreement and
the Lease. Said plans and specification shall include, but not be limited to,
the location of the recessed intercom system on the area adjacent to the
entrance door of the Demised Premises and the type,
9
<PAGE>
style and method installation and materials to be utilized by Tenant, its agents
or servants in the installation of same.
5. Rent Credit. A. If and so long as Tenant is not in default under
-----------
the Lease or this Agreement after notice and beyond any grace period, Tenant
shall be entitled to a rent credit in the amount of $29,029.00, to be applied
against the first (1/st/) and second (2/nd/) monthly installments of fixed
annual rent (without electricity) accruing under this Agreement with respect to
the Additional Space from and after the Additional Space Commencement Date.
B. Anything contained hereinabove to the contrary
notwithstanding, if Tenant at any time during the term of the Lease, breaches
any material covenant, condition or provision of the Lease or this Agreement and
fails to cure such breach within any applicable grace period, and provided that
this Lease is terminated by Landlord because of such material default, then, in
addition to all other damages and remedies herein provided and to which Landlord
may be otherwise entitled, Landlord shall also be entitled to the repayment in
full of any rent credit theretofore enjoyed by Tenant, which repayment Tenant
shall make upon demand therefor provided, however, that the amount of such rent
credit to be repaid hereunder shall be multiplied by a fraction, the numerator
of which is the number of months, including portions thereof, remaining in the
originally stated term of this Lease following such breach, and the denominator
of which is 60.
6. Compliance with Laws. Landlord shall use reasonable efforts, at
--------------------
its sole cost and expense to cure within thirty (30) days after the Additional
Space Commencement Date, any New York City Building Department violations
pertaining to the Additional Space which are a matter of public record as of the
Additional Space Commencement Date. In connection with
10
<PAGE>
the foregoing Landlord shall use reasonable efforts to minimize interference
with Tenant's business, in the Additional Space, provided, however, that Tenant
acknowledges and agrees that all such efforts shall be performed on normal
business days during normal business hours.
7. Freight Elevator. Tenant shall not be charged for its use of
----------------
freight elevator service in connection with Tenant's initial single phase move
into the Additional Space, provided that such use occurs during normal Freight
Hours and provided that Tenant acknowledges that such use shall be on a
non-exclusive first come, first served basis.
8. ACM; Hazardous Substances. Notwithstanding anything contained
-------------------------
herein to the contrary, Articles 56 and 58 of the Lease shall apply to the
Additional Space and shall be incorporated herein for such purpose as though set
forth herein verbatim.
9. Existing Tenant. Landlord represents and Tenant acknowledges and
---------------
agrees that the Additional Space is presently occupied by another tenant,
Creative Business Consultants/Axelrod Corporate Services, Inc., (the "Existing
Tenant") under a lease agreement dated November 4, 1993, between Graybar
Building Company, predecessor in interest to Landlord, as landlord, and the
Existing Tenant, as tenant (the "Existing Lease"). Pursuant to the Existing
Lease, the Existing Tenant is required to surrender to Landlord possession of
the Additional Space upon the expiration of the term of the Existing Lease,
December 31, 1999, pursuant to the terms of the Existing Lease. Landlord
covenants and agrees that Landlord shall not renew or extend the period of time
that the Existing Tenant is permitted to remain in the Additional Space.
Landlord and Tenant agree that if the Existing Tenant does not vacate on or
before the time required by the Existing Lease, and as a result Landlord shall
be unable to deliver possession of the Additional Space to Tenant as required by
this Agreement then Landlord shall
11
<PAGE>
not be subject to any liability for such failure, and this Agreement, subject to
the provisions of Article 2A hereof, shall stay in full force and effect without
extension of the term, however, the Tenant's obligation to pay rent hereunder
shall not commence and any rent credits to which Tenant is entitled hereunder
shall be similarly delayed until possession of the Additional Space is delivered
to Tenant, subject to the provisions of Article 16 of the Lease. In the event
that the Existing Tenant fails to surrender to Landlord and vacate the
Additional Space at the scheduled expiration of the Existing Lease, Landlord
shall promptly commence and diligently prosecute to completion appropriate
summary proceedings in order to evict the Existing Tenant therefrom and recover
lawful possession thereof. In such event, upon Landlord's recovery of actual and
lawful possession of the Additional Space, Landlord shall furnish Tenant with
notice thereof and deliver possession to Tenant promptly thereafter. The
provisions of this Article and this Agreement shall apply with regard to the
timing of Landlord's delivery of possession of the Additional Space, subject to
the provisions of Article 2A hereof.
10. Additional Provisions. As of the date hereof the Lease shall be
---------------------
modified so that the language set forth below shall be added to the Lease as
Article 62 thereof.
LANDLORD'S RIGHT TO PARTICIPATE IN EQUITY FINANCING
---------------------------------------------------
62. As and for a further inducement to Landlord to enter into this
Lease, Landlord or its designee, which designee shall (i) be an
"accredited investor" as defined by the Securities Act of 1933, as
amended; and (ii) be an affiliate of, or managed by Landlord; and (iii)
consist of no more than five (5) participants be they individuals and/or
entities, each of whom shall be an "accredited investor" as defined by the
Securities Act of 1933, as amended (such designee hereinafter referred to
as the " Designee") may be afforded the opportunity, at the sole and
absolute discretion of Tenant, on or before January 31, 2000, to invest
the amount of $l00,000.00 in Tenant's currently contemplated equity
financing pursuant to which Tenant intends to issue shares of its Series D
convertible preferred stock valued at approximately $1.529 per share (the
"Series D Financing"). Any such investment by Landlord or the Designee in
the Series D
12
<PAGE>
Financing shall be on the same terms and conditions upon which any other
investors in the Series D Financing are investing. The Series D Financing
is currently scheduled to close on or about January 12, 2000. It is the
present intention of Tenant to afford Landlord or the Designee the
opportunity to invest in the Series D Financing as contemplated above.
In connection with the foregoing, Tenant shall furnish to Landlord
upon the full execution and delivery of this Agreement, the then currently
proposed investment documentation relative to the proposed Series D
Financing and thereafter shall promptly furnish to Landlord any
modifications and supplements thereto which are furnished to other
investors in the Series D Financing, which shall be delivered to Landlord
by e-mail, addressed to [email protected].
In the event that Tenant affords Landlord or the Designee the
opportunity to invest in the Series D Financing, which shall be
accomplished by hand delivery of notice from Tenant to Landlord in care of
Andrew Mathias, SL Green Realty Corp., 420 Lexington Avenue, Suite 1900,
New York, New York 10170, Landlord or the Designee as the case may be,
shall execute and return to Tenant the final investment documentation for
the Series D Financing by such date as the Tenant shall so advise
Landlord, and simultaneously therewith, shall also deliver the sum of
$100,000.00, which shall be in the form of a bank, cashier's or certified
check made payable to the order of Tenant or by wire transfer to an
account designated by Tenant. Tenant shall endeavor to give Landlord the
aforementioned notice in a manner so as to give Landlord as much time as
reasonably possible to decide whether Landlord or the Designee wishes to
participate in the Series D Financing, provided however, that Landlord
expressly acknowledges and agrees that the timing of Tenant's notice to
Landlord regarding the opportunity of Landlord or the Designee to
participate in the Series D Financing may result in Landlord having as
little as 24 hours in which to determine whether Landlord or the Designee
wish to participate in the Series D Financing. Tenant expressly
acknowledges and agrees that in the event Tenant affords Landlord the
opportunity to so invest, Landlord may decide that neither it nor the
Designee shall participate in the Series D Financing for any reason
whatsoever, and that neither Landlord nor any Designee is obligated to
participate in the Series D Financing. Similarly, Landlord expressly
acknowledges and agrees that Tenant shall be under no obligation
whatsoever to afford Landlord or the Designee the opportunity to
participate in the Series D Financing, and accordingly, Tenant may
determine not to afford Landlord or the Designee the opportunity to
participate in the Series D Financing for any reason whatsoever. In the
event that, prior to February 1, 2000, neither Landlord nor any Designee
participates in the Series D Financing for any reason whatsoever
(including but not limited to Tenant's decision not to afford Landlord or
the Designee the opportunity to participate in the Series D Financing, or
Landlord, having been so afforded the opportunity, decides that neither it
nor any Designee shall participate), then on or before February 10, 2000,
as and for additional security hereunder, in addition to the security
deposit held by Landlord under this Lease, Tenant shall cause to be added
to
13
<PAGE>
such security deposit hereunder the sum of $58,058.00, by means of cash
payment or amendment to the Credit (as that term is defined in Article 61
of the Lease) to be held by Landlord in accordance with the terms and
provisions of Article 33 of this Lease. In the event that Tenant fails to
timely and fully provide Landlord with the additional security as set
forth in the immediately preceding sentence, subject to and in accordance
with the provisions of this Article, Tenant shall be in material default
of this Lease.
11. Successors/Assigns. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties and their respective successors and
permitted assigns.
12. Entire Agreement.
----------------
(a) This agreement represents the entire understanding between
the parties with regard to the matters addressed herein and may only be modified
by written agreement executed by all parties hereto. All prior understandings or
representations between the parties hereto, oral or written, with regard to the
matters addressed herein, other than the Lease, are hereby merged herein.
(b) All oral or written statements, representations, promises,
understandings and agreements of Landlord and Tenant are merged into and
superseded by this Agreement, which alone fully and completely expresses their
understanding with regard to the transaction which is the subject of this
Agreement. Tenant acknowledges that neither Landlord nor any representative or
agent of Landlord has made any representation or warranty, express or implied,
as to the physical condition, state of repair, layout, footage or use of the
Demised Premises or any matter or thing affecting or relating to the Demised
Premises except as specifically set forth in this Agreement. Tenant has not been
induced by and has not relied upon any statement, representation or agreement,
whether express or implied, not specifically set forth in this Agreement. Tenant
shall not be liable or bound in any manner by any oral or written
14
<PAGE>
statement, broker's "set-up"," representation, agreement or information
pertaining to the Demised Premises or this Agreement furnished by any real
estate broker, agent, servant, employee or other person, unless specifically set
forth herein, and no rights are or shall be acquired by Tenant by implication or
otherwise unless expressly set forth herein.
13. Effectiveness. This Agreement shall not be binding upon Landlord
-------------
and Tenant until executed and delivered by both Landlord and Tenant.
14. Ratification. Except as specifically modified herein, all other
------------
terms, covenants and conditions of the Lease are and shall remain in full force
and effect and are hereby ratified and confirmed.
15. No Brokers/Indemnification: (A). Tenant warrants that it has not
--------------------------
dealt with any broker, agent or finder in connection with this Agreement other
than SL Green Leasing, Inc., and Insignia/ESG, Inc. (collectively, the
"Brokers"). Tenant hereby indemnifies and agrees to defend and hold Landlord,
its agents, servants and employees harmless from any suit, action, proceeding,
controversy, claim or demand whatsoever at law or in equity that may be
instituted against Landlord by anyone other than the Brokers who claimed to have
dealt with Tenant for recovery of compensation or damages for procuring this
Agreement or by reason of a breach or purported breach of the representations
and warranties contained herein.
B. Landlord represents and warrants to Tenant that it did not
consult or negotiate with any broker, finder, or consultant with regard to the
Additional Space other than the Brokers, and that no other broker, finder or
consultant participated in procuring this Agreement. Landlord hereby indemnifies
and agrees to defend and hold Tenant, its agents, servants and employees
harmless from any suit, action, proceeding, controversy, claim or
15
<PAGE>
demand whatsoever at law or in equity that may be instituted against Tenant by
those who dealt with Landlord for recovery of compensation or damages for
procuring this Agreement or by reason of a breach or purported breach of the
representations and warranties contained herein. Landlord covenants that it
shall pay any sums due SL Green Leasing, Inc., and Insignia/ESG, Inc., in
connection with this Agreement pursuant to separate agreements.
16. Miscellaneous.
-------------
(a) The captions in this Agreement are for convenience only
and are not to be considered in construing this agreement.
(b) This Agreement shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Agreement to be drafted.
(c) Terms used in this Agreement and not otherwise defined
herein shall have the respective meanings ascribed thereto in the Lease.
(Balance of Page Intentionally Left Blank)
16
<PAGE>
(d) If any provision of this agreement or its application to any person or
circumstances is invalid or unenforceable to any extent, the remainder of
this agreement, or the applicability of such provision to other persons or
circumstances, shall be valid and enforceable to the fullest extent
permitted by law and shall be deemed to be separate from such invalid or
unenforceable provisions and shall continue in full force and effect.
SLG GRAYBAR SUBLEASE LLC, a New York
limited liability company
By: SLG Graybar Sublease Corp., a New York
corporation, its Managing Member
By: /s/ [ILLEGIBLE]
--------------------------------------
Name: [ILLEGIBLE]
Title: EVP
PHASE2MEDIA, INC.
By: /s/ Richard S. Nachmins
--------------------------------------
Name: Richard S. Nachmins
Title: CFO
17
<PAGE>
EXHIBIT A
[FLOOR PLAN APPEARS HERE]
<PAGE>
SLG GRAYBAR SUBLEASE LLC
420 Lexington Avenue
New York, New York 10170
February 1, 2000
Mr. Richard Nachmias
Chief Financial Officer
Phase2Media, Inc.
420 Lexington Avenue, Suite 2643-55
New York, New York 10170
Re: Lease agreement (hereinafter the "Lease") between SLG Graybar
Sublease LLC, as landlord ("Landlord") and Phase2Media, Inc., f/k/a
CKG Media.com, Inc., d/b/a Phase2Media, as tenant ("Tenant"), as
modified by that certain lease modification agreement dated January
1, 2000, between Landlord and Tenant (hereinafter referred to as the
"Lease Modification"); Premises: 420 Lexington Avenue, Rooms
2635-42 and 2643-55, New York, New York 10170
--------------------------------------------------------------------
Dear Mr. Nachmias:
By this letter we seek to confirm our mutual understanding whereby Landlord
and Tenant agree to modify the Lease Modification and, in turn, the Lease as
follows.
Effective immediately, in Article 2(B)(iv) of the Lease Modification, the
phrase: "... to be delivered to Landlord within ten (10) days of the execution
and delivery of this Agreement..." is deleted in its entirety and the phrase:
"... to be delivered on or before February 14, 2000..." shall be substituted in
its place and stead.
Further, notwithstanding anything to the contrary set forth in Article 62
of the Lease, Tenant hereby confirms and covenants to Landlord, that in the
event that Tenant shall effect a Supplemental Closing (as such term is defined
in Section 1 of the Subscription and Purchase Agreement dated as of January 19,
2000 between Tenant and the Investors listed on Schedule I attached thereto, a
copy of which has been previously provided to Landlord) that Landlord or its
Designee, as said term is defined in Article 62 of the Lease, shall be permitted
to participate in any such Supplemental Closing in the manner set forth in
Article 62 of the Lease. Landlord acknowledges that Tenant shall not be
obligated to effect a Supplemental Closing and that the decision to effect any
such Supplemental Closing shall be at Tenant's sole discretion. In the event
that a Supplemental Closing does not close on or before February 9, 2000 for any
reason whatsoever then, on or before February 14, 2000, as and for additional
security under the
<PAGE>
Lease, and in addition to the security deposit held by Landlord under the Lease,
Tenant shall cause to be added to such security deposit hereunder the sum of
$58,058.00 by means of cash payment or amendment to the Credit (as that term is
defined in Article 61 of the Lease) to be held by Landlord in accordance with
the terms and provisions of Article 33 of the Lease. In the event that Tenant
fails to timely and fully provide Landlord with the additional security as set
forth in the immediately preceding sentence subject to and in accordance with
the provisions of this agreement, Tenant shall be in material default of this
Lease. Notwithstanding anything contained herein to the contrary, in the event
that a Supplemental Closing does not occur prior to February 9, 2000 but,
instead occurs subsequent to February 9, 2000 but prior to January 1, 2001,
Landlord shall be entitled to participate in any such Supplemental Closing in
the manner set forth in Article 62 of the Lease provided, however that,
notwithstanding any participation by Landlord in same, Landlord shall have no
obligation to return to Tenant the additional security posted by Tenant in
accordance with the provisions of this paragraph.
We each hereby ratify and confirm all terms, covenants and conditions of
the Lease not specifically modified herein, which shall each remain in full
force and effect. This letter sets forth the entire understanding between us as
to the matters set forth herein, and may only be modified in a writing signed by
Landlord and Tenant.
Kindly execute the enclosed copy of this letter at the bottom and return it
to our office as soon as possible in order to confirm your agreement with the
foregoing.
Very truly yours,
SLG GRAYBAR SUBLEASE
LLC, a New York limited
liability company
By: SLG Graybar Sublease
Corp., a New York
corporation, its Managing
Member
By: /s/ Benjamin P. Feldman
----------------------------
Benjamin P. Feldman
Executive Vice President
READ, UNDERSTOOD AND AGREED TO:
PHASE2MEDIA, INC.
By: /s/ Richard Nachmias
----------------------
Richard Nachmias
Chief Financial Officer
<PAGE>
SECOND LEASE MODIFICATION AGREEMENT
-----------------------------------
LEASE MODIFICATION AGREEMENT (this "Agreement") dated as of the
_____ day of February 2000 between SLG Graybar Sublease LLC, having an office in
care of SL Green Realty Corp., 420 Lexington Avenue, New York, New York 10170
(hereinafter referred to as "Landlord") and PHASE2MEDIA, INC., a Delaware
corporation (hereinafter referred to as "Tenant") formerly known as CKG
Media.com, Inc. d/b/a Phase2Media, (hereinafter "CKG") having an office at 420
Lexington Avenue, New York, New York 10170.
WITNESSETH:
----------
WHEREAS, Landlord and CKG entered into that certain lease agreement
dated as of June 28, 1999, covering premises more particularly described in said
lease agreement (the "Original Demised Premises") which lease agreement was
modified by that certain lease modification agreement entered dated as of
January 1, 2000 (the "First Amendment") between Landlord and Tenant to add
additional premises to the Original Demised Premises (the Original Demised
Premises with such additional premises are hereinafter referred to as the
"Demised Premises"), and further modified by that certain letter agreement dated
February 10, 2000, in the building known as the Graybar Building, 420 Lexington
Avenue, New York, New York ("the Building"), under the terms and conditions
contained therein (the lease agreement, as modified, is hereinafter referred to
as the "Lease"); and
WHEREAS, Tenant desires to and Landlord is agreeable to extend the
term of the Lease for the period commencing as of January 1, 2005 and expiring
December 31, 2005 (the "Extended Term"), subject to the terms, covenants and
conditions set forth at length in this Agreement; and
<PAGE>
WHEREAS, Tenant desires to and Landlord is agreeable to add to the
Demised Premises certain spaces on the 26th floor of the Building known as: (i)
Rooms 2602-05, and a portion of the corridor approximately as indicated by hatch
marks on the floor plan annexed hereto and made a part hereof as Exhibit A, the
rentable square foot area of which Landlord and Tenant acknowledge and agree
shall be deemed to be 4,549 rentable square feet (the "2602 Space"); (ii) Room
2601 approximately as indicated by hatch marks on the floor plan annexed hereto
and made a part hereof as Exhibit B, the rentable square foot area of which
Landlord and Tenant acknowledge and agree shall be deemed to be 2,366 rentable
square feet (the "2601 Space"); (iii) Rooms 2616-26, and a portion of the
corridor approximately as indicated by hatch marks on the floor plan annexed
hereto and made a part hereof as Exhibit C, the rentable square foot area of
which Landlord and Tenant acknowledge and agree shall be deemed to be 11,807
rentable square feet (the "2616 Space"); (iv) Rooms 2656-60, approximately as
indicated by hatch marks on the floor plan annexed hereto and made a part hereof
as Exhibit D, the rentable square foot area of which Landlord and Tenant
acknowledge and agree shall be deemed to be 1,841 rentable square feet (the
"2656 Space"); (v) Rooms 2633-34 approximately as indicated by hatch marks on
the floor plan annexed hereto and made a part hereof as Exhibit E, the rentable
square foot area of which Landlord and Tenant acknowledge and agree shall be
deemed to be 837 rentable square feet (the "2633 Space"), (vi) Room 2606
approximately as indicated by hatch marks on the floor plan annexed hereto and
made a part hereof as Exhibit F, the rentable square foot area of which Landlord
and Tenant acknowledge and agree shall be deemed to be 407 rentable square feet
(the "2606 Space") and (vii) a portion of the 26/th/ floor public corridor
approximately as indicated by hatch marks on the floor plan annexed hereto and
made a part
2
<PAGE>
hereof as Exhibit G, the rentable square foot area of which Landlord and Tenant
acknowledge and agree shall be deemed to be 746 rentable square feet (the
"26/th/ Floor Corridor Space") subject to the terms, covenants and conditions
set forth at length in this Agreement, the aforementioned spaces in the
aggregate consisting of approximately 22,553 deemed rentable square feet and
sometimes hereinafter be referred to as collectively the "Additional Spaces";
WHEREAS, Tenant and Landlord wish to modify the Lease as set forth
below,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Term. The term of the Lease is hereby extended for the period of
----
the Extended Term, and Tenant shall pay to Landlord fixed annual rent for the
Demised Premises during the Extended Term at the rates set forth as set forth in
Article 2 hereof.
2. Porter's Wage Escalation. Effective as of March 1, 2000 and for
------------------------
the balance of the term of the Lease as extended by this Agreement, the Lease is
hereby modified so that Article 54 of the Lease is deleted in its entirety and
in lieu thereof Tenant shall pay to Landlord as fixed additional rent commencing
on March 1, 2000 and continuing throughout the balance of the term of the Lease
the sum of $6,815.28 per annum in equal monthly installments of $567.94 monthly,
and the granting clause of the Lease is hereby modified so that thereafter
Tenant shall pay to Landlord fixed annual rent, with respect to the Demised
Premises, as follows: (i) the sum of $743,894.00 per annum for the period
commencing March 1,2000 through the last day of February 2001; (ii) the sum of
$756,912.14 per annum for the period commencing March 1,2001 through the last
day of February 2002; (iii) the sum of $770,158.10 for the period commencing
March 1, 2002 through the last day of February 2003; (iv) the sum of $838,805.87
3
<PAGE>
per annum for the period commencing March 1, 2003 through the last day of
February 2004; (v) the sum of $853,484.97 per annum for the period commencing
March 1,2004 through the last day of February 2005; and (vi) the sum of
$868,421.00 per annum for the period commencing March 1, 2005 through December
31, 2005.
3. Addition of Space. A. Each of the Additional Spaces are hereby
added to the Demised Premises on the following dates (collectively, the
"Additional Space Commencement Dates"):
Space Additional Space Commencement Date
----- ----------------------------------
2602 Space March 1, 2000 (the "2602 Space Commencement Date");
2601 Space May 1, 2000 (the "2601 Space Commencement Date");
2616 Space November 1, 2000 (the "2616 Space Commencement Date");
2656 Space January 1, 2001 (the "2656 Space Commencement Date");
2633 Space the later of (a) January 1, 2001 or (b) the date that
Landlord obtains lawful possession of the 2633 Space
from the tenant that currently occupies the 2633 Space
(the "2633 Space Commencement Date") pursuant to that
certain lease agreement entered into between Landlord
and the existing tenant of the 2633 Space which
Landlord represents (a) is scheduled to expire on
November 30, 2004 and (b) contains no options for
extensions or renewal in favor of the existing tenant;
2606 Space later of (a) March 1, 2000 or (b) the date that
Landlord obtains lawful possession of the 2606 Space
from the tenant that currently occupies the 2606 Space
(the "2606 Space Commencement Date") pursuant to that
certain lease agreement entered into between Landlord
and the existing tenant of the 2606 Space which
Landlord represents (a) is scheduled to expire on July
31, 2003 and (b) contains no
4
<PAGE>
options for extensions or renewal in favor of the
existing tenant; and
26/th/ Floor
Corridor
Space later of (i) the 2656 Space Commencement Date or (ii)
the 2633 Space Commencement Date (the "26/th/ Floor
Corridor Space Commencement Date").
B (i). Landlord represents that the 2601 Space, 2616 Space
and the 2656 Space are currently occupied by existing tenants of the Building
(collectively, the "Existing Tenants") under leases which expire the day
immediately preceding the respective Additional Space Commencement Dates as set
forth above. Landlord further represents that the lease agreements for the
Additional Spaces do not contain any options for extensions or renewal of such
lease agreements in favor of the Existing Tenants (as said term is hereinbefore
defined);
(ii) Tenant further acknowledges and agrees that it has
been informed by Landlord that the 2633 Space and the 2606 Space are also
currently occupied by Existing Tenants, who Landlord intends to relocate in the
Building, in the case of the 2633 Space pursuant to Landlord's rights as
contained in the lease agreement for the 2633 Space;
(iii) Landlord covenants and agrees that Landlord shall not
renew or extend the period of time that the Existing Tenants are permitted to
remain in the each of the respective Additional Spaces. Notwithstanding any of
the foregoing, Landlord and Tenant agree that if the Existing Tenants do not
vacate and surrender to Landlord possession of the respective Additional Spaces
on or before the day immediately preceding the respective Additional Space
Commencement Dates, and as a result Landlord shall be unable to deliver
possession of any Additional Space to Tenant as required by this Agreement,
Landlord shall not be subject to any liability for such failure, and (a)
regarding the 2601 Space, the 2616 Space and the 2656 Space,
5
<PAGE>
Landlord shall promptly commence and diligently prosecute to completion
appropriate summary proceedings in order to evict any such Existing Tenant
therefrom and recover lawful possession of the each of the respective Additional
Spaces and this Agreement shall remain in full force and effect without
extension of term, and (b) regarding the 2633 Space and the 2606 Space Landlord
shall diligently and in good faith continue using reasonable efforts to relocate
the Existing Tenants in the 2633 Space and 2606 Space in the Building. Tenant's
obligation to pay rent hereunder with respect to each of the respective
Additional Spaces shall not commence and any rent credits to which Tenant is
entitled hereunder with respect to each of the respective Additional Spaces
shall not be effective until possession thereof is delivered to Tenant subject
to the provisions hereof and of Article 16 of the Lease. The provisions of this
Article and the Lease shall apply with regard to the timing of Landlord's
delivery of possession of each of the respective Additional Spaces.
(iv) Landlord and Tenant agree that Tenant shall have
the right to surrender to Landlord the 2606 Space, at any time after the
execution and delivery of this Agreement by the parties hereto and until such
time as Landlord has delivered to Tenant written notice (the "2606 Notice") that
(a) a lease agreement has been fully executed and delivered by means of which
Landlord shall relocate the existing tenant of the 2606 Space and (b) Landlord
shall deliver possession of the 2606 Space to Tenant on or before October 31,
2000, provided, further, that in the event the 2606 Notice is timely given but
the 2606 Space is not actually delivered to Tenant by October 31, 2000, Tenant
shall have the right to surrender the 2606 Space at any time thereafter upon
written notice to Landlord, provided that Landlord has not actually delivered to
Tenant possession of the 2606 Space prior to receiving any such notice from
Tenant.
6
<PAGE>
Notwithstanding anything contained herein to the contrary, but not in limitation
of the rights granted to Tenant in the immediately preceding sentence, Landlord
and Tenant acknowledge and agree that if Landlord shall not have delivered to
Tenant possession of any of the Additional Spaces within three hundred sixty
five (365) days after the applicable Additional Space Commencement Date
(together with Landlord's work, if any, substantially completed for such space),
then Tenant may within thirty (30) days thereafter unequivocally and
unconditionally notify Landlord that Tenant elects to terminate and cancel this
Agreement solely with respect to that Additional Space for which Landlord has
failed to so deliver possession and, effective as of the date which is thirty
(30) days after the delivery of Tenant's notice (the "Cancellation Date")
provided, however, that such 365 day period shall be extended one (1) day for
each day of delay by Landlord which is due solely to the acts or omissions of
Tenant In the event Tenant so terminates and cancels this Agreement with respect
to a particular Additional Space, this Agreement shall be null and void solely
with respect to that particular Additional Space, and neither Landlord nor
Tenant shall have any further liability with respect to any such Additional
Space except that the representations and indemnifications contained in Article
16 hereof shall survive and any security deposited with Landlord by Tenant with
respect to any such Additional Space shall be returned to Tenant.
C. Effective as of the 2602 Space Commencement Date in order
to reflect the addition of the 2602 Space to the Demised Premises: (i) the fixed
annual rent payable under the Lease (exclusive of electricity) shall be
increased by the sum of (a)$191,058.00 per annum for the period commencing on
the 2602 Space Commencement Date through the last day of
7
<PAGE>
February 2001, the first monthly installment of which shall be paid to Landlord
by Tenant upon its execution of this Agreement; (b) by the sum of $194,401.52
per annum for the period commencing March 1, 2001 through the last day of
February 2002; (c) by the sum of $197,803.55 per annum for the period commencing
March 1, 2002 through the last day of February 2003; (d) by the sum of
$214,912.11 per annum for the period commencing March 1, 2003 through the last
day of February 2004; (e) by the sum of $218,673.07 per annum for the period
commencing March 1, 2004 through the last day of February 2005 and (f) by the
sum of $222,499.85 per annum for the period commencing March 1, 2005 through
December 31, 2005 and (ii) the Percentage, as defined in Article 24(b)(ii) of
the Lease, shall be amended and increased by .4089%; and (iii) the deemed
rentable square foot area of the Demised Premises shall be amended and increased
by 4,549 deemed rentable square feet for purposes of Articles 24(a) and 41(B) of
the Lease; and (iv) for purposes of the 2602 Space the "base tax year" as
defined in Article 24 of the Lease shall be the average of the New York City
real estate tax year commencing July 1, 1999 and ending June 30, 2000 and the
New York City real estate tax year commencing July 1, 2000 and ending June 30,
2001, and (v) it shall be a material obligation of Tenant under this Agreement
and the Lease to increase the security deposited with Landlord pursuant to
Article 33 of the Lease by means of cash payment or amendment to (or replacement
of) the Credit (as defined in Article 61 of the Lease) in the sum of $47,764.50
to be delivered to Landlord within ten (10) days of the execution and delivery
of this Agreement by the parties hereto, and to be held by Landlord in
accordance with the provisions of Article 33 of the Lease, or, as the case may
be, so that the amount of the Credit which Tenant may substitute in place and
stead of the security deposit, pursuant to said Article 61 shall be increased by
the sum of
8
<PAGE>
$47,764.50.
D. Effective as of the 2601 Space Commencement Date in order
to reflect the addition of the 2601 Space to the Demised Premises: (i) the fixed
annual rent payable under the Lease (exclusive of electricity) shall be
increased by the sum of (a) $99,372.00 per annum for the period commencing on
the 2601 Space Commencement Date through April 30, 2001, the first monthly
installment of which shall be paid to Landlord by Tenant upon its execution of
this Agreement; (b) by the sum of $101,111.01 per annum for the period
commencing May 1, 2001 through April 30, 2002; (c) by the sum of $102,880.45 per
annum for the period commencing May 1, 2002 through April 30, 2003; (d) by the
sum of $111,778.85 per annum for the period commencing May 1, 2003 through April
30, 2004; (e) by the sum of $113,734.98 per annum for the period commencing May
1, 2004 through April 30, 2005 and (f) by the sum of $115,725.34 per annum for
the period commencing May 1, 2005 through December 31, 2005 and (ii) the
Percentage, as defined in Article 24(b)(ii) of the Lease, shall be amended and
increased by .2127%; and (iii) the deemed rentable square foot area of the
Demised Premises shall be amended and increased by 2,366 deemed rentable square
feet for purposes of Articles 24(a) and 41(B) of the Lease and (iv) for purposes
of the 2601 Space the "base tax year" as defined in Article 24 of the Lease
shall be the average of the New York City real estate tax year commencing July
1, 1999 and ending June 30, 2000 and the New York City real estate tax year
commencing July 1, 2000 and ending June 30, 2001 (v) it shall be a material
obligation of Tenant under this Agreement and the Lease to increase the security
deposited with Landlord pursuant to Article 33 of the Lease by means of cash
payment or amendment to the Credit (as defined in Article 61 of the Lease) in
the sum of $24,843.00 to be delivered to Landlord within
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ten (10) days of the execution and delivery of this Agreement by the parties
hereto, and to be held by Landlord in accordance with the provisions of Article
33 of the Lease, or, as the case may be, so that the amount of the Credit which
Tenant may substitute in place and stead of the security deposit, pursuant to
said Article 61 shall be increased by the sum of $24,843.00.
E. Effective as of the 2616 Space Commencement Date in order
to reflect the addition of the 2616 Space to the Demised Premises: (i) the fixed
annual rent payable under the Lease (exclusive of electricity) shall be
increased by the sum of (a) $495,894.00 per annum for the period commencing on
the 2616 Space Commencement Date through October 31, 2001, the first monthly
installment of which shall be paid to Landlord by Tenant upon its execution of
this Agreement; (b) by the sum of $504,572.15 per annum for the period
commencing November 1, 2001 through October 31, 2002; (c) by the sum of
$513,402.16 per annum for the period commencing November 1, 2002 through October
31, 2003; (d) by the sum of $557,807.69 per annum for the period commencing
November 1, 2003 through October 31, 2004; (e) by the sum of $567,569.32 per
annum for the period commencing November 1, 2004 through October 31, and (f) by
the sum of $577,501.78 per annum for the period commencing November 1, 2005
through December 31, 2005 and (ii) the Percentage, as defined in Article
24(b)(ii) of the Lease, shall be amended and increased by 1.061%; and (iii) the
deemed rentable square foot area of the Demised Premises shall be amended and
increased by 11,807 deemed rentable square feet for purposes of Articles 24(a)
and 41(B) of the Lease; and (iv) for purposes of the 2616 Space the "base tax
year" as defined in Article 24 of the Lease shall be the average of the New York
City real estate tax year commencing July 1, 1999 and ending June 30, 2000 and
the New York City real estate tax year commencing July 1, 2000 and ending June
30, 2001, and
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(v) it shall be a material obligation of Tenant under this Agreement and the
Lease to increase the security deposited with Landlord pursuant to Article 33 of
the Lease by means of cash payment or amendment to the Credit (as defined in
Article 61 of the Lease) in the sum of $123,973.50 to be delivered to Landlord
within ten (10) days of the execution and delivery of this Agreement by the
parties hereto, and to be held by Landlord in accordance with the provisions of
Article 33 of the Lease, or, as the case may be, so that the amount of the
Credit which Tenant may substitute in place and stead of the security deposit,
pursuant to said Article 61 shall be increased by the sum of $123,973.50.
F. Effective as of the 2656 Space Commencement Date in order
to reflect the addition of the 2656 Space to the Demised Premises: (i) the fixed
annual rent payable under the Lease (exclusive of electricity) shall be
increased by the sum of (a) $77,322.00 per annum for the period commencing on
the 2656 Space Commencement Date through December 31, 2001, the first monthly
installment of which shall be paid to Landlord by Tenant upon its execution of
this Agreement; (b) by the sum of $78,675.14 per annum for the period commencing
January 1, 2002 through December 31, 2002; (c) by the sum of $80,051.95 per
annum for the period commencing January 1, 2003 through December 31, 2003; (d)
by the sum of $86,975.86 per annum for the period commencing January 1, 2004
through December 31, 2004; and (e) by the sum of $88,497.94 per annum for the
period commencing January 1, 2005 through December 31, 2005 and (ii) the
Percentage, as defined in Article 24(b)(ii) of the Lease, shall be amended and
increased by .1655%; and (iii) the deemed rentable square foot area of the
Demised Premises shall be amended and increased by 1,841 deemed rentable square
feet for purposes of Articles 24(a) and 41(B) of the Lease; and (iv) for
purposes of the 2656 Space the
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"base tax year" as defined in Article 24 of the Lease shall be the average of
the New York City real estate tax year commencing July 1, 1999 and ending June
30, 2000 and the New York City real estate tax year commencing July 1, 2000 and
ending June 30, 2001 ,and (v) it shall be a material obligation of Tenant under
this Agreement and the Lease to increase the security deposited with Landlord
pursuant to Article 33 of the Lease by means of cash payment or amendment to the
Credit (as defined in Article 61 of the Lease) in the sum of $19,331.00 to be
delivered to Landlord within ten (10) days of the execution and delivery of this
Agreement by the parties hereto, and to be held by Landlord in accordance with
the provisions of Article 33 of the Lease, or, as the case may be, the amount of
the Credit which Tenant may substitute in place and stead of the security
deposit, pursuant to said Article 61 shall be increased by the sum of
$19,331.00.
G. Effective as of the 2633 Space Commencement Date in order
to reflect the addition of the 2633 Space to the Demised Premises: (i) the fixed
annual rent payable under the Lease (exclusive of electricity) shall be
increased by the sum of (a) $35,154.00 per annum for the period commencing on
the 2633 Space Commencement Date through the last day of the calendar month
immediately preceding the 2633 Space Commencement, the first monthly installment
of which shall be paid to Landlord by Tenant upon its execution of this
Agreement; (b) by the sum of $35,769.20 per annum for the period commencing as
of the first (1/st/) anniversary of the 2633 Space Commencement Date through the
last day of the calendar month immediately preceding the second (2/nd/)
anniversary of the 2633 Space Commencement Date; (c) by the sum of $36,395.16
per annum for the period commencing as of the second (2/nd/) anniversary of the
2633 Space Commencement Date through the last day of the calendar month
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immediately preceding the third (3/rd/) anniversary of the 2633 Space
Commencement Date, (d) by the sum of $39,543.07 per annum for the period
commencing as of the third (3/rd/) anniversary of the 2633 Space Commencement
Date through the last day of the calendar month immediately preceding the fourth
(4/th/) anniversary of the 2633 Space Commencement Date; and (e) by the sum of
$40,235.07 per annum for the period commencing as of the fourth (4/th/)
anniversary of the 2633 Space Commencement Date through December 31, 2005 and
(ii) the Percentage, as defined in Article 24(b)(ii) of the Lease, shall be
amended and increased by .0752%; and (iii) the deemed rentable square foot area
of the Demised Premises shall be amended and increased by 837 deemed rentable
square feet for purposes of Articles 24(a) and 41(B) of the Lease; and (iv) for
purposes of the 2633 Space the "base tax year" as defined in Article 24 of the
Lease shall be the average of the New York City real estate tax year commencing
July 1, 1999 and ending June 30, 2000 and the New York City real estate tax year
commencing July 1, 2000 and ending June 30, 2001, and (v) it shall be a material
obligation of Tenant under this Agreement and the Lease to increase the security
deposited with Landlord pursuant to Article 33 of the Lease by means of cash
payment or amendment to the Credit (as defined in Article 61 of the Lease) in
the sum of $8,788.50 to be delivered to Landlord within ten (10) days of the
execution and delivery of this Agreement by the parties hereto, and to be held
by Landlord in accordance with the provisions of Article 33 of the Lease, or, as
the case may be, the amount of the Credit which Tenant may substitute in place
and stead of the security deposit, pursuant to said Article 61 shall be
increased by the sum of $8,788.50.
H. Effective as of the 2606 Space Commencement Date in order
to reflect the addition of the 2606 Space to the Demised Premises: (i) the fixed
annual rent payable
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under the Lease (exclusive of electricity) shall be increased by the sum of (a)
$17,094.00 per annum for the period commencing on the 2606 Space Commencement
Date through the last day of the calendar month immediately preceding the 2606
Space Commencement, the first monthly installment of which shall be paid to
Landlord by Tenant upon its execution of this Agreement; (b) by the sum of
$17,393.15 per annum for the period commencing as of the first (1/st/)
anniversary of the 2606 Space Commencement Date through the last day of the
calendar month immediately preceding the second (2/nd/) anniversary of the 2606
Space Commencement Date; (c) by the sum of $17,697.50 per annum for the period
commencing as of the second (2/nd/) anniversary of the 2606 Space Commencement
Date through the last day of the calendar month immediately preceding the third
(3/rd/) anniversary of the 2606 Space Commencement Date; (d) by the sum of
$19,228.21 per annum for the period commencing as of the third (3/rd/)
anniversary of the 2606 Space Commencement Date through the last day of the
calendar month immediately preceding the fourth (4/th/) anniversary of the 2606
Space Commencement Date; and (e) by the sum of $19,564.70 per annum for the
period commencing as of the fourth (4/th/) anniversary of the 2606 Space
Commencement Date through December 31,2005 and (ii) the Percentage, as defined
in Article 24(b)(ii) of the Lease, shall be amended and increased by .0366%; and
(iii) the deemed rentable square foot area of the Demised Premises shall be
amended and increased by 407 deemed rentable square feet for purposes of
Articles 24(a) and 41(B) of the Lease; and (iv) for purposes of the 2606 Space
the "base tax year" as defined in Article 24 of the Lease shall be the average
of the New York City real estate tax year commencing July 1, 1999 and ending
June 30, 2000 and the New York City real estate tax year commencing July 1, 2000
and ending June 30, 2001, and (v) it shall be a material obligation of Tenant
under this Agreement and the Lease to
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increase the security deposited with Landlord pursuant to Article 33 of the
Lease by means of cash payment or amendment to the Credit (as defined in Article
61 of the Lease) in the sum of $4,273.50 to be delivered to Landlord within ten
(10) days of the execution and delivery of this Agreement by the parties hereto,
and to be held by Landlord in accordance with the provisions of Article 33 of
the Lease, or, as the case may be, the amount of the Credit which Tenant may
substitute in place and stead of the security deposit, pursuant to said Article
61 shall be increased by the sum of $4,273.50.
I. Effective as of the 26/th/ Floor Corridor Space
Commencement Date in order to reflect the addition of the 26/th/ Floor Corridor
Space to the Demised Premises: (i) the fixed annual rent payable under the Lease
(exclusive of electricity) shall be increased by the sum of (a) $31,332.00 per
annum for the period commencing on the 26/th/ Floor Corridor Space Commencement
Date through the last day of the calendar month immediately preceding the 26/th/
Floor Corridor Space Commencement, the first monthly installment of which shall
be paid to Landlord by Tenant upon its execution of this Agreement; (b) by the
sum of $31,880.31 per annum for the period commencing as of the first (1/st/)
anniversary of the 26/th/ Floor Corridor Space Commencement Date through the
last day of the calendar month immediately preceding the second (2/nd/)
anniversary of the 26/th/ Floor Corridor Space Commencement Date; (c) by the sum
of $32,438.22 per annum for the period commencing as of the second (2/nd/)
anniversary of the 26/th/ Floor Corridor Space Commencement Date through the
last day of the calendar month immediately preceding the third (3/rd/)
anniversary of the 26/th/ Floor Corridor Space Commencement Date; (d) by the sum
of $35,243.89 per annum for the period commencing as of the third (3/rd/)
anniversary of the 26/th/ Floor Corridor Space Commencement Date through the
last
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day of the calendar month immediately preceding the fourth (4th) anniversary of
the 26/th/ Floor Corridor Space Commencement Date; and (e) by the sum of
$35,860.66 per annum for the period commencing as of the fourth (4th)
anniversary of the 26/th/ Floor Corridor Space Commencement Date through
December 31, 2005 and (ii) the Percentage, as defined in Article 24(b)(ii) of
the Lease, shall be amended and increased by .00671%; and (iii) the deemed
rentable square foot area of the Demised Premises shall be amended and increased
by 746 deemed rentable square feet for purposes of Articles 24(a) and 41(B) of
the Lease; and (iv) for purposes of the 26/th/ Floor Corridor Space the "base
tax year" as defined in Article 24 of the Lease shall be the average of the New
York City real estate tax year commencing July 1, 1999 and ending June 30, 2000
and the New York City real estate tax year commencing July 1, 2000 and ending
June 30, 2001, and (v) it shall be a material obligation of Tenant under this
Agreement and the Lease to increase the security deposited with Landlord
pursuant to Article 33 of the Lease by means of cash payment or amendment to the
Credit (as defined in Article 61 of the Lease) in the sum of $7,833.00 to be
delivered to Landlord within ten (10) days of the execution and delivery of this
Agreement by the parties hereto, and to be held by Landlord in accordance with
the provisions of Article 33 of the Lease, or, as the case may be, the amount of
the Credit which Tenant may substitute in place and stead of the security
deposit, pursuant to said Article 61 shall be increased by the sum of $7,833.00.
Notwithstanding anything contained herein to the contrary, in the
event that pursuant to this Article Tenant cancels that portion of this
Agreement pertaining to any of the respective Additional Spaces on account of
Landlord's failure to deliver to Tenant timely possession thereof, Tenant shall
be entitled to reduce the amount of security previously deposited
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with Landlord in connection with any such Additional Space. In the event that
Tenant has deposited with Landlord a cash security deposit, Landlord shall
return said amount to Tenant within thirty (30) days of any respective
Cancellation Date or, as the case may be, the amount of the Credit which Tenant
may substitute in place and stead of the security deposit pursuant to said
Article 61 may be reduced upon prompt written notice to Landlord by the
applicable sum as a result of any such cancellation.
4. Landlord's Additional Spaces Work (a) Tenant has examined and
---------------------------------
agrees to accept the Additional Spaces in their existing condition and state of
repair and understands that no work is to be performed by Landlord, except that
Landlord's designated, wholly owned affiliate, Emerald City Construction Corp.,
with reasonable dispatch subject to delay by causes beyond its control or by the
action or inaction of Tenant, shall perform the following work at Landlord's
expense, subject to the provisions of (b), below:
(i) deliver the presently existing exterior windows
located in each of the Additional Spaces in good
working order;
(ii) deliver the presently existing radiator convector
cover panels located in each for each of the
Additional Spaces assembled and installed in building
standard manner (it being the intention of Landlord
and Tenant that Landlord shall only be responsible
for the assembly of the presently existing radiator
convector covers in the Additional Spaces and that
Landlord shall not be responsible to furnish and
install radiator convector covers in any of the
Additional Spaces where same does not presently
exist);
(iii) deliver the presently existing lighting fixtures
located in each of the Additional Spaces in good
working order;
(iv) deliver the presently existing air conditioning
mechanical equipment servicing each of the Additional
Spaces, exclusive of duct work, in good working
order; and
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(v) deliver the 2616 Space with (a) all partitions
restored in a building standard manner utilizing
building standard materials in the event of the
removal of the presently existing millwork by Barton
& Barton, the existing tenant of the 2616 Space, and
(b) any and all damage from such removal repaired.
The performance by Landlord of the above work ("Landlord's
Additional Space Work") is expressly conditioned upon compliance by Tenant with
all the terms and conditions of the Lease and this Agreement, including payment
of rent.
(b) Any changes in or additions to Landlord's Additional Space Work
which shall be consented to by Landlord as provided in Articles 7 and 47 of the
Lease, and further changes in or additions to the Additional Space after
Landlord's Additional Space Work has been completed which shall be so consented
to if made at Tenant's request by Landlord, or its agents, but shall be paid for
by Tenant promptly when billed at cost plus 1 1/4% for insurance, 10% for
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overhead and 10% for general conditions, and in the event of the failure of
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Tenant so to pay for said changes or additions, Landlord at its option may
consider the cost thereof, plus the above percentages, as additional rent
--------------------------
payable by Tenant and collectible as such hereunder, as part of the rent for the
next ensuing months.
(c) If Landlord's Additional Space Work is not substantially
completed and is delayed by acts, omissions or changes made or requested by
Tenant, its agents, designers, architects or any other party acting or
apparently acting on Tenant's behalf, then notwithstanding the foregoing, the
term of this Agreement, Tenant's obligation to pay rent and additional rent
under this Agreement, and the rent credit in accordance with Article 5 hereof,
shall nevertheless commence on each of the respective commencement dates for the
Additional Spaces.
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(d) Landlord's Additional Space Work shall be deemed to be
substantially completed notwithstanding that (i) minor or non-material details
of construction, mechanical adjustment or decoration remain to be performed,
provided, that said "Punch List Items" shall be completed by Landlord within a
reasonable time thereafter or (ii) a portion of Landlord's Additional Space Work
is incomplete because construction scheduling requires that such work be
completed after other work performed on Tenant's behalf or by Tenant is
completed. In connection with the foregoing, Landlord shall use reasonable
efforts, without additional expense to Landlord, to coordinate the completion of
the punch list items, with any contractors then performing work in any of the
respective Additional Spaces on behalf of Tenant.
(e) Tenant acknowledges and agrees that Landlord may be performing
Landlord's Additional Space Work or portions thereof simultaneously with
Tenant's performance of its initial alteration work in the Additional Space, and
that Tenant shall use reasonable efforts to coordinate with Landlord's
affiliate, Emerald City Construction Corp., any such work performed by or on
behalf of Tenant in the Additional Space.
5. Rent Credit. A. If and so long as Tenant is not in default
-----------
under the Lease or this Agreement after notice and beyond any grace period,
Tenant shall be entitled to a rent credit for each of the Additional Spaces as
follows: (a) (i) with respect to the 2602 Space in the amount of $47,764.50,
(ii) with respect to the 2601 Space in the amount of $24,843.00, (iii) with
respect to the 2616 Space in the amount of $123,973.50, to be applied in each of
the foregoing instances, against the first (1/st/), second (2/nd/) and January
2001 monthly installments of fixed annual rent (without electricity) accruing
under the Lease as modified by this Agreement from and after the respective
Commencement Dates for each of the Additional Spaces (as previously
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defined herein), provided, however, that in the event the actual Additional
Space Commencement Date for the 2602 Space, 2601 Space and/or the 2616 Space is
later than January 1, 2001, the third (3/rd/) monthly installment of free rent
applicable to such Additional Space shall be applied against the thirteenth
(13th) monthly installment of fixed annual rent (without electricity) after the
actual Additional Space Commencement Date and (b) (i) with respect to the 2656
Space in the amount of $19,330.50, (ii) with respect to the 2633 Space in the
amount of $16,621.50, (iii) with respect to the 2606 Space in the amount of
$4,273.50, and (iv) with respect to the 26th Floor Corridor Space in the amount
of $7,833.00 to be applied in each of the foregoing instances, against the first
(1/st/) second (2/nd/) and third (3/rd/) monthly installments of fixed annual
rent (without electricity), accruing under the Lease as modified by this
Agreement from and after the respective Commencement Dates for each of the
Additional Spaces (as previously defined herein).
B. Anything contained hereinabove to the contrary notwithstanding,
if Tenant at any time during the term of the Lease, breaches any material
covenant, condition or provision of the Lease or this Agreement and fails to
cure such breach after notice and within any applicable grace period, and
provided that this Lease is terminated by Landlord because of such material
default, then, in addition to all other damages and remedies herein provided and
to which Landlord may be otherwise entitled, Landlord shall also be entitled to
the repayment in full of any rent credit theretofore enjoyed by Tenant, which
repayment Tenant shall make upon demand therefor provided, however, that the
amount of such rent credit to be repaid hereunder shall be multiplied by a
fraction, the numerator of which is the number of months, including
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portions thereof, remaining in the originally stated term of this Lease
following such breach, and the denominator of which is 60.
6. Compliance with Laws. Landlord shall use reasonable efforts, at
---------------------
its sole cost and expense to cure within thirty (30) days after the applicable
Additional Space Commencement Date, any New York City Building Department
violations pertaining to each respective Additional Space which are a matter of
public record as of the applicable Additional Space Commencement Date. In
connection with the foregoing, Landlord shall use reasonable efforts to minimize
interference with Tenant's business, in the Additional Space, provided, however,
that Tenant acknowledges and agrees that all such efforts shall be performed on
normal business days during normal business hours.
7. Freight Elevator. Tenant shall not be charged for its use of
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freight elevator service in connection with Tenant's initial, single phase
relocation to each of the respective Additional Spaces, provided that such use
occurs during normal Freight Hours and provided that Tenant acknowledges that
such use shall be on a non-exclusive, first come-first served basis.
8. ACM; Hazardous Substances. Notwithstanding anything contained
--------------------------
herein to the contrary, Articles 56 and 58 of the Lease shall apply to each of
the respective Additional Spaces and shall be incorporated herein for such
purpose as though set forth herein verbatim.
9. Security. The Lease is hereby modified so that the language set
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forth below shall be added to Article 61 of the Lease as subarticle D.
D. The cash security deposit or the Credit, as the case may
be, which has been deposited by Tenant with Landlord pursuant to the terms
hereof may be reduced by the sum of $157,871.00 on or after September 30,
2002 provided that (i) Tenant gives
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Landlord thirty (30) days advance written notice of its intent to so
reduce the cash security deposit or the Credit, as the case may be, (ii)
at the time of aforesaid notice and at the time of such reduction in the
either the cash security deposit or the Credit, as the case may be, Tenant
shall not then be, or at anytime previously during the term of this Lease
have been, in default in any of its material obligations under this Lease
after notice in accordance with the terms of the Lease and this Agreement
(in which event Tenant's rights under this Section D shall not be
extinguished but, rather, suspended through the earlier of (a) the cure by
Tenant and (b) the expiration of the applicable cure period, provided,
however, that Tenant's rights shall nevertheless be reinstated in the
event that Tenant cures any such default after the expiration of the
applicable cure period and such cure is accepted by Landlord without
termination of this Lease), (iii) in the case of the Credit, Tenant
provides Landlord with an amendment to or replacement of said Credit
issued by the bank (except in the case of a replacement, which may be
issued by another bank acceptable to Landlord) which issued the Credit at
the time of any such reductions hereunder and (iv) Tenant has successfully
closed an underwritten initial public offering of its stock pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, and Tenant has provided Landlord with sufficient documentation
evidencing same.
10. Extension of Term. The Lease is hereby modified so that the
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language set forth below shall be added to the Lease as Article 63 thereof.
RENEWAL TERM
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63. A. 1. If and so long as Phase2Media, Inc., or its
successor to whom Phase2Media, Inc. has transferred substantially all of its
assets or capital stock and assets or with whom Phase2Media, Inc., has been
consolidated or merged, or its parent or wholly owned subsidiary to whom Tenant
has assigned this Lease pursuant to Section 52(G) of this Lease (hereinafter
collectively referred to as the "Named Tenant"), is Tenant hereunder, the Named
Tenant shall have the right (the "First Renewal Right") to extend the term of
this Lease for one (1) additional period of four (4) years (the "First Renewal
Term"), which First Renewal Term shall commence on the date immediately
succeeding December 31, 2005 (the "First Expiration Date"), provided that (a)
this Lease shall not have been previously terminated, (b) no default shall have
occurred and be continuing after notice (in which event Tenant's rights under
this Section A.1. shall not be extinguished but, rather, suspended through the
earlier of (i) the cure by Tenant and (ii) the expiration of the applicable cure
period, provided, however, that Tenant's rights shall nevertheless be reinstated
in the event that Tenant cures any such default after the expiration of the
applicable cure period and such cure is accepted by Landlord without termination
of this Lease) (x) on the date the Named Tenant gives Landlord written notice
(the "First Renewal Notice") of the Named Tenant's election to exercise the
First Renewal Right and (y) on the First Expiration Date and (c) the Named
Tenant shall occupy at least eighty (80%)
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percent of the Demised Premises as its offices for the conduct of its business
on the date the First Renewal Notice is given. Such First Renewal Right may be
exercised with respect to the entire Premises only and shall be exercisable by
the Named Tenant delivering to Landlord the First Renewal Notice on the earlier
of (i) June 30, 2001 or (ii) in the case of notice from the Named Tenant only
within thirty (30) days of that date that Tenant has successfully closed an
underwritten initial public offering of its stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended, and Tenant
has provided Landlord with sufficient documentation evidencing same and provided
that Tenant gives Landlord written notice of same within five (5) days of its
occurrence. Time is of the essence with respect to the giving of the first
Renewal Notice. In the event that Tenant fails to timely and fully provide
Landlord with written notice of its election to exercise this First Renewal
Right in the manner set forth herein, then Tenant shall be deemed to have waived
its right to exercise both the First Renewal Right and the Second Renewal Right
(as said term is defined below). Time is of the essence with respect to the
sending of the First Renewal Notice.
2. If the Named Tenant exercises the First Renewal Right,
(provided that only the Named Tenant can exercise the First Renewal Right
contained in clause (ii) of Section 63A above) the First Renewal Term shall be
upon the same terms, covenants and conditions as those contained in this Lease,
except that (i) the Fixed Annual Rent shall be payable by Tenant for the First
Renewal Term shall be calculated by multiplying the fixed annual rent payable to
Landlord by Tenant for December 2005 by 1.75%, the product of which shall be
added to the fixed annual rent payable by Tenant for December 2005, the sum of
which shall be the fixed annual rent for the first year of the First Renewal
Term. Thereafter, the fixed annual rent payable to Landlord by Tenant shall be
subject to an increase on each anniversary of the commencement date of the First
Renewal Term at the rate of 1.75% per annum compounded annually during each year
of the term of the First Renewal Term, (ii) the base tax year shall mean the New
York City real estate tax year during which occurs the first day of the
applicable First Renewal Term, and (iii) the provisions of Articles 48, 53, 54
and 57 shall not be applicable during the First Renewal Term, and (iv) the
provisions of this Article relative to the Named Tenant's right to renew the
term of this Lease shall no longer be applicable.
B. 1. Provided that the Named Tenant has duly exercised the First
Renewal Right, Tenant shall have the right thereafter (the "Second Renewal
Right") to extend the term of this Lease for one (1) additional renewal period
of five (5) years (the "Second Renewal Term"), which Second Renewal Term shall
commence on the date immediately succeeding December 31, 2009 (the "First
Renewal Term Expiration Date"), provided that on both the Second Renewal Notice
Date (as hereinafter defined) and on January 1, 2010 (the "Second Renewal Right
Effective Date") (a) this Lease shall not have been previously terminated, (b)
no default shall have occurred and be continuing after notice (in which event
Tenant's rights under this Section B.1. shall not be extinguished but, rather,
suspended through the earlier of (a) the cure by Tenant and (b) the expiration
of the applicable cure period, provided, however, that Tenant's rights shall
nevertheless be reinstated in the event that Tenant cures any such default after
the expiration of the applicable cure period and such cure is accepted by
Landlord without termination of this
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Lease) (x) on the date the Named Tenant gives Landlord written notice (the
"Second Renewal Notice") of the Named Tenant's election to exercise the Second
Renewal Right, and (y) on the First Renewal Term Expiration Date, and (c) the
Named Tenant shall occupy at least eighty (80%) percent of the Demised Premises
as its offices for the conduct of its business on the date the Second Renewal
Notice is given and on the first (1st) day of the Second Renewal Term. Such
Second Renewal Right may be exercised with respect to the Premises only and
shall be exercisable by the Named Tenant delivering to Landlord a notice (the
"Second Renewal Notice") no later than the date (the "Second Renewal Notice
Date") that is three hundred sixty five (365) days prior to First Renewal Term
Expiration Date. In the event that the Named Tenant fails to give the Second
Renewal Notice by the Second Renewal Notice Date, the Named Tenant shall be
deemed to have waived its Second Renewal Right. Time is of the essence with
respect to the giving of the Second Renewal Notice. Upon the giving of the
Second Renewal Notice the Named Tenant shall have no further right or option to
extend or renew the term of this Lease.
2. If Tenant exercises the Second Renewal Right, the
Second Renewal Term shall be upon the same terms, covenants and conditions as
those contained in this Lease, to the extent that all Additional Spaces have
been delivered in accordance with the terms hereof except that (i) the fixed
annual rent as currently set forth in the Lease shall be determined pursuant to
Sections 3 and 4 hereof, (ii) the base tax year shall mean the New York City
real estate tax year during which occurs the first day of the Second Renewal
Term, and (iii) the provisions of Articles 48, 53, 54 and 57 shall not be
applicable during the Second Renewal Term.
3. Fixed annual rent for the Premises for the Second
Renewal Term shall be an amount equal to the greater of (i) 100% of the Fair
Market Rent on the first day of the Second Renewal Term as determined pursuant
to Section 4 hereof or (ii) the amount of fixed annual rent and additional rent
payable pursuant to the terms of this Lease, as of the First Renewal Option
Expiration Date, subject to, in either event of (i) or (ii) above, an increase
of 1.75% per annum compounded annually during each year of the Second Renewal
Term.
4. For purposes of determining the fair market rent
payable per annum for the Second Renewal Term ("Fair Market Rent"), the
following procedure shall apply:
(A) the Fair Market Rent shall be determined on the basis of
the annual rent that an unrelated third party (a "Third Party Tenant") would be
willing to pay for the Premises for a term commencing on the first day of the
Second Renewal Term and expiring five (5) years thereafter, assuming that (i)
the Premises are free and clear of all leases and tenancies (including this
Lease), that (ii) the Premises are available in the then rental market for
comparable office buildings in midtown Manhattan, (iii) Landlord has had a
reasonable time to locate a Third Party Tenant who rents with the knowledge of
the highest and best uses to which the Premises can be adopted, (iv) neither
Landlord nor such Third Party Tenant is under any compulsion to rent; (v) the
Base Tax Year shall mean the New York City real estate tax year during which
occurs the first day of the Second Renewal Term, (vi) Landlord shall not be
obligated to perform any work in the Premises to prepare the same for such Third
Party Tenant's
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occupancy; (vii) such Third Party Tenant shall not be entitled to any work
contribution, cash allowance, moving allowance, free rent period, or any other
tenant inducement, notwithstanding the fact that one or more of such tenant
inducements may commonly be available to prospective tenants at such time,
(viii) such Third Party Tenant shall not have any renewal or expansion rights,
(ix) such Third Party Tenant shall be required to take the Premises in their
then "as is" condition and the leasehold improvements and layout inherited by
such Third Party Tenant shall be of no particular utility to such Third Party
Tenant, (x) the fact that Landlord would be required to pay one full brokerage
commission to an outside broker and one-half brokerage commission to its
managing agent in connection with such leasing to a Third Party Tenant and (xi)
that Additional Rent for all escalations under the Lease shall continue to be
paid by Tenant during the Second Renewal Term.
(B) Landlord, no less than ninety (90) days prior to the date
set for the commencement of the Second Renewal Term shall deliver to Tenant a
notice setting forth Landlord's Determination of the fair market rent for the
Premises (Landlord's determination is referred to as "Landlord's Determination"
and Tenant's determination is referred to as "Tenant's Determination"). If
Landlord shall refuse or fail to timely give such notice as aforesaid,
Landlord's Determination shall be deemed to be equal to the fixed annual rent
payable by Tenant on the day prior to the First Renewal Term Expiration Date.
Tenant, within thirty (30) days after its receipt of Landlord's Determination,
or Landlord's refusal or willful failure to timely give Landlord's
Determination, shall give a notice to Landlord setting forth Tenant's
Determination of the fair market rent for the Premises. If neither Landlord nor
Tenant shall deliver a determination as aforesaid, the fixed annual rent for the
Premises shall be deemed to be equal to the fixed annual rent payable by Tenant
on the day prior to the First Renewal Term Expiration Date. If Landlord's
Determination and Tenant's Determination are not equal, Landlord and Tenant
shall attempt to agree upon the Fair Market Rent for the Premises. If Landlord
and Tenant shall mutually agree upon the determination (the "Mutual
Determination") of the Fair Market Rent, their determination shall be the Base
Rent for the Premises and shall be final and binding upon the parties.
(C) If Landlord and Tenant shall be unable to reach a Mutual
Determination within thirty (30) days after Tenant's delivery of Tenant's
Determination to Landlord, Landlord and Tenant shall jointly select an
independent real estate appraiser (the "Appraiser") whose fee shall be borne
equally by Landlord and Tenant. In the event that Landlord and Tenant shall be
unable to jointly agree on the designation of the Appraiser within five (5) days
after they are requested to do so by either party, then the parties agree to
allow the American Arbitration Association, or any successor organization to
designate the Appraiser in accordance with the rules, regulations and/or
procedures then obtaining of the American Arbitration Association or any
successor organization. Landlord and Tenant shall, within five (5) days after
the designation of the Appraiser, submit to the Appraiser in sealed envelopes,
their respective determinations of the Fair Market Rent for the Premises
("Landlord's Arbitration Determination" and "Tenant's Arbitration
Determination", respectively). Neither Landlord nor Tenant shall be bound by
Landlord's Determination or Tenant's Determination and Landlord's
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Determination and Tenant's Determination shall not be revealed to or taken into
account by the Appraiser. The Appraiser shall not open the sealed envelopes
and/or reveal to either party Landlord's Arbitration Determination or Tenant's
Arbitration Determination until the Appraiser has received both Landlord's
Arbitration Determination and Tenant's Arbitration Determination.
(D) The Appraiser shall conduct such hearings and
investigations as he may deem appropriate and shall, within thirty (30) days
after the date of designation of the Appraiser, choose either Landlord's
Arbitration Determination or Tenant's Arbitration Determination, and such choice
by the Appraiser shall be conclusive and binding upon Landlord and Tenant and
shall be set forth, along and with the Appraiser's rationale for such choice, in
a written report delivered to Landlord and Tenant. Each party shall pay its own
counsel fees and expenses, if any, in connection with any arbitration under this
Article. The Appraiser appointed pursuant to this Article shall be an
independent real estate appraiser with at least ten (10) years experience in
leasing and valuation of properties which are similar in character to the
Building, with an MAI designation and a member of the American Institute of
Appraisers of the National Association of Real Estate Boards and a member of the
Society of Real Estate Appraisers. The Appraiser shall not have the power to add
to, modify or change any of the provisions of this Lease.
(5) It is expressly understood that any determination of the
Fair Market Rent pursuant to this Article shall be based on the criteria stated
in this Article.
11. Expansion Option. The Lease is hereby modified so that the
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language set forth below shall be added to the Lease as Article 64 thereof.
Option Space
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64. A.1. Named Tenant shall have the option to add to the Demised
Premises the balance of the entire rentable area of the twenty-sixth (26th)
floor of the Building which is not leased to Tenant as of the date of this
Agreement, at the terms set forth below, provided that on each of the respective
Option Notice Dates (as defined below) and on each of the respective Effective
Dates (as defined below) (i) this Lease shall not have been previously
terminated, (ii) no default shall have occurred and be continuing after notice
in accordance with the terms of the Lease and this Agreement (in which event
Tenant's rights under this Article shall not be extinguished but, rather,
suspended through the earlier of (a) the cure by Tenant and (b) the expiration
of the applicable cure period, provided, however, that Tenant's rights shall
nevertheless be reinstated in the event that Tenant cures any such default after
the expiration of the applicable cure period and such cure is accepted by
Landlord without termination of this Lease) and (iii) the Tenant shall occupy at
least eighty (80%) percent of the Demised Premises as its offices for the
conduct of its business on each respective Effective Dates:
(i) with respect to Rooms 2613-14, which the parties agree
consist of
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approximately 1,098 deemed rentable square feet (the "2613 Option Space")
effective on the earlier of (a) July 1, 2000 or (b) the date which is ten (10)
days after Landlord delivers written notice to Tenant that the 2613 Option Space
is available for leasing by Tenant (the `2613 Effective Date");
(ii) with respect to Rooms 2609-12, which the parties agree
consist of approximately 1,634 deemed rentable square feet (the "2609 Option
Space") effective on the earlier of (a) May 1, 2001 or (b) the date which is ten
(10) days after Landlord delivers written notice to Tenant that the 2609 Option
Space is available for leasing by Tenant (the "2609 Effective Date");
(iii) with respect to Room 2608, which the parties agree
consists of approximately 889 deemed rentable square feet (the "2608 Option
Space") effective on the earlier of (a) July 1, 2001 or (b) the date which is
ten (10) days after Landlord delivers written notice to Tenant that the 2608
Option Space is available for leasing by Tenant (the 2608 Effective Date");
(iv) with respect to Room 2615, which the parties agree
consists of approximately 1,034 deemed rentable square feet (the "2615 Option
Space") effective on the earlier of (a) September 1, 2001 or (b) the date which
is ten (10) days after Landlord delivers written notice to Tenant that the 2615
Option Space is available for leasing by Tenant (the "2615 Effective Date); and
(v) with respect to Rooms 2631-32, which the parties agree
consist of approximately 1,389 deemed rentable square feet (the "2631 Option
Space") effective on the earlier of (a) October 1, 2004 or (b) the date which is
ten (10) days after Landlord delivers written notice to Tenant that the 2615
Option Space is available for leasing by Tenant (the "2631 Effective Date), the
aforementioned option spaces are hereinafter sometimes collectively referred to
as the "26/th/ Floor Option Space".
Such respective options may be exercised only by Tenant delivering to Landlord a
written notice (the "Option Notice") no less than the earlier of (x) two hundred
forty (240) days prior to the respective effective dates or (y) ten (10) days
after receiving Landlord's notice that the respective option spaces are
available for leasing by Tenant (the "Option Notice Date(s)"). In the event that
Tenant fails to give any of the respective Option Notices by the Option Notice
Date(s), Tenant shall be deemed to have waived its option with respect to that
particular portion of the 26/th/ Floor Option Space. Notwithstanding anything
contained herein to the contrary, Landlord and Tenant agree that in connection
with the 2613 Space Tenant shall deliver to Landlord Tenant's Option Notice with
respect to same on or before April 30, 2000. Time is of the essence with respect
to the giving of each of the Option Notices. Upon the giving each of the
respective Option Notices, the Tenant shall have no further right or option to
lease the 26/th/ Floor Option Space pursuant to the terms of this Lease.
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2. In the event that the Tenant properly and timely exercises
its option with respect to any or all of the 26/th/ Floor Option Spaces under
this Article, the 26/th/ Floor Option Space shall be added to the Premises on
the each of the respective effective dates under the same terms, covenants and
conditions of this Lease, except that: (i) the fixed annual rent as currently
set forth in the Lease shall be determined pursuant to Sections 3 and 4 hereof,
(ii) and the base tax year shall mean the New York City real estate tax year
during which occurs the Effective Date for each respective 26/th/ Floor Option
Space (iii) the provisions of Articles 48, 53, 54 and 57 shall not be applicable
to any of the respective 26/th/ Floor Option Spaces during the term of this
Lease (iv) Landlord shall deliver each of the respective 26/th/ Floor Option
Spaces and Tenant shall accept each of the 26/th/ Floor Option Spaces in its "as
is" condition and Tenant further acknowledges that neither Landlord or its
agents make any representation or shall have any obligation with respect to the
physical condition thereof. Further, notwithstanding anything herein to the
contrary, Articles 6, 7 and 8 of this Agreement shall apply to each of the
respective Option Spaces and shall be incorporated herein for such purposes as
though set forth herein.
3. Fixed Annual Rent for the 26/th/ Floor Option Spaces shall
be an amount equal to the greater of (i) 100% of the Fair Market Rent on the
first day of the effective date of the 26/th/ Floor Option Space as determined
pursuant to Section 4 hereof or (ii) the amount of fixed annual rent and
additional rent payable pursuant to the terms of this Lease, as of the Option
Notice Dates for each of the respective 26/th/ Floor Option Spaces, subject to,
in either event of (i) or (ii) above, an increase of 1.75% per annum compounded
annually each year of the term of the term of the lease for each of the
respective 26/th/ Floor Option Spaces, (iii) the Percentage shall be increased
as follows in order to reflect the addition of each of the respective 26/th/
Floor Option Spaces; (a) with respect to the 2613 Option Space by the amount of
.0987%, (b) with respect to 2609 Option Space by the amount of .1469%, (c) with
respect to the 2608 Option Space by the amount of .0799%, (d) with respect to
the 2615 Option Space by the amount of .0929% and (e) with respect to the 2631
Option Space by the amount of .1249% and (iv) the rentable square foot area of
the Demised Premises for purposes of Article 24(a) and 41(B) of the Lease shall
be increased as follows in order to reflect the addition of each of the 26/th/
Floor Option Spaces: (a) with respect to the 2613 Option Space by the amount of
1.098 deemed rentable square feet, (b) with respect to the 2609 Option Space by
the amount of 1,634 deemed rentable square feet, (c) with respect to the 2608
Option Space by the amount of 889 deemed rentable square feet, (d) with respect
to the 2615 Option Space by the amount of 1,034 deemed rentable square feet and
(e) with respect to the 2631 Option Space by the amount of 1,389 deemed rentable
square feet.
4. For purposes of determining the fair market rent payable
per annum for each of the respective the 26/th/ floor Option Spaces ("Option
Fair Market Rent"), the following procedure shall apply:
(A) the Option Fair Market Rent shall be determined on the
basis of the annual rent that an unrelated third party (a "Third Party Tenant")
would be willing to pay for each of the respective 26/th/ Floor Option Spaces
for a term commencing on the first day of each of
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the respective effective dates for each of the 26/th/ Floor Option Spaces and
expiring five (5) years thereafter, assuming that (i) each of the 26/th/ Floor
Option Spaces are free and clear of all leases and tenancies (including this
Lease), that (ii) each of the 26/th/ Floor Option Spaces are available in the
then rental market for comparable office buildings in midtown Manhattan, (iii)
Landlord has had a reasonable time to locate a Third Party Tenant who rents with
the knowledge of the highest and, best uses to which each of the respective
26/th/ Floor Option Spaces can be adopted, (iv) neither Landlord nor such Third
Party Tenant is under any compulsion to rent; (v) the Base Tax Year shall mean
the New York City real estate tax year during which occurs each of the
respective effective dates for the 26/th/ Floor Option Spaces, (vi) Landlord
shall not be obligated to perform any work in each of the respective 26/th/
Floor Option Spaces to prepare the same for such Third Party Tenant's occupancy;
(vii) such Third Party Tenant shall not be entitled to any work contribution,
cash allowance, moving allowance, or any other tenant inducement, except that
Tenant shall receive a rent credit in the amount of two (2) months fixed annual
rent for each of the 26/th/ Floor Option Spaces (exclusive of electricity) and
notwithstanding the fact that one or more of such tenant inducements may
commonly be available to prospective tenants at such time, (viii) such Third
Party Tenant shall not have any renewal or expansion rights, (ix) such Third
Party Tenant shall be required to take each of the respective 26/th/ Floor
Option Spaces in their then "as is" condition and the leasehold improvements and
layout inherited by such Third Party Tenant shall be of no particular utility to
such Third Party Tenant, (x) the fact that Landlord would be required to pay one
full brokerage commission to an outside broker and one-half brokerage commission
to its managing agent in connection with such leasing to a Third Party Tenant
and (xi) that Additional Rent for all escalations under the Lease shall continue
to be paid by Tenant during the term of any of the respective leases for each of
the 26/th/ Floor Option Spaces.
(B) Landlord, no less than ninety (90) days prior to the date
set for the commencement of the term of each of the respective 26/th/ Floor
Option Spaces shall deliver to Tenant a notice setting forth Landlord's
Determination of the fair market rent for each respective 26/th/ Floor Option
Space (Landlord's determination is referred to as "Landlord's Option
Determination" and Tenant's determination is referred to as "Tenant's Option
Determination"). If Landlord shall refuse or fail to timely give such notice as
aforesaid, Landlord's Option Determination shall be deemed to be equal to the
fixed annual rent payable by Tenant on the day prior to each of the respective
Option Notice Dates for each of the 26/th/ Floor Space Option Spaces. Tenant,
within thirty (30) days after its receipt of Landlord's Option Determination, or
Landlord's refusal to give Landlord's Option Determination, shall give a notice
to Landlord setting forth Tenant's Option Determination of the fair market rent
for each of the respective 26/th/ Floor Option Spaces. If neither Landlord nor
Tenant shall deliver a determination as aforesaid, the fixed annual rent for
each of the respective 26/th/ Floor Option Spaces shall be deemed to be equal to
the fixed annual rent payable by Tenant on the day prior to each of the Option
Notice Dates for the 26/th/ Floor Spaces. If Landlord's Option Determination and
Tenant's Option Determination are not equal, Landlord and Tenant shall attempt
to agree upon the Option Fair Market Rent for each of the respective 26/th/
Floor Option Spaces. If Landlord and Tenant shall mutually agree upon the
determination (the "Mutual Option Determination") of the Option Fair
29
<PAGE>
Market Rent for each of the respective 26/th/ Floor Option Spaces, their
determination shall be the Option Fixed Annual Rent for each of the respective
26/th/ Floor Option Spaces and shall be final and binding upon the parties.
(C) If Landlord and Tenant shall be unable to reach a Mutual
Option Determination within thirty (30) days after Tenant's delivery of Tenant's
Option Determination to Landlord, Landlord and Tenant shall jointly select an
independent real estate appraiser (the "Option Appraiser") whose fee shall be
borne equally by Landlord and Tenant. In the event that Landlord and Tenant
shall be unable to jointly agree on the designation of the Option Appraiser
within five (5) days after they are requested to do so by either party, then the
parties agree to allow the American Arbitration Association, or any successor
organization to designate the Option Appraiser in accordance with the rules,
regulations and/or procedures then obtaining of the American Arbitration
Association or any successor organization. Landlord and Tenant shall, within
five (5) days after the designation of the Option Appraiser, submit to the
Option Appraiser in sealed envelopes, their respective determinations of the
Option Fair Market Rent for each of the respective 26/th/ Floor Option Spaces
("Landlord's Option Arbitration Determination" and "Tenant's Option Arbitration
Determination", respectively). Neither Landlord nor Tenant shall be bound by
Landlord's Option Determination or Tenant's Option Determination and Landlord's
Option Determination and Tenant's Option Determination shall not be revealed to
or taken into account by the Option Appraiser. The Option Appraiser shall not
open the sealed envelopes and/or reveal to either party Landlord's Option
Arbitration Determination or Tenant's Option Arbitration Determination until the
Option Appraiser has received both Landlord's Option Arbitration Determination
and Tenant's Option Arbitration Determination.
(D) The Option Appraiser shall conduct such hearings and
investigations as he may deem appropriate and shall, within thirty (30) days
after the date of designation of the Option Appraiser, choose either Landlord's
Option Arbitration Determination or Tenant's Option Arbitration Determination,
and such choice by the Option Appraiser shall be conclusive and binding upon
Landlord and Tenant and shall be set forth, along and with the Option
Appraiser's rationale for such choice, in a written report delivered to Landlord
and Tenant. Each party shall pay its own counsel fees and expenses, if any, in
connection with any arbitration under this Article. The Option Appraiser
appointed pursuant to this Article shall be an independent real estate appraiser
with at least ten (10) years experience in leasing and valuation of properties
which are similar in character to the Building, with an MAI designation and a
member of the American Institute of Appraisers of the National Association of
Real Estate Boards and a member of the Society of Real Estate Appraisers. The
Option Appraiser shall not have the power to add to, modify or change any of the
provisions of this Lease.
(E) It is expressly understood that any determination of the
Option Fair Market Rent pursuant to this Article shall be based on the criteria
stated in this Article.
5. Named Tenant acknowledges and agrees that each of the
respective 26/th/ Floor Option Spaces are currently occupied by other tenants,
undertenants or occupants of
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the Building, and that in the event that Landlord shall be unable to deliver to
Named Tenant timely and exclusive possession of each of the respective 26/th/
Floor Option Spaces Landlord shall not be subject to any liability for such
failure, provided, however, Landlord shall promptly commence and diligently
prosecute to completion appropriate summary proceedings in order to evict any
such existing tenant therefrom and recover lawful possession of the each of the
respective 26/th/ Floor Option Spaces and this Agreement shall remain in full
force and effect without extension of term, however, Tenant's obligation to pay
rent hereunder with respect to each of the respective 26/th/ Floor Option Spaces
shall not commence until possession thereof is delivered to Tenant subject to
the provisions hereof and of Article 16 of the Lease. Notwithstanding anything
contained herein to the contrary, Landlord and Tenant acknowledge and agree that
if Tenant has exercised its option in connection with any of the respective
Option Spaces and Landlord shall not have delivered to Tenant possession of any
such Option Space within three hundred sixty five (365) days after the
applicable Effective Date, then Tenant may within thirty (30) days thereafter
unequivocally and unconditionally notify Landlord that Tenant elects to
terminate and cancel this Agreement solely with respect to that Option Space for
which Landlord has failed to deliver possession and, effective as of the date
which is thirty (30) days after the delivery of Tenant's notice (the "Option
Space Cancellation Date") provided, however, that the such 365 day period shall
be extended one (1) day for each day of delay by Landlord which is due solely to
the acts or omissions of Tenant. In the event Tenant so terminates and cancels
this Agreement with respect to a particular Option Space, this Agreement shall
be null and void solely with respect to that particular Option Space and neither
Landlord nor Tenant shall have any further liability with respect to any such
Option Space.
6. In the event that the Tenant duly and properly exercises its
option with respect to any and/or all of the 26/th/ Floor Option Spaces in
accordance with the terms, covenants and conditions of this Article, the parties
shall immediately be bound thereby, with respect to Tenant's exercise of its
option in connection with any or all of the 26/th/ Floor Option Spaces, without
the execution of an amendment to this Lease; however, at the request of either
party, the parties shall promptly execute and deliver a written amendment to
this Lease reflecting the addition of each of the respective 26/th/ Floor Option
Spaces to the Demised Premises for the remainder of the term of this Lease under
such terms as provided above.
12. Successors/Assigns. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties and their respective successors and
permitted assigns.
13. Entire Agreement.
----------------
(a) This agreement represents the entire understanding between
the parties with regard to the matters addressed herein and may only be modified
by written agreement executed by all parties hereto. All prior understandings or
representations between
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the parties hereto, oral or written, with regard to the matters addressed
herein, other than the Lease, are hereby merged herein.
(b) All oral or written statements, representations, promises,
understandings and agreements of Landlord and Tenant are merged into and
superseded by this Agreement, which alone fully and completely expresses their
understanding with regard to the transaction which is the subject of this
Agreement. Tenant acknowledges that neither Landlord nor any representative or
agent of Landlord has made any representation or warranty, express or implied,
as to the physical condition, state of repair, layout, footage or use of the
Demised Premises or any matter or thing affecting or relating to the Demised
Premises except as specifically set forth in this Agreement. Tenant has not been
induced by and has not relied upon any statement, representation or agreement,
whether express or implied, not specifically set forth in this Agreement. Tenant
shall not be liable or bound in any manner by any oral or written statement,
broker's "set-up"," representation, agreement or information pertaining to the
Demised Premises or this Agreement furnished by any real estate broker, agent,
servant, employee or other person, unless specifically set forth herein, and no
rights are or shall be acquired by Tenant by implication or otherwise unless
expressly set forth herein.
14. Effectiveness. This Agreement shall not be binding upon Landlord
-------------
and Tenant until executed and delivered by both Landlord and Tenant.
15. Ratification. Except as specifically modified herein, all other
------------
terms, covenants and conditions of the Lease are and shall remain in full force
and effect and are hereby ratified and confirmed.
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16. No Brokers/Indemnification: A. Tenant warrants that it has not
--------------------------
dealt with any broker, agent or finder in connection with this Agreement other
than SL Green Leasing, LLC, and Insignia/ESG, Inc. (collectively, the
"Brokers"). Tenant hereby indemnifies and agrees to defend and hold Landlord,
its agents, servants and employees harmless from any suit, action, proceeding,
controversy, claim or demand whatsoever at law or in equity that may be
instituted against Landlord by anyone other than the Brokers who claimed to have
dealt with Tenant for recovery of compensation or damages for procuring this
Agreement or by reason of a breach or purported breach of the representations
and warranties contained herein.
B. Landlord represents and warrants to Tenant that it did not
consult or negotiate with any broker, finder, or consultant with regard to the
Additional Space or Option Space other than the Brokers, and that no other
broker, finder or consultant participated in procuring this Agreement. Landlord
hereby indemnifies and agrees to defend and hold Tenant, its agents, servants
and employees harmless from any suit, action, proceeding, controversy, claim or
demand whatsoever at law or in equity that may be instituted against Tenant by
those who dealt with Landlord for recovery of compensation or damages for
procuring this Agreement or by reason of a breach or purported breach of the
representations and warranties contained herein. Landlord covenants that it
shall pay any sums due SL Green Leasing, LLC, and Insignia/ESG, Inc., in
connection with this Agreement pursuant to separate agreements.
17. Miscellaneous.
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(a) The captions in this Agreement are for convenience only and
are not to be considered in construing this agreement.
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(b) This Agreement shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Agreement to be drafted.
(c) Terms used in this Agreement and not otherwise defined
herein shall have the respective meanings ascribed thereto in the Lease.
(d) If any provision of this agreement or its application to any
person or circumstances is invalid or unenforceable to any extent, the remainder
of this agreement, or the applicability of such provision to other persons or
circumstances, shall be valid and enforceable to the fullest extent permitted by
law and shall be deemed to be separate from such invalid or unenforceable
provisions and shall continue in full force and effect.
PHASE2MEDIA, INC. SLG GRAYBAR SUBLEASE LLC, a New York
limited liability company
By: SLG Graybar Sublease Corp., A New York
By: /s/ Richard S. Nachmias corporation, its Managing Member
------------------------------
Name: Richard S. Nachmias
Title: CFO By: /s/ [ILLEGIBLE]
------------------------------------
Name: [ILLEGIBLE]
Title: EVP
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement"), is entered into as of August 16,
1999 ("Commencement Date") between Richard Glassberg, an individual residing at
17 Hix Avenue, Rye, New York 10580 ("Employee") and CKGMedia.com, Inc., d/b/a
Phase2Media, a Delaware corporation with its principal place of business at 420
Lexington Avenue, Suite 2101, New York, New York 10170 ("Company").
WHEREAS, the Company desires to employ Employee and Employee desires to be
employed in such capacity on the terms and conditions hereof;
NOW THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the Company and the Employee
hereby agree as follows:
1. Employment Duties and Responsibilities
(1) The Company hereby agrees to employ Employee on the terms and
conditions hereof (the"Employment") as Chairman and Chief Executive Officer
("CEO") of the Company with such duties, responsibilities, obligations and
powers commensurate with such role, as are described herein and which are
reasonably required from time to time by the Board of Directors of the Company
(the "Board"), and Employee hereby accepts the Employment on the terms and
conditions hereof. However, this is subject to Section 4(a)(ii)'s language
relating to the Company's ability following a merger to change Employee's
position to President or COO of a standalone U.S. advertising sales operation or
business unit so long as within a twelve month period following the merger,
Employee is returned to his position as CEO and Chairman of the Company.
(2) During the Employment, Employee shall have primary responsibility for
the direction and management of the current and future affairs and business of
the Company as presently constituted and as same may from time to time hereafter
change, including primary responsibilities for the overall direction of the
Company, its day-to-day operations and management of the Company's business,
hiring and firing of personnel, developing and directing the Company's business
plan, budget, and business strategies, developing and appointing the Company's
management team, and such other duties and responsibilities as may be required
from time to time by the Board consistent with Employee's positions as Chairman
and CEO of the Company. Employee's duties and responsibilities shall be subject
only to the direction and authority of the Board. In the event that the Company
shall hereafter effect a merger in which it is the surviving entity, effect an
acquisition, or form a subsidiary, subject to Section 4(a) hereof, unless
Employee expressly consents in writing to the contrary Employee shall hold the
position of Chairman and CEO of any merged or acquired entity and of any wholly-
owned subsidiary (and in the event that the Company shall form or acquire a non-
wholly owned subsidiary, the Company shall vote all of its interests in such
subsidiary in favor of electing Employee as Chairman and CEO of such
subsidiary).
(3) The principal offices of Employee shall be in New York, New York.
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(4) During the Employment, Employee shall devote all of his business time,
attention, effort, skills and ability to the business and affairs of the Company
on an exclusive basis, and shall not engage in any other business activities for
any other person or entity, except that the foregoing shall not limit Employee
from performing charitable activities, managing personal passive investments, or
subject to the provisions of Section 6 hereof, serving on the Board of Directors
of another entity; provided that any such activities do not in any material way
substantially detract from Employee's performance of his duties hereunder and
provided Employee receives approval from the Board of Directors prior to
engaging in such. Employee shall faithfully and diligently endeavor to promote
the business, reputation, and best interests of the Company and shall make
available to the Company, when and if requested, all knowledge possessed by him
relating to any and all aspects of his duties and responsibilities hereunder.
(5) Employee hereby agrees to allow the Company to use his name, biography
and likeness in connection with information that may be disseminated concerning
the Company. Employee agrees to appear and actively participate on behalf of the
Company in the general promotion of its business.
2. Compensation
(a) Base Salary and Bonuses
(1) As compensation for the performance by Employee of his
obligations hereunder during the Employment, the Company shall
pay Employee, in addition to all other benefits provided for in
this Agreement, beginning on the Commencement Date, a base salary
equal to two hundred thousand dollars ($200,000.00) per annum
(the "Base Salary"), provided, however, that the Board, in its
-------- -------
sole discretion, will consider increases in Employee's Base
Salary at the commencement of each calendar year. Employee's Base
Salary shall be payable in semi-monthly installments or otherwise
in accordance with the Company's payroll policies.
(2) The Company shall pay Employee a bonus, which shall be set by the
Board in its sole discretion (the "Annual Bonus"), and may be
paid in whole or in part in additional stock grants, or in cash,
as determined by the Board.
(b) Additional Benefits
(1) During the Employment, Employee shall be entitled to participate
in such medical, disability and dental insurance plans, 401(k) or
other retirement plans, employee stock option plans, and other similar
plans, programs or arrangements adopted by the Company and offered
generally to the Company's management employees.
(2) The Company shall pay or reimburse Employee for all reasonable and
2
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necessary business expenses incurred or to be incurred by Employee
which relate to the business of the Company, provided that such
expenses are adequately documented and vouchered in accordance with
the Company's policies, with such payments or reimbursements to be
made in accordance with the Company's policies.
(3) Employee shall be entitled to four (4) weeks paid vacation to be
taken by Employee at times mutually and reasonably agreed upon by the
Company and Employee, in addition to all other holidays established as
part of the Company's policies.
(c) Payments Subject to Withholding.
The compensation provided to Employee pursuant to this Agreement shall
be subject to any required federal, state, local and other governmental
withholdings or other deductions, and governmental filings and reporting
requirements, that may be required from time to time under applicable U.S. or
foreign laws and regulations.
3. Term
(1) The initial employment term ("Initial Term") shall be for a period of
three (3) years and shall commence on the Commencement Date and end on the third
anniversary of the Commencement Date. The Initial Term shall be renewable for
one or more additional terms (each a "Renewal Term") on such terms as mutually
agreed upon by Employee and the Board. Employee and the Board each shall notify
the other of his or its desire to negotiate the terms of a Renewal Term no later
than six (6) months prior to expiration of the Initial Term or the Renewal Term
in force, as the case may be. The Employment will continue for the Initial Term
and the Renewal Term(s) unless terminated by a "Termination Event," as defined
in Section 4 below.
4. Termination; Payments Due.
For purposes of this Agreement, each of the following events shall
constitute a "Termination Event", and this Agreement and the Employment shall
terminate upon the occurrence of any such Termination Event, with termination
payments due Employee as specified in this Section 4.
(a) Termination Without Cause; Good Reason. If this Agreement is
terminated (either during the Initial Term or during any Renewal Term) without
Cause (as such term is defined in Section 4(b) hereof) or by reason other than
as set forth in Section 4(c) hereof, or if this Agreement is not renewed in
accordance with the provisions of Section 3 hereof, or if Employee resigns for
"Good Reason" (as hereinafter defined), Employee shall receive, commencing on
the Company's next regular payroll, from the date of any such termination or
non-renewal of, or resignation by, Employee: payment of his Base Salary for a
twelve month period in an amount equivalent to that which he received for the
last full twelve (12) month period, as well as a continuation of the benefits
set forth in Section 2(b)(i), and any unreimbursed
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business expenses. In addition, thirty-three and one-third percent (33.3%) of
all unvested and or outstanding options, warrants or other contractual rights to
acquire equity securities of the Company shall automatically vest and become
exercisable. For purposes of this Agreement, "Good Reason" shall mean (i) a
relocation of Employee, without his prior written consent, outside of the New
York City metropolitan area, or (ii) a failure to maintain Employee as the CEO
and Chairman of the Company, including but not limited to, after any merger in
which the Company is the surviving entity or acquisition, or with respect to any
wholly-owned subsidiary, provided, however, after a merger, the Company may
change Employee's position to President or COO of a standalone U.S. advertising
sales operation or business unit so long as within a twelve month period
following the merger, Employee is returned to his position as CEO and Chairman
of the Company, or (iii) the failure to be nominated by management of the
Company for election to the Board, or (iv) a material diminution by the Company
of Employee's responsibilities, which change would cause Employee to report to
any person or persons other than the Board or cause Employee's position with the
Company or any subsidiary to become one of significantly less responsibility,
importance or scope from that contemplated by Section 1 hereof, or (v) a willful
failure in bad faith to pay the Base Salary, or the Annual Bonus to Employee
when due or another material breach of this Agreement by the Company. All
amounts due Employee under this Section 4(a) shall be paid to Employee without
offset for any amounts earned by Employee in any other employment or from any
other source; provided, however, that Employee's twelve month salary and
benefits continuation shall cease in the event he obtains another job during
that twelve month period, and if he does, Employee shall promptly notify the
Company. Whether Employee accepts another job during the twelve month period
shall be in his sole discretion. In the event that the Company breaches this
Agreement other than for a reason giving Employee the right to resign for Good
Reason, Employee and the Company shall be entitled to their respective rights at
law.
(b) Cause. Notwithstanding any other provision hereof, the Company may
terminate this Agreement for cause ("Cause") in the event (i) of Employee's
willful and repeated failure or refusal to materially perform his duties
hereunder with reasonable diligence or to follow lawful directives of the Board,
(ii) of Employee's commission of an act involving fraud, embezzlement, or theft
against the property or personnel of the Company, or (iii) Employee engages in
willful or grossly negligent conduct that the Board in good faith determines
will have a material adverse affect on the business, assets, properties, results
of operations, or financial condition of Employer, or (iv) Employee's conviction
of, or guilty plea, nolo contendere plea or confession to a felony or crime of
moral turpitude. In the event the Employment and this Agreement are terminated
pursuant to this Section 4(b), Employee's Base Salary shall terminate
immediately upon such termination (subject to applicable law such as COBRA), and
the Company shall have no further obligations to Employee except for payment and
reimbursement to Employee for any monies due to Employee which right to payment
or reimbursement accrued prior to such termination. Notwithstanding any
provision of this Section 4(b), prior to the Company having the right to
terminate the Employment pursuant to clauses (i) or (iii) of this Section 4(b),
the Company shall first be required to give Employee at least thirty (30) days'
prior written notice of any alleged breach under Sections 4(b)(i) or 4(b)(iii)
hereof (the "Notice"), and for such Notice to be effective it must specify in
reasonable detail the nature of, and facts and circumstances
4
<PAGE>
relative to, such alleged Cause, and Employee shall have a reasonable
opportunity to cure any such alleged improper actions within such thirty (30)
day period, and in the event Employee takes such curative actions, the Notice
shall automatically be deemed withdrawn. Employee shall not, under any
circumstances, be deemed to have been terminated for Cause unless and until
there shall have been delivered to him a copy of a resolution (the "Board
Resolution") duly adopted by the affirmative vote of not less than fifty one
(51%) percent of the Board (with Employee not being permitted to vote on this
matter) at a meeting of the Board held for that purpose. Any such Board
Resolution, which in the event of an alleged termination for Cause under
Sections 4(b)(i) or 4(b)(iii) hereof shall be dated no sooner than thirty (30)
days after the Notice has been deemed to have been given to Employee and
Employee shall have had an opportunity, together with counsel, to be heard
before the Board, shall find that in the good faith opinion of the Board,
Employee was guilty of conduct constituting Cause and specifying the particulars
thereof in detail.
(c) Death. This Agreement shall terminate immediately upon the death of
Employee. Upon such termination, Employee's spouse or other beneficiary shall
be entitled to receive a payment of Two Million Dollars ($2,000,000.00) payable
from a Key Man Life Insurance Policy in the total amount of Ten Million Dollars
($10,000,000.00) which shall be maintained in force by the Company for as long
as Glassberg is employed. In addition, his beneficiary shall receive payment of
all unreimbursed expenses.
5. Ownership of Inventions, Work Product, and Business Opportunities
Any interest in any and all discoveries, inventions, patents, patent
applications, copyrights, trademarks, trademark applications, software,
materials, licenses, methods, processes, analyses, and reports ("Inventions")
relating to electronic or digital advertising or marketing content or services
or electronic or digital retailing of goods and services (collectively, the
"Industries"), whether over the Internet, on CD-ROM, or otherwise, whether or
not patentable or copyrightable and whether created and owned by Employee during
the Employment or during any prior employment with the Company or affiliates of
the Company, or owned by the Company prior or after the execution of this
Agreement ("Work Product"), and all business opportunities relating to the
Industries ("Opportunities") introduced to Employee during the Employment shall
be owned 100% by the Company. Employee shall disclose any Work Product and
Opportunities to the Company and, forthwith upon the request of the Board and
without additional compensation shall execute all such assignments and other
documents and take all such other action as the Board may reasonably request in
order to vest in the Company all right, title and interest in and to the
Inventions, Work Product, and Opportunities, free and clear of all liens,
charges, and encumbrances.
6. Non-Competition; Non-Solicitation.
(1) During his Employment, and in the event the Company terminates
Employee's employment, or if this Agreement is not renewed, or if Employee
resigns for "Good Reason", for a period of twelve (12) months following the
cessation of the Employment, Employee hereby agrees and covenants that he will
not directly or indirectly engage in or become interested
5
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(whether as an owner, principal, agent, stockholder, member, partner, trustee,
venturer, lender or other investor, director, officer, employee, consultant or
through the agency of any corporation, limited liability company, partnership,
association, agent or otherwise) in any business or enterprise engaged in the
business of an Internet Advertising Sales Rep Firm that sells inventory for
multiple sites they do not own, including, without limitation, companies such as
Doubleclick, 24/7, Adsmart and Flycast. In the event Employee voluntarily
resigns, this non-compete shall also be applicable during the Employment and for
twelve months following cessation of the Employment, but shall extend to any
business or enterprise that shall, at the time, be in whole or in substantial
part competitive with any part of the business conducted by the Company during
the period of employment (except that in either event, ownership of not more
than 5% of the outstanding securities of any class of any entity, which
securities are listed on a national securities exchange or traded in the over-
the-counter market, shall not be considered a breach of this Section 6(1)).
(2) Employee agrees and covenants that for a period of twelve (12) months
following the termination of the Employment, he will not (without first
obtaining the written permission of the Company) directly or indirectly
participate in the solicitation of any business of any type which was conducted
by the Company during the Employment, from any person or entity which was a
client or customer of the Company during the period of the Employment, or was a
prospective customer of the Company from which Employee solicited business or
for which a proposal for submission was prepared during the period of the
Employment.
(3) Employee agrees and covenants that for a period of twelve (12) months
following the termination of the Employment, he will not (without first
obtaining the written permission of the Company) directly or indirectly, hire,
recruit for employment, or induce or seek to cause such person to terminate his
or her employment with the Company, any person who then is an employee of the
Company or was an employee of the Company within three (3) months prior to the
time of such hiring or solicitation by Employee.
7. Protection of Proprietary Information
(1) Employee acknowledges that during the course of his Employment, he
will acquire Proprietary Information and Trade Secrets (as hereinafter defined)
of the Company. For purposes of this Agreement:
(1) "Proprietary Information" shall mean and include all unpublished
materials and all information and data created, discovered, owned
or otherwise controlled by the Company or its affiliates relating
to the operations, financial conditions, products, customers, or
business of the Company or its affiliates, including, but not
limited to, financial information, data, or statements, product
research and development, existing and future product plans,
designs and schematics, patents, trademark information, client
lists, computer data, documentation, algorithms, processes and
know-how (whether or not reduced to writing and whether or not
patentable or copyrightable), business and marketing
6
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plans and strategies, pricing policies, product packaging, cost
and profit information, supplier identities, and the like,
whether disclosed orally, in writing, or by inspection.
"Proprietary Information" also shall include all other materials
and information which have clearly been identified by the Company
as "Proprietary Information", "Trade Secrets" or confidential
information. The term "Proprietary Information" shall not include
any information which is now generally known or available or
which hereafter through no act or failure on the part of Employee
becomes generally known or available; and
(2) "Trade Secrets" shall mean and include information, without
regard to form, including, but not limited to, technical or non-
technical data, a formula, a pattern, a compilation, a program, a
device, a method, a technique, a drawing, a process, financial
data, financial plans, product plans, or a list of actual or
potential customers or suppliers which is not commonly known by
or available to the public and which information (i) derives
economic value, actual or potential, from not being known to, and
not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use; and
(ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
(2) Non-Disclosure. Employee agrees and covenants that, at any
time during the Employment (which, for purposes of this Section 7 shall include
the Company's subsidiaries and affiliates) and for a period of twenty-four (24)
months thereafter, he will hold in the strictest confidence and not (without
first obtaining the written permission of the Company) (i) disclose to any
person or entity, nor use (either himself or in connection with any business)
any Proprietary Information or Trade Secrets; or (ii) disclose to any person or
entity, nor use (either himself or in connection with any business) any Trade
Secrets to which he may have had access or which were revealed to him during the
Employment, unless such disclosure is pursuant to a court order, disclosure in
litigation involving the Company or in any reports or applications required by
law to be filed with any governmental agency. Employee further agrees not to
disclose any Proprietary Information or Trade Secrets except to the Board and to
employees, advisors, counsel and consultants of the Company and its affiliated
companies, if any, on a "need to know basis", and then only to those persons who
reasonably require the same for the purposes hereof and who are bound by a
confidentiality agreement consistent in format and substance with this Section 7
and the policies of the Board.
(3) Return of Documents and Materials. Employee agrees to use his best
efforts to deliver promptly upon the termination of the Employment, and at any
and all other times as the Board may request, all documents, technology, Work
Product, source codes, object codes, hardware (and copies thereof), in whatever
medium, Proprietary Information, and Trade Secrets (including any and all
copies), in whatever medium, relating to the business of the Company, which he
possesses or has under his control.
7
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(4) Nothing in this Section 7 shall limit any protection, definition or
remedy provided to the Company under any law, statute or legal principle
relating to confidential information, proprietary information, or trade secrets.
8. Conflicting Agreement
Employee warrants and represents that he has disclosed to the Company any
existing or proposed agreements to which Employee is a party that may adversely
affect Employee's ability to render his services to the Company hereunder.
9. Resignation as a Director of the Board
Upon termination of the Employment in accordance with Section 4 hereof,
Employee shall immediately resign as a director of the Board unless otherwise
agreed to in writing by the Board and Employee.
10. Miscellaneous Provisions
(1) No provision of this Agreement shall be deemed to have been waived
unless such waiver is in writing signed by the waiving party. No failure by any
party to insist upon the strict performance of any provision of this Agreement,
or to exercise any right or remedy consequent upon a breach thereof, shall
constitute a waiver of any such breach of such provision or any other provision.
No waiver of any provision of this Agreement shall be deemed a waiver of any
other provision of this Agreement or wavier of such provision with respect to
any subsequent breach, unless expressly provided in writing.
(2) Any and all notices, demands, and requests required or permitted to be
given under this Agreement shall be in writing. Notices may be served by: (1)
certified or registered mail postage prepaid with return receipt requested, or
by private courier, prepaid; (2) by facsimile or other telecommunication device
capable of transmitting or creating a written record, with a copy sent by U.S.
mail or by personal delivery within three (3) business days after the initial
facsimile transmission; or (3) by hand. Mailed notices shall be deemed delivered
three days after mailing, if properly addressed, return receipt signed.
Couriered notices shall be deemed delivered on the date the courier warrants a
delivery has occurred. Facsimile notices shall be deemed delivered when receipt
is either confirmed by confirming transmission equipment or acknowledged by the
addressee or its office. Hand delivery shall be effective when accomplished upon
signature of receipt. All notices shall be given to the parties at the addresses
first given above unless a party changes his or its address by giving notice to
the other party in accordance with the provisions of this Section 10(2),
together with copies thereof as follows:
In the case of the Company, with a copy to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022-4728
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Attention: Andrew M. Chonoles, Esq.
(3) This Agreement constitutes the entire Agreement of the parties
relating to the subject matter hereof. This Agreement supersedes all prior
communications, representations or agreements between the parties relating to
the subject matter hereof. This Agreement expressly supersedes and replaces the
Agreement between the parties dated April 12,1999. As such, the April 12, 1999
Agreement is null and void once this Agreement is signed. This Agreement may not
be amended except in a writing executed by the parties.
(4) The invalidity or unenforceability of any particular provision of this
Agreement shall not effect the other provisions hereof; all of which shall
remain enforceable in accordance with their terms. Should any of the obligations
hereunder be illegal or unenforceable, such obligations shall be enforceable
within whatever terms a court of competent jurisdiction shall deem allowable by
law.
(5) This Agreement shall inure to the benefit of the successors and
assigns of the Company as if such Agreement had been originally negotiated and
entered into by and between Employee. As a condition to any merger, corporate
reorganization, sale of the Company's assets or comparable transaction, the
assignee, purchaser or successor, as the case may be, shall be required to
undertake in writing to perform all of the Company's obligations hereunder and
specifically to agree in writing to assume this Agreement. The Company may
assign this Agreement to any person, firm or corporation controlling, controlled
by, or under common control with the Company. Employee may not assign, sell,
subcontract, delegate or otherwise transfer this Agreement or any rights or
obligations of Employee under this Agreement, without the prior written consent
of the Board, and any attempted assignment or delegation shall be void and
without effect.
(6) This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of New York for agreements wholly
negotiated, entered into, and performed within the State of New York. Each of
the parties hereto irrevocably consents to the venue and jurisdiction of the
federal and state courts located in the State of New York, County of New York.
(7) Any dispute, disagreement or controversy of any kind arising out of or
relating to the Employment or the termination thereof shall be submitted for
resolution to arbitration before three arbitrators in accordance with the then
prevailing Commercial Rules of the American Arbitration Association. The
arbitration shall be held in the City of New York. The fees and expenses of the
arbitration shall be borne equally by the parties. However, the Company may also
pursue claims for injunctive relief against Employee in any appropriate court
for any breaches of the provisions of Sections 6 or 7 hereof.
(8) Employee acknowledges that the Company is a new and evolving company
in the Industries, and that protection of Proprietary Information, Work Product,
Trade Secrets, and Opportunities, as provided for in this Agreement are
important to future prospects for growth and
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business development of the Company. Employee acknowledges that the Company may
not have an adequate remedy at law in the event of any breach or threatened
breach by Employee of any provision of Sections 6 or 7 hereof, and that the
Company may suffer irreparable damage and injury as a result. Accordingly, in
the event of any such breach or threatened breach, Employee hereby consents to
the Company's application for injunctive relief against him by any court of
competent jurisdiction without the posting of any bond or security therefor.
(9) This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement binding on all of the
parties, notwithstanding that all parties are not signatories to the same
counterpart. The section headings in this Agreement are included for convenience
only; they do not give full notice of the terms of any portion of this Agreement
and are not relevant to the interpretation of any provision of this Agreement.
(10) Facsimile signatures on this Agreement shall be deemed to be originals
and to be legally binding and effective.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
/s/ Richard Glassberg
----------------------------------
Employee
CKG MEDIA.COM, INC. d/b/aPHASE2MEDIA
By: /s/ Robert Chmiel
--------------------------------
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EXHIBIT 10.6
EXCLUSIVE INTERNET ADVERTISING SERVICES AGREEMENT
-------------------------------------------------
EXCLUSIVE INTERNET ADVERTISING SERVICES AGREEMENT (this "Agreement"), dated
as of February 1, 2000, by and between PHASE2MEDIA, INC., a Delaware corporation
with its principal place of business at 420 Lexington Avenue, 26th Floor, New
York, NY 10170 ("P2M"), and HACHETTE FILIPACCHI MAGAZINES, INC., a Delaware
Corporation, with its principal place of business at 1633 Broadway, N.Y., N.Y.
10019 ("Hachette").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, Hachette is the owner and/or operator of the Internet web sites
specified on Exhibit 1 annexed hereto (collectively, the "Existing Web Sites");
---------
WHEREAS, P2M is in the business of providing (1) advertising services (the
"Sales and Marketing Services"), consisting of soliciting advertisers,
advertising agencies, buying services and others located throughout the world
(collectively, the "Advertisers") in connection with the solicitation, placement
-----------
and sale of advertising banners, sponsorships and tile advertisements
(collectively, "Advertising") for display on pages, screens and other spaces
-----------
(collectively, "Pages") on Internet World Wide Web sites(s) (collectively, "Web
Sites") and to which the P2M Tags (as such term is defined in Section 4a.
hereof) can be affixed; and (2) Internet adserving software services, systems,
system management, and advisory services (collectively, the "Adserving
Services"); and
WHEREAS, Hachette wishes to engage P2M to provide the Sales and Marketing
Services and the Adserving Services, and P2M is willing to be so retained,
subject to the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration for the mutual promises and covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be bound hereby, agree as follows:
1. Formation of P2M/Hachette USA Interactive Sales.
-----------------------------------------------
a. As an inducement to cause Hachette to enter into this Agreement,
and in order for P2M to more efficiently and effectively provide
the Exclusive Sales and Marketing Services (as hereinafter
defined) and Adserving
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Services, P2M shall offer to employ, effective as of February 1,
2000 (the "Effective Date"), the interactive sales individuals
listed on Exhibit 2 annexed hereto (collectively, the "HFM
---------
Employees"), provided that each of the HFM Employees shall, on or
prior to the Effective Date, execute P2M's standard Agreement
regarding terms and conditions of employment (the "Terms and
Conditions Agreement").
b. Each of the HFM employees who accepts employment with P2M
(including executing the Terms and Conditions Agreement) will
(i), subject to the Terms and Conditions Agreement, be employed
by P2M at at least the same base salary and total annual
compensation as set forth on Exhibit 2 (with respect to such
employee), and (ii) be provided by P2M with benefits and stock
options commensurate with their applicable level within P2M.
c. Hachette hereby represents and warrants that (i) Exhibit 2
contains a true, correct and complete list of all employees and
independent contractors of Hachette (and any direct or indirect
wholly-owned subsidiary) of Hachette; Hachette together with such
subsidiaries, being hereinafter referred to collectively as, the
"Hachette Group") that perform interactive sales services for the
Hachette Group (or any portion thereof), and (ii) neither
Hachette, nor any other member of the Hachette Group, is a party
to nor threatened to be made a party to, any collective
bargaining agreement with respect to any of the HFM Employees,
(iii) none of the HFM Employees is a party to any written
agreement with any member of the Hachette Group except as set
forth on Exhibit 2 annexed hereto, and (iv) none of the HFM
---------
Employees is a party to any litigation with the Hachette Group,
or other proceeding involving their employment with any member of
the Hachette Group, nor does Hachette have any reason to be aware
of the basis for the same.
d. Hachette hereby agrees to indemnify and hold P2M and its
officers, directors and shareholders harmless from and against
any losses, costs, expenses (including reasonable legal fees),
damages and claims relating to the HFM Employees (i) arising or
accruing prior to the Effective Date and/or (ii) related to the
termination of their employment with Hachette or any other member
of the Hachette Group (including, without limitation, any claims
for severance with respect to the period of their employment with
any member of the Hachette Group). In furtherance thereof,
Hachette acknowledges and agrees that it is not assigning or
otherwise transferring to P2M, and P2M is not assuming, any
existing (or hereafter arising by
2
<PAGE>
virtue of the termination of their employment or as a consequence
of this Agreement) obligations of the Hachette Group with respect
to any of the HFM Employees.
e. From and after the Effective Date, (i) the HFM Employees will no
longer be employees of any member of the Hachette Group and (ii)
those HFM Employees who accept employment with P2M will, subject
to the final sentence of this Section 1e, be employees of P2M
subject to the Terms and Conditions Agreement. Provided Bridget
Johnson accepts employment with P2M and executes the Terms and
Conditions Agreement, P2M agrees that P2M shall not transfer
Bridget Johnson from the P2M/Hachette Division (as hereinafter
defined) to any other division at P2M at any time prior to the
first anniversary of the Effective Date without the Advisory
Board's prior written consent. Nothing contained herein
(including, without limitation, anything contained in the
immediately preceding sentence of this Section 1e) shall be
deemed an employment agreement or employment contract with any of
the HFM Employees nor confer upon any of the HFM Employees any
right to employment on other than an "at will" basis.
f. On or immediately following the Effective Date, P2M shall create
a new division within P2M entitled "P2M/Hachette USA Interactive
Sales" (the "P2M/Hachette Division"). The P2M/Hachette Division
shall be staffed solely by employees of P2M which shall initially
include all of the HFM Employees (that have accepted employment
with P2M and executed the Terms and Conditions Agreement) and
those other employees of P2M which P2M from time to time (in
consultation with the Advisory Board (as hereinafter defined))
believes are necessary and appropriate in order for the
P2M/Hachette Division to effectively perform the Exclusive Sales
and Marketing Services and Adserving Services. P2M/Hachette
Division staff shall be placed in P2M's offices in the cities
listed on Exhibit 3 annexed hereto (the "Included Territories").
---------
Each of the P2M employees assigned to the P2M/Hachette Division
shall, during the term such employees are so assigned and
employed by P2M (i) provide services solely to the P2M/Hachette
Division, and (ii) be given separate business cards identifying
their assignment to the P2M/Hachette Division. The "Advisory
Board" shall mean for purposes of this Agreement a board to be
comprised initially of Don Perri, Richy Glassberg, Nick Matarazzo
and a fourth (4th) individual to be agreed upon by the existing
three members. In the event that, at any time during the term of
this Agreement, any of the existing board members of the Advisory
Board are unable to serve thereon
3
<PAGE>
for an extended period, the other existing members of the
Advisory Board together with the P2M executive team shall select
a replacement for such member, provided that the Advisory Board
shall always include at least an equal number of Hachette members
and P2M members.
g. Throughout the term, P2M shall staff the P2M/Hachette Division
with the following dedicated staff:
i. one (1) director of sales (New York);
ii. two (2) account executives (New York);
iii. two (2) account executives (California);
iv. one (1) account executive (Detroit);
v. one (1) director of e-commerce; and
vi. three (3) assistants.
h. The P2M/Hachette Division will have a vice president responsible
for the Division (and such vice president cannot be removed from
such position, without cause, without consent of the Advisory
Board), and such vice president will report directly to Don
Perri, V.P., New Media for Hachette (or his successor, as the
case may be), and a senior member of the P2M executive team
(which senior member shall be determined by P2M at a later date).
Notwithstanding the foregoing, it is understood and agreed that
all decisions regarding the terms and conditions of employment of
the staff of the P2M/Hachette Division shall be P2M's sole
responsibility. Hachette shall, however, have the right, within
ten (10) days after written notice, to approve (not to be
unreasonably withheld) any employee P2M proposes to add to the
P2M/Hachette Division. Failure by Hachette to reject any such
replacement within such ten (10) day period shall be deemed an
approval by Hachette.
i. P2M covenants that with respect to all P2M/Hachette Division
employees, it will comply with all applicable Federal, State and
Local employment laws and regulations including, without
limitation, laws and regulations concerning wages, hours and
discrimination.
2. Engagement.
----------
a. Hachette hereby retains P2M on an exclusive basis during the term of
this Agreement, to provide the following services:
4
<PAGE>
i. P2M shall (through the P2M/Hachette Division, unless the services
of a P2M office located in a city other than those contained in
the Included Territories (the "Other Territories") shall be
required, in which event P2M shall provide such Exclusive Sales
and Marketing Services by appropriate P2M personnel located in
P2M's office in such Other Territory (the "Other P2M Personnel"),
and such services shall be deemed performed by the P2M/Hachette
Division for all purposes hereunder) provide the following Sales
and Marketing Services (collectively, the "Exclusive Sales and
Marketing Services"):
Except as expressly set forth on Exhibit 4 annexed hereto, all
---------
promotion, solicitation, placement and sale of Advertising on the
Existing Web Sites (and any other Web Sites hereafter owned
and/or operated by Hachette or any member of the Hachette Group,
as the same may change from time to time; the Existing Web Sites
together with such additional Web Sites hereafter owned and/or
operated by Hachette being hereinafter referred to collectively
as, the "E-Sites" and said Advertising sales are hereinafter
collectively referred to as, the "Ad Sales"); and
ii. P2M shall provide the following Adserving Services, utilizing
software, systems and technology for implementation, execution
and delivery of the Adserving Services:
(A) all Adserving Services with respect to the Ad Sales; and
(B) all other Adserving Services as Hachette may request from
time to time, in accordance with the provisions of Section
21D hereof.
b. It is understood that P2M is an independent contractor of, and an
agent acting for, Hachette, with the rights of agent set forth in
Section 2(c) hereof.
c. Subject to the second to last sentence of this Section 2c., P2M shall
be entitled to, and is hereby granted all rights, powers, and
authority to act as Hachette's exclusive agent in the negotiation,
preparation, execution, and delivery of all contracts for Ad Sales
(collectively, the "Exclusive Contracts"). Without limiting the
foregoing, P2M is authorized, as Hachette's agent, to execute and
deliver any and all Exclusive Contracts in
5
<PAGE>
Hachette's name, and upon such execution and delivery, Hachette shall
be bound thereby with the same force and effect as if the same were
signed by an authorized officer of Hachette. Further, in the event
Hachette is involved in P2M's sales process by reason of an Advertiser
request or otherwise, Hachette shall ensure that P2M is present in
closing the sale, or, if P2M is unable to be present for any reason,
Hachette shall accept and sign the Exclusive Contract with no loss of
the Rep Commission (as such term is defined in Section 7a. hereof) or
any other right which P2M has under this Agreement with respect to
said Exclusive Contract. Notwithstanding the foregoing, P2M shall
cause the creative file and insertion order for each proposed
advertisement to be delivered to a designated Hachette employee (as
designated by Don Perri, or his then successor) prior to such
advertisement being placed on any E-Site. Hachette shall have three
(3) business days from receipt of such file and insertion order to
reject the proposed advertisement and/or insertion order by giving e-
mail notice of such rejection to Bridget Johnson or the then vice
president of the P2M/Hachette Division (such individual's e-mail
address to be provided promptly to Hachette). Failure to timely reject
shall be deemed an approval by Hachette of such proposed advertisement
except that insertion orders for the Advertisers listed on Exhibit 2-C
-----------
annexed hereto must be affirmatively approved by Hachette.
3. Term. Subject to Article 23 hereof, the term of this Agreement
----
shall be for an initial period (the "Initial Term") of three (3) years
commencing on the Effective Date and ending on the day immediately
preceding the third (3rd) anniversary of the Effective Date, unless
sooner terminated as herein provided.
4. Additional Responsibilities of P2M. P2M covenants, during the term
----------------------------------
of this Agreement and subject to the other terms and conditions
hereof, to fulfill the following obligations:
a. provide Hachette (solely for use in the performance of this
Agreement) with unique tags in HTML/Java or other languages
chosen by P2M (collectively, "P2M Tags");
b. use best efforts to solicit Advertising and otherwise fully
perform the Exclusive Sales and Marketing Services;
c. use best efforts to fully provide the Adserving Services;
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<PAGE>
d. manage all inquiries from Advertisers and their agents and
provide support regarding Advertising space;
e. maintain regular contact on a bi-monthly basis with each
Advertiser and/or its agent in connection with such Advertiser's
advertising campaign;
f. make the following reports available to Hachette via on-line
posting at a secure URL on the Internet:
i. regular business reports on the status of:
A. Actual sales of Advertising space to Advertisers with
respect to each E-Site (including, but not limited to,
name of Advertisers, sale values, and reference
numbers, if any); and
B. information and feedback received by P2M from
Advertisers in the course of providing the services as
described in this Agreement;
ii. monthly business reports on the status of potential sales of
Advertising to Advertisers with respect to each E-Site
(including, but not limited to, name of Advertisers, sale
values, forecasts and reference numbers, if any);
iii. weekly user statistics with respect to each E-Site (which
shall include advertisement impressions, pages and click-
through data) compiled in connection with user access to
Advertising sold pursuant to this Agreement;
iv. monthly customary and standard billing and collection
reports; and
v. such other reports as are reasonably requested from time to
time by Hachette.
g. coordinate sales and marketing services to take into account
current Hachette advertisers.
h. provide all Advertisers which (i) P2M solicit to place
Advertising on the E-Sites and (ii) desire to provide such
Advertising, with Hachette's General Terms and Conditions, a copy
of which is annexed hereto as
7
<PAGE>
Exhibit 4-h.
-----------
5. Obligations of Hachette. Hachette covenants, during the term of this
-----------------------
Agreement and subject to the other terms and conditions hereof, to
fulfill the following obligations:
a. use best efforts to maintain and enhance the E-Sites and the
right for P2M to solicit, place and sell Ad Sales on the E-Sites
(provided nothing herein shall preclude Hachette or the
applicable member of the Hachette Group from selling (subject to
Article 19 hereof) or terminating, any E-Sites;
b. insert or affix the P2M Tags on each of the E-Sites in such a
manner as to (i) enable the P2M/Hachette Division and P2M to
provide Advertising to the E-Site and (ii) assure that the
Advertising to be affixed to said P2M Tags is fully and clearly
visible on the first Page viewed on each E-Site when that Page is
viewed at a 640 x 480 pixel (or better) resolution;
c. insert a button with P2M's logo on the home page of each E-Site
directing potential Advertisers to P2M's Web Site and the
P2M/Hachette Division;
d. furnish P2M with all information regarding the E-Sites as is
reasonably available to Hachette and is or may be appropriate for
use by P2M in connection with Advertising on the E-Sites;
e. except as expressly permitted by Section 6 hereof, not engage,
contract with, license or permit any person, firm or entity
(including Hachette, and all other members of the Hachette Group
and each of their employees, other than P2M (through the
P2M/Hachette Division and the Other P2M Personnel) to promote,
solicit, place or sell, or represent Hachette for or with respect
to the sale of Advertising on the E-Sites;
f. at least two (2) full calendar months prior to the beginning of
each calendar month during the term of this Agreement, provide to
P2M, in writing on such form or forms as P2M may from time to
time prescribe and/or if P2M shall request, on-line, Hachette's
best faith estimate as to the Advertising inventory it expects to
have available during such calendar month; and
g. unless Hachette elects to use the Adserving Services by notice to
P2M, place, run and serve (or make its own arrangements to place,
run and serve), at its sole cost and expense, all Advertising.
8
<PAGE>
6. (A) Bundled Inventory Exception to Exclusivity. Notwithstanding
------------------------------------------
anything to the contrary contained herein, Hachette shall be
permitted (through its in-house sales force (which Hachette
represents and warrants is primarily dedicated to non-interactive
sales) to sell Advertising on the E-Sites provided each such sale
of Advertising is part and parcel of a bundled sale (a "Bundled
Sale") of Advertising covering advertising for both non-
interactive media (e.g., magazines) and one or more E-Sites. As
further provided herein, any such sales of Advertising on the E-
Sites shall be deemed, for all purposes of this Agreement, to be
a sale of Advertising by the P2M/Hachette Division pursuant to
this Agreement (and hence, P2M to be entitled to a Rep Commission
in connection therewith).
(B) Additional Exception to Exclusivity. In addition to the
-----------------------------------
exception from exclusively provided in Section 6A above, Hachette
shall be permitted, solely through the representatives and/or in-
house as expressly set forth on Exhibit 4 hereto, to sell
advertising for Hachette to be place on the E-Sites (the "Other
Sales") subject to the express terms and limitations contained on
Exhibit 4, and P2M shall not be entitled to any Rep Commissions
in connection with the Other Sales.
7. Compensation and Payments.
-------------------------
a. P2M shall be entitled to a commission (the "Rep Commission") with
respect to (i) each Exclusive Contract, (ii) each Bundled Sale
and (iii) each Prior Sale (as hereinafter defined) payable as
hereinafter provided, with respect to (I) all Exclusive Contracts
(A) entered into on or after the Effective Date and prior to the
first anniversary of the Effective Date, in an amount equal to
twenty-six percent (26%), and (B) entered into on or after the
first anniversary of the Effective Date, in an amount equal to a
reduced percentage to be determined by the Advisory Board
(provided, however, (1) unless and until the Advisory Board makes
such determination, the percentage will be and remain 26% and (2)
once the determination is made by the Advisory Board, there shall
be a retroactive adjustment to the first anniversary of the
Effective Date), of the result of (x) the total gross revenues
received with respect to each Exclusive Contract after all
discounts granted minus (y) any advertising agency commissions
(the "Outside Commissions") paid with respect to such Exclusive
Contract (or retained by the relevant advertising agency or
agencies), (II) all Bundled Sales (A) relating to contracts which
were executed prior to the first anniversary of the Effective
Date in an amount equal to (1) twenty-one percent (21%) and (B)
relating to contracts which were executed on or
9
<PAGE>
after the first anniversary of the Effective Date, in an amount
equal to a reduced percentage to be determined by the Advisory
Board (provided, however, (1) unless and until the Advisory Board
---------
makes such determination, the percentage will be and remain 21%
and (2) once the determination is made by the Advisory Board,
there shall be a retroactive adjustment to the first anniversary
of the Effective Date), of the result of (A) the total gross
revenues received (the "B-S Gross Revenues") with respect to each
Bundled Sale (allocable to the portion related to the E-Sites)
after all discounts granted minus (B) any Outside Commissions
allocable to the sale on the E-Sites (the "Bundled Outside
Commissions") paid with respect to each Bundled Sale (or retained
by the relevant advertising agency or agencies); and (III) each
Prior Sale, in an amount equal to seventeen and one-half percent
(17.5%) of the result of (A) the total gross revenues received
with respect to each Prior Sale after all discounts granted
(allocable to the sale on the E-Sites) minus (B) Outside
Commissions paid with respect to each Prior Sale (or retained by
the relevant advertising agency or agencies).
b. Within forty-five (45) days after the end of each calendar month,
P2M shall pay to Hachette an amount equal to the sum of all gross
revenues payable (whether or not collected) with respect to
Exclusive Contracts, the Bundled Sales and Prior Sales for such
month, less (i) the applicable Rep Commission(s) and (ii) the
applicable Outside Commissions or Bundled Outside Commissions, as
the case may be.
c. With respect to each Exclusive Contract, Advertisers shall be
directed to make all payments (the "Payments") directly to P2M
--------
(it being understood and agreed that, (i) to the extent
the Hachette Group (or any third party) sells any Advertising on
any of the E-Sites, as and to the extent (i) permitted under
Section 6A above or (ii) included as a Prior Sale, all such sales
(collectively, the "Other Sales") shall be deemed to have been
made by the P2M/Hachette Division and, in connection therewith,
Hachette shall immediately advise P2M of the Other Sales, P2M
shall directly bill such Advertisers for such Advertising, and
such Advertisers shall be directed to make all Payments (with
respect thereto) directly to P2M. P2M shall retain the Payments
with respect to each Exclusive Contract, Bundled Sale (applicable
to that portion relating to the E-Sites), and Prior Sale. In the
event any Advertiser remits any Payment directly to Hachette
(including (x) any payment related to a Prior Sale or (y) that
portion of any payment resulting from a Bundled Sale relating to
Advertising on an E-Site), or Hachette otherwise receives any
such Payment (otherwise than from P2M
10
<PAGE>
as provided by Section 7b. above), Hachette shall forthwith
deliver such Payment directly to P2M within ten (10) business
days after receipt thereof. It being understood that P2M will
bill and collect all amounts due from Advertisers in accordance
with applicable laws and shall bear the risk of non-payment from
all Advertisers.
d. With respect to the Adserving Services, Hachette shall pay to P2M
the following amounts as compensation (collectively, the "AdServe
Fees"):
with respect to all Advertising whether or not (in connection
with an Exclusive Contract); an amount equal to the then
applicable P2M Rate (as hereinafter defined).
e. The obligations contained in this Article 7 shall survive the
expiration or earlier termination of this Agreement.
f. P2M shall be entitled to a Rep Commission, as provided in Section
7(a)(iii) and 7(a)(III) above, with respect to any advertising
that has been ordered from any of the Hachette Group prior to the
date hereof and is to be displayed on any E-Site after the date
hereof (each, a Prior Sale, and collectively, the "Prior Sale").
Hachette represents and warrants that all of the Prior Sales are
listed on Exhibit 5 annexed hereto.
---------
8. Acknowledgment and Agreement of P2M and Hachette. Hachette and P2M
------------------------------------------------
acknowledge and agree that (a) Hachette shall not have or acquire any
proprietary or intellectual property, or other rights of any nature in
the P2M Tags, and (b) all records and information provided or
otherwise made available to P2M pursuant to Section 5d hereof and
otherwise hereunder shall be and remain the property of Hachette and
shall be returned to Hachette, as contemplated by the last sentence of
Section 11 hereof.
9. Representations and Warranties.
------------------------------
a. Hachette represents and warrants to P2M as follows:
i. Hachette is a corporation duly formed and validly existing
or subsisting under the laws of Delaware;
ii. all corporate actions necessary or appropriate to authorize
the execution, delivery and performance of this Agreement by
and on behalf of Hachette has been duly authorized, taken
and remains in
11
<PAGE>
full force and effect;
iii. this Agreement constitutes a valid and binding obligation of
Hachette, enforceable against Hachette in accordance with
its terms;
iv. the execution, delivery and performance by Hachette of this
Agreement in accordance with its terms does not and will not
constitute a breach or violation by Hachette of any
agreement, law or order to which it is a party or by which
it, or any of its material property or assets or capital
stock, is otherwise bound;
v. Hachette is the owner of the and/or operator, as the case
may be, of the Existing Web Sites, as shown on Exhibit 1
---------
hereto;
vi. Except for the Web Sites described on Exhibit 1 hereto,
Hachette neither owns nor controls any other Web Sites on
the date of this Agreement; and
vii. Hachette has not granted, assigned or transferred to any
other party any rights with respect to the promotion,
solicitation, placement or sale of Advertising on the E-
Sites except as noted on Exhibit 4 annexed hereto.
--------- ------
b. P2M represents and warrants to Hachette as follows:
i. P2M is a corporation duly formed and validly existing under
the laws of the State of Delaware;
ii. all corporate actions necessary or appropriate to authorize
the execution, delivery and performance of this Agreement by
and on behalf of Hachette has been duly authorized, taken
and remains in full force and effect;
iii. this Agreement constitutes a valid and binding obligation of
P2M, enforceable against P2M in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization and similar laws for
the relief or benefit of debtors and principles of equity;
and
12
<PAGE>
iv. the execution, delivery and performance by P2M of this
Agreement in accordance with its terms does not and will not
constitute a breach or violation by P2M of any agreement to
which it is a party or by which it, or any of its material
property or assets or capital stock, is otherwise bound.
10. Default
-------
In the event either party (the "Defaulting Party") (a) shall make an
----------------
assignment for the benefit of creditors, (b) shall become unable, or
admit in writing its inability, to pay its debts and obligations
generally as they become due, (c) shall file, or consent to or
acquiesce in the filing of, any petition in bankruptcy against such
party or any of its property or assets, (d) shall have filed against
it any petition in any bankruptcy, insolvency, reorganization,
moratorium or similar proceeding or action, which petition is not
dismissed within thirty (30) days, (e) shall have a receiver, trustee
or similar official appointed over it or any of its business and
assets or (f) shall default with respect to any of its
representations, warranties, covenants and other agreements set forth
herein, which default shall not have been cured or remedied within
thirty (30) days after receipt of written notice from the other party
specifying such default (other than (i) breaches of material
representations or warranties, with respect to which there shall be no
notice required or cure period whatsoever and (ii) a breach of any of
the covenants contained in Section 12 hereof, with respect to which
the cure period provided after notice is given shall be seven (7)
business days), then the other party hereto shall have the right to
terminate this Agreement by written notice to such effect given to the
Defaulting Party during the continuation of any of the events or
circumstances set forth in the foregoing clauses (a) through (f).
11. Intellectual Property. All hardware, software (in object code and
---------------------
source code form), programs, codes, trade names, technology,
intellectual property, licenses, patents, trademarks, tradenames,
copyrights, trade secrets, know-how and processes, artistic, graphic
and design elements and all content including images, photographs,
illustrations, graphics, audio clips, video clips, and text, script,
together with all related methodologies and processes developed or
provided by each party suppliers under (or in connection with) this
Agreement (collectively, the "Protected Technology") used by either
--------------------
party under or in connection with this Agreement or the performance of
its obligations hereunder shall remain the sole property of the party
providing such Protected Technology. Neither party shall have any
right, title or interest in or to any of the other party's Protected
Technology. Upon the expiration or earlier termination of this
Agreement for any reason whatsoever, each party shall promptly return
all information, documents,
13
<PAGE>
manuals and other materials belonging to the other party, except as
otherwise expressly provided in this Agreement.
12. Confidentiality.
---------------
a. Each of the parties hereto (the "Covenanting Party") covenants to
the other that the Covenanting Party shall not disclose to any
third party (other than the Covenanting Party's employees and
directors, in their capacity as such, and the employees and
directors of any affiliate on a need to know basis so long as
they are bound by the terms of this Agreement) any information
regarding the terms and provisions of this Agreement or any non-
public confidential information regarding the other party hereto
except (i) to the extent necessary to comply with any law or
valid order of a court of competent jurisdiction (or any
regulatory or administrative tribunal), in which event the party
so complying shall so notify the other party as promptly as
reasonably practicable (and, if possible, prior to making any
disclosure) and shall seek confidential treatment of such
information, if available, (ii) as part of its normal reporting
or review procedures to its auditors and/or attorneys, as the
case may be, so long as they are notified of the provisions of
this Agreement, (iii) in order to enforce its rights pursuant to
this Agreement, (iv) in connection with any filing with any
governmental body or as otherwise required by law, including the
federal securities laws and any applicable rules and regulations
of any stock exchange or quotation system, and (v) in a
confidential disclosure made in connection with a contemplated
financing, merger, consolidation or issuance or sale of capital
stock or assets of the Covenanting Party or any parent thereof.
b. Information that is, or should be reasonably understood to be,
confidential or proprietary includes, without limitation,
information about sales, cost and other unpublished financial
information, product and business plans, projections, marketing
data and sponsors, but shall not include information (i) already
lawfully known to or independently developed by the party
disclosing same, (ii) disclosed in published material or
otherwise generally known or available to the public, (iii)
lawfully obtained from any third party not under an obligation to
maintain such information in confidence or (iv) required to be
disclosed by law.
c. Nothing contained herein shall, or shall be deemed to, prohibit
or in any manner impair or limit each party during or after the
term of this Agreement from using, leasing, selling or otherwise
distributing, licensing
14
<PAGE>
or disposing the Protected Technology provided or developed by
such party, for profit or otherwise.
13. Non-Compete. During the Initial Term, P2M will not provide any Sales
-----------
and Marketing Services at any time for any publications which are, at
such time, directly competitive with Hachette's then existing
publications, without the prior written consent of Hachette.
14. Indemnification.
---------------
a. Each party hereby agrees to indemnify and hold harmless the other
party from and against any and all loss, cost or expense
(including reasonable attorneys' fees and disbursements) suffered
by such party resulting from any misrepresentation or breach of
warranty, covenant or agreement made or to be performed by such
party under this Agreement, or any claim made by any third party
against a party hereto in connection with this Agreement arising
from the acts of the other party hereto.
b. Hachette's indemnity of P2M shall include any loss, cost or
expense arising as a result of or related to the contents of any
E-Site.
15. Limitation On Damages.
---------------------
IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER UNDER THIS
AGREEMENT OR OTHERWISE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND OR NATURE WHATSOEVER, ARISING OUT OF
OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
16. Non-Solicitation. Except as otherwise expressly set forth herein,
----------------
each party covenants and agrees that, during the term of this
Agreement and for a period of one (1) year thereafter, it will not
solicit, recruit, hire or employ, or encourage any third party to
solicit, recruit, hire or employ, or assist any third party in
soliciting, recruiting, hiring or employing, the services of any of
the other party's officers or employees without the prior written
consent of such other party.
17. No Waiver. This Agreement shall not be waived, modified or amended
---------
except as expressly set forth in writing and signed by the parties
hereto. Without limiting the generality of the foregoing, neither this
Agreement nor any provision
15
<PAGE>
hereof shall be deemed amended or modified by, and no waiver of any
term or condition hereof shall be implied from, or deemed to have
occurred on account of, any course of conduct or course of dealing by
either of the parties hereto or between the parties hereto.
18. Assignment.
----------
a. Except as provided below, neither party may assign, transfer or
otherwise encumber this Agreement or any right or interest herein
without the express prior written consent of the other party.
Either party may pledge or otherwise collaterally assign its
rights under this Agreement in order to secure any financing or
other obligation. Either party may assign this Agreement upon ten
(10) days prior written notice to the other party to (i) any
entity (the "Surviving Entity") into which it merges, combines or
consolidates or which acquires all or substantially all of its
assets, or (ii) any affiliate of such party, provided in either
case the Surviving Entity or affiliate, as the case may be,
agrees in a writing delivered to the other party, within five (5)
days after the effective date of such assignment, to assume such
party's obligation contained herein. Any assignment or transfer
(or attempt to assign or transfer) in violation of the foregoing
shall be null and void and of no effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
b. In the event an E-Site is sold or assigned to a third party
(other than a third party controlled by any of the members of the
Hachette Group (each, a "Controlled Third Party")), Hachette has
the option of terminating this Agreement with respect to that E-
Site or assigning this Agreement to the acquiror of such E-Site
(to the extent applicable with respect solely to that E-Site);
provided, however, in the event Hachette elects to assign this
Agreement
i. such assignee shall assume in writing Hachette's obligations
under this Agreement with respect such E-Site arising from
and after the effective date of such assignment;
ii. Hachette shall give ten (10) days prior written notice of
such election and
iii. P2M shall have the right effective as of the effective date
of such assignment to terminate this Agreement as it relates
solely to such
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<PAGE>
E-Site. It being understood that any sale of an E-Site by
Hachette to a Controlled Third Party shall only be permitted
if this Agreement with respect to such E-Site is assigned to
and assumed by such Controlled Third Party.
c. Hachette shall have the right upon one hundred twenty (120) days
prior written notice to terminate this Agreement in the event
that Rich Glassberg is no longer employed by P2M (or the
Surviving Entity, as the case may be).
19. Governing Law. This Agreement shall be governed by, and construed
-------------
and enforced in accordance with, the internal laws of the State of New
York applicable to contracts made and to be performed wholly therein,
without regard to principles of conflicts of laws. The parties hereby
irrevocably consent that any action, proceeding or other dispute
arising under or with respect to this Agreement or any term, condition
or provision hereof shall be resolved in New York County, New York,
which courts shall have exclusive jurisdiction with respect to any
such action, proceeding or other dispute.
20. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and shall be either hand-delivered, telecopied,
mailed by both first class and registered or certified class mail
(return receipt requested), postage prepaid, or sent via Federal
Express, to the other party hereto at the address(es) set forth above
or below. A notice shall be deemed given (a) when delivered
personally, or (b) when the telecopied notice is transmitted by the
sender and receipt thereof has been confirmed (electronically or
otherwise), or (c) three (3) business days after mailing, or (d) the
next business day after the sender delivers the notice (together with
a Fedex account number or applicable payment) to Federal Express. A
copy of all notices to P2M shall be sent by Hachette simultaneously
(and in the same manner) to Zukerman Gore & Brandeis, LLP, 900 Third
Avenue, New York, NY 10022, Attn: Andrew M. Chonoles, Esq., facsimile
no. (212) 223-6433. A copy of all notices to Hachette shall be sent by
P2M simultaneously (and in the same manner) to General Counsel.
21. Miscellaneous
-------------
In order for (a) the P2M/Hachette Division to adequately service the
interactive Advertising needs of Hachette and (b) P2M to properly
account for (i) Exclusive Sales and Marketing Services rendered to
Hachette by the P2M/Hachette Division and the Other P2M personnel and
(ii) the Adserving Services rendered to Hachette by P2M, the parties
further agree as follows:
17
<PAGE>
A. All data including, without limitation, pricing, contract terms,
and viewer impressions with respect solely to the Exclusive Sales
and Marketing Services and Adserving Services shall be segregated
and maintained separately by the P2M/Hachette Division (although
P2M shall also maintain such data elsewhere for their records to
the extent it deems appropriate);
B. P2M shall, to the extent it deems necessary, employ additional
personnel in order to properly perform ad trafficking services
with respect to the Exclusive Sales and Marketing Services it is
to provide hereunder;
C. To the extent Hachette requires, P2M shall provide periodic
reporting to Hachette relating to existing Exclusive Contracts,
invoices for Advertising and similar information; and
D. With respect to Advertising for which P2M is not being
compensated for pursuant to the terms of this Agreement, Hachette
shall advise P2M of the existing rate(s) it is paying for various
adserving services from third parties and, to the extent P2M's
then rate for Adserving Services is lower than those being paid
by Hachette, Hachette shall transfer such adserving to P2M and
Hachette shall pay to P2M the then applicable P2M rate with
respect to such Adserving Services, as the same may thereafter be
adjusted; it being understood that the rate P2M shall charge for
Adserving Services hereunder (the "P2M Rate") shall be equal to
P2M's then cost (subject to subsequent adjustments for additional
costs) for providing such Adserving Service.
E. P2M will, at P2M's sole cost and expense, develop, for Hachette's
approval, all trade and marketing materials to be used by the
P2M/Hachette Division in connection with all Advertising on the
E-Sites and other e-commerce of Hachette.
22. Entire Agreement. This Agreement constitutes the entire agreement by
----------------
and between the parties with respect to the subject matter hereof and
supersedes and
18
<PAGE>
incorporates all prior or contemporaneous agreements and
understandings (written or oral) of the parties with respect to such
subject matter and, except as otherwise expressly provided herein, is
not intended to confer upon any other person any rights or remedies
hereunder.
23. Unilateral Termination Right. Notwithstanding anything to the
----------------------------
contrary contained herein, in the event the sum of (i) all gross
revenues invoiced in calendar year 2001 for all Exclusive Contracts
and Prior Sales, plus (ii) all B-S Gross Revenues invoiced in calendar
year 2001 for all Bundled Sales, is less than $5,000,000, Hachette
shall thereafter have the right, during the balance of the Initial
Term, to terminate this Agreement upon thirty (30) days prior written
notice to P2M.
24. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original and all of which together shall
constitute one and the same document. Facsimile signatures shall be
binding.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written:
PHASE2MEDIA, INC. HACHETTE FILIPACCHI MAGAZINES, INC.
By: /s/ Richard Glassberg By: /s/ Donald Perri
---------------------------- ----------------------------------
Name: Richard Glassberg Name: Donald Perri
-------------------------- ----------------------------------
Title: Chairman/CEO Title: VP New Media
------------------------- ----------------------------------
20
<PAGE>
EXHIBIT 10.7
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE
CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND ARE DENOTED BY [***]. THE
CONFIDENTIAL PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
ADVERTISING REPRESENTATIVE AGREEMENT
Agreement dated March 28, 2000 by and between PlasmaNet, Inc., a Delaware
corporation with its principal place of business at 420 Lexington Avenue, New
York, NY 10170 (hereinafter the "Client") and Phase2Media a Delaware corporation
with its principal place of business at 420 Lexington Avenue, New York, NY 10170
(hereinafter the "Representative")
WITNESSETH:
WHEREAS, the Client is the owner and operator of the internet Web Sites and
valuable intellectual property located at the URL http://www.freelotto.com and
------------------------
http://www.LottoNet.com (the "Web Sites").
- -----------------------
WHEREAS, the Representative is in the business of soliciting advertisers,
advertising agencies, and other (collectively "Advertisers") regarding the
placement of advertising on internet web sites for a fee and:
WHEREAS, both the Representative and the Client wish to enter into an
agreement where the Representative will sell advertising, namely, banners, game
banners, game symbols and game sounds and e-mails (collectively, the
"Advertising") on the Web Sites and;
WHEREAS, the Representative agrees and understands that the Client has
created a unique Internet Marketing method and game knows collectively as
FreeLotto and;
WHEREAS, the Client has informed the Representative that the Client intends
to protect all of the Client's intellectual property including "FreeLotto"
(collectively, "Client Protected Property"); and
WHEREAS, the Representative acknowledges, understands and agrees that it
will not act as representative under any circumstances for any entity other than
the Client in connection with a sweepstakes in lottery format without the
Client's permission;
NOW THEREFORE, in consideration for the mutual promises and covenants set
forth herein and other good and valuable consideration, the parties hereto agree
as follows:
1. Exclusive Ownership: The Client shall retain the exclusive right of
ownership of the Web Sites and Client Protected Property, and nothing in
this Agreement shall be construed to grant the Representative any
ownership, right or interests therein except as expressly set forth
herein.
2. Subject to the terms and conditions set forth in Schedule A hereof, the
Client shall pay the Representative a fee of [***]% ([***] percent) of
the net Advertising revenue, including the Click2Win e-mail newsletters.
(Please refer to additional terms and conditions as set forth in
Schedule A1).
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3. Client hereby retains the Representative on an exclusive basis during
the term of this Agreement to solicit on the Client's behalf Advertising
for display on the Web Sites and within the Click2Win e-mails, and on a
non exclusive basis within other e-mail. The Client shall have the
exclusive right to reasonably accept or reject any advertiser presented
by the Representative for Advertising on its Web Sites; provided,
however, in the event that the Client shall provide Representative with
such acceptance or rejection within three (3) business days from the day
the Representative has presented proposed Advertising or Insertion Order
to the Client; and the Client does not accept or reject such specific
Advertising order within such three (3) business days, the Client shall
be conclusively deemed to have accepted such Advertising and Client's
right of approval shall accordingly be terminated for such specific
Advertising order. In any event the Client may at its sole discretion,
decline, suspend or terminate any advertising order if the Advertiser
materially changes its Web Site or advertisement in such a way as to
become competitive to the Client's Web Sites, infringe upon the Client
Protected Property or in such a way to become offensive to the Client's
players, all as determined by Client in its sole discretion. It is
understood that the Client will not accept pornographic, gambling or
other sweepstakes in lottery format advertising. The Representative may
also solicit e-mail advertising on behalf of the Client on a non-
exclusive basis, and shall place all such orders therefore through the
e-mail placement agent designated by the Client.
4. Reporting: The Representative will present the Client with an Insertion
----------
Order file for each proposed advertisement on a daily basis. The file
will consist of the name and address of advertiser, its agency, if any,
the insertion order number, the URL of the advertiser's Web Site to
which its Advertising will be directed, the proposed quantity of e-
mails, clicks and/or views being purchased, the rate and/or price being
charged and any special requirements of the specific insertion order.
The Client shall have the right to require advance payment from any
advertiser. In addition, the Client agrees that during the term of this
Agreement to (A) insert or affix the Phase2Media Tags on each of the Web
Sites in such a manner as to (i) enable the Representative to serve or
provide Advertising to the Web Sites; and (ii) assure that the
Advertising to be affixed to said Phase2Media Tags is fully and clearly
visible on the first Web Sites' Page viewed when that Page is viewed at
a 640 x 480 pixel (or better) resolution and otherwise comply with such
industry standards as may be applicable from time to time (it being
agreed that the Representative and its contractors will not use the
Phase2Media Tags or its ad serving technology to place cookies on
FreeLotto Players' machines which would subsequently identify the Player
as a FreeLotto Player or Sweepstakes entrant), and (B) insert a button
with Representative's logo on each Web Site's Home Page directing
potential advertisers to Representative's web site.
The Representative will provide to the Client, no later than the 10th
of the month, the following reports:
Booking: Recap of all insertion orders placed in the period
Billing: Recap of all invoices generated for that month
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<PAGE>
Aged Accounts Receivable: Recap of all outstanding invoices by
account name and duration.
Remittance: Reflects all payments received during the period
Said reports shall be in a format mutually agreed upon by the parties and
contain all information as the Client may reasonably need in the course of
the normal operation of its business.
5. Billing: On a weekly basis, the Representative will provide the Client with
-------
a file of billing (Billing File) which shall include the insertion order
number, rate, agency commission if any, and number of e-mails, impressions
and/or clicks served in the period against the insertion order, as well as
the balance of unserved e-mails, impressions and/or clicks and a copy of
each invoice. At the end of the month in which the advertisement runs
and/or the end of the campaign the Representative will promptly invoice the
agency or advertiser on behalf of the Client. The Client may at its sole
discretion upon 20 (twenty) days written notice, require the Representative
to direct the advertiser or its agency to make payments to a Lock Box
Account (the "Lock Box Account") in the name of the Client at its
designated bank, and make disbursements in accordance with this Agreement
on the 1/st/ business day after funds have cleared and specifically: [***]%
([***] percent) of all funds deposited in the Lock Box Account shall be
disbursed to the Client and [***]% ([***] percent) to the Representative.
Notwithstanding anything to the contrary, the Representative shall not
commingle the Client's funds with its own and the Representative hereby
agrees that it is not the beneficial owner of any of the proceeds of the
Advertising payments beyond its [***]% ([***] percent) fee. In the event
that either (i) the Representative or (ii) the Client shall receive a
payment directly from an advertiser or its agency, it will remit by mail
those funds and any backup supplied to the Lock Box Account on the same
business day but in all events no later than the end of the second business
day after receipt of the same. All payment obligations contained in this
Paragraph 5 and in this Agreement shall survive the expiration of this
Agreement. Notwithstanding anything herein to the contrary, the
Representative will provide the Client in a timely fashion with any
information that the Client requests regarding Representative's sale of
advertising on the Client's Web Site. Further, the Representative agrees to
fulfill all reasonable requests for information of Client's designee in a
timely fashion. The Representative will remit all payments due the Client
within 5 (Five) business days of the Representative's receipt of funds, but
in any event no less frequently than the Friday following receipt.
6. Dedicated Sales Staff: (Please refer to additional terms and conditions as
---------------------
set forth in Schedule A2).
7. Guarantees and Pricing: (Please refer to additional terms and conditions as
----------------------
set forth in Schedule A3). Client agrees to provide Representative on a
monthly basis by the 15/th/ of each month all data relating to player
usage, including the number of unique daily players and bets per day.
Client also agrees to have the targeted ad delivery system fully
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<PAGE>
functional and covering substantially all of the player base within one
month of the execution of this contract. Client agrees to update
demographic profiles to include new users on a bi-weekly basis.
8. Term. The term of this Agreement shall be for an initial period of nineteen
-----
(19) months [through October 2001] and shall be automatically extended for
successive one year periods unless, at least sixty (60) days prior to the
end of the then-current term either party has given the other written notice
of its election not to have the term of this Agreement further extended.
Notwithstanding the foregoing, this Agreement is subject to termination,
prior to the expiration of the term of this Agreement, in accordance with
paragraph 9 below.
9. Early Termination. In the event either party (the "Defaulting Party") (a)
------------------
shall make an assignment for the benefit of creditors, (b) shall become
unable, or admit in writing its inability, to pay its debts and obligations
generally as they become due, (c) shall file, or consent to or acquiesce in
the filing of, any petition in bankruptcy (voluntary or involuntary),
insolvency, reorganization, moratorium or similar proceedings or action,
which petition is not dismissed within sixty (60) days, (d) shall have a
receiver, trustee or similar official appointed over it or any of its
businesses and assets, or (e) shall default with respect to any of its
representations, warranties, covenants and other agreements set forth
herein, which default shall not have been cured or remedied such default
within thirty (30) days of receipt of written notice from the other party
specifying such default and demanding its cure or remedy, then the other
party hereto shall have the right to terminate this agreement by written
notice to such effect given to the Defaulting Party during the continuation
of any of the events or circumstances set forth in the foregoing clauses (a)
through (e). Further, in the event Client shall, in the reasonable judgement
of Representative, materially change the nature or the appearance of any Web
Site from its nature and appearance on the date of this Agreement,
Representative may at any time, by notice to such affect given to Client,
terminate this Agreement. Client further covenants and agrees, with respect
to the operation of the Web Sites and all of the Web Sites' Pages, to comply
with all applicable laws, statutes, ordinances and regulations. In the event
that the Representative or Client shall have a change in ownership or
control in excess of 20%, the other Party may at its sole discretion
terminate this Agreement, upon sixty (60) days written notice from the date
of ownership change.
10. Intellectual Property. All hardware, software (in object code and source
-----------------------
code form), programs, codes, trade names, technology, intellectual property,
licenses, patents, trademarks, copyrights, trade secrets, know-how and
processes, artistic, graphics and design elements and all content including
images, photographs, illustrations, graphics, audio clips, video clips, and
text, script, together with all related methodologies and processes
developed, acquired, or provided to the Representatives or Representatives'
suppliers under (or in connection with) this Agreement (collectively, the
Client's "Protected Technology") used by Representative under or in
--------------------
connection with this Agreement or the performance of its obligations
hereunder shall remain the sole property of Client. Representative shall
have no right, title or interest in or to any of the Protected Technology.
Upon the expiration or earlier termination of this Agreement for any reason
whatsoever, each party shall promptly return
4
<PAGE>
all information, documents, manuals and other materials belonging to the
other party, except as otherwise expressly provided in this Agreement.
The Representative agrees and understands that the Client has created an
Internet marketing method and game known collectively as FreeLotto, and the
Client has informed the representative that it intends to protect this
intellectual property including but not limited to patent, copyright, trade
mark, trade dress, methods and program codes (collectively, the "PlasmaNet
Intellectual Property") to the fullest extent available in law or equity.
Under no circumstances will the Representative act as representative or
provide services to any entity other than the Client in connection with a
sweepstakes in lottery format.
11. Confidentially
--------------
A. Each of the parties hereto covenants to the other that it shall not
disclose to any third party (other than its employees and directors, in
their capacity as such, and the employees, officers, and directors of any
affiliate on a need to know basis so long as they are bound by the terms of
this Agreement) any information regarding the terms and provisions of this
Agreement or any non-public confidential information that has been
identified as such by the other party hereto except (i) to the extent
necessary to comply with any law or valid order of a court of competent
jurisdiction (or any regulatory or administrative tribunal), in which event
the party so complying shall so notify the other party promptly as
reasonably practicable (and, if possible, prior to making any disclosure)
and shall seek confidential treatment of such information, if available,
(ii) as part of its normal reporting or review procedures to its auditors
and/or attorneys, as the case may be, so long as they are notified of the
provisions of this Agreement, (iii) in order to enforce its rights pursuant
to this Agreement, (iv) in connection with any filing with any governmental
body or as otherwise required by law, including the federal securities laws
and any applicable rules and regulations of any stock exchange or quotation
system, and (v) in a confidential disclosure made in connection with a
contemplated financing, merger, consolidation or sale of capital stock of
either party hereto or any affiliated entity.
B. Information that is, or should be reasonably understood to be, confidential
or proprietary includes, but is not limited to, information about sales,
costs and other unpublished financial information, product and business
plans, projections, marketing data and sponsors, but shall not include
information (a) already lawfully known to or independently developed by the
party disclosing same, (b) disclosed in published material or otherwise
generally known or available to the public, (c) lawfully obtained from any
third party not under an obligation to maintain such information in
confidence or (d) required to be disclosed by law.
C. Nothing contained herein shall (or shall be deemed to) prohibit or in any
manner impair or limit either Party during and/or after the term of this
Agreement from using, leasing, selling or otherwise distributing, licensing
or disposing its protected technology for profit or otherwise so long as it
does not adversely effect the other party in conjunction with sweepstakes
in lottery format web properties.
5
<PAGE>
12. Indemnification.
----------------
A. Client shall indemnify and hold harmless Representative, its officers,
directors, employees, agents and representatives (all of the foregoing,
collectively, "Representative Indemnities") from and against, and shall
----------------------------
reimburse Representative Indemnities for, any and all claims, suits,
actions, proceedings (formal and informal), investigations, judgments,
deficiencies, damages, settlements, liabilities, losses, costs and
expenses (including reasonable legal fees and expenses of attorneys) (all
of the foregoing, collectively "Representative Damages"), as and when
----------------------
incurred, arising out of, based upon or occasioned by (a) any act or
omission, by Client in connection with the acceptance of, or the
performance or non-performance by Client of, any of its duties and
obligations under this Agreement, (b) the breach or violation by Client of
any of its warranties, representations, covenants and other agreements
contained in this Agreement, (c) any assertion or claim by any third party
that, if true, would constitute a breach or violation by Client of any
such representations, warranties, covenants and other agreements, (d) the
content of any material (other than the Advertising) contained on the Web
Site or (e) the claims of any Advertiser relating to the Web Site or a
violation of the applicable advertising agreement with such Advertiser.
Notwithstanding anything contained herein to the contrary, the foregoing
indemnification shall not apply with respect to, and Client shall not
otherwise be liable for or with respect to, (i) any Damages arising out
of, based upon or occasioned by any event or circumstance due to causes
that are outside the reasonable control of Client, which causes shall
include, without limitation, fires, floods, earthquakes, epidemics, storms
and other acts of God, acts of civil, military or governmental authority,
riots, power outages, computer viruses, strikes and work stoppages or
slowdowns, wars, (whether or not declared), sabotage and failures of
suppliers or subcontractors, their equipment and systems (collectively
"Force Majeure"), in which event, the party whose performance hereunder
has been affected (or is being affected) thereby shall give prompt written
notice thereof to the other party and shall take all commercially
reasonable steps to mitigate the duration and affect of such failure or
delay caused by such Force Majeure or (ii) Representative's gross
negligence or willful misconduct.
B. Representative shall indemnify and hold harmless Client and its officers,
directors, employees, agents, and representatives (all of the foregoing
collectively "Client Indemnities") from and against, and shall reimburse
"Client Indemnities" for any and all claims, suits, actions, proceedings
(formal and informal) investigations, judgements, deficiencies, damages
settlements, liabilities, losses, costs and expenses (including reasonable
legal fees and expenses of attorneys) (all of the foregoing collectively
"Client Damages"), as and when incurred, arising out of, based upon, or
occasioned by (a) any act or omission by Representative in connection with
the acceptance of the performance or non performance by Representative of
any of its duties and obligations under this Agreement; (b) the breach or
violation by Representative of any of the Representatives warranties,
representations, covenants and other agreements, contained in this
Agreement, and/or (c) any assertion or claim by any third party that, if
true would
6
<PAGE>
constitute a breach or violation by Representative by any such
representations, warranties, covenants and other agreements.
Notwithstanding anything contained herein to the contrary, the foregoing
indemnification shall not apply with respect to, and Representative shall
not otherwise be liable for or with respect to, (i) any Damages arising
out of, based upon or occasioned by Force Majeure or (ii) any breach,
violation, performance, non-performance, act or omission of any
Subcontractor or (iii) Client's gross negligence or willful misconduct.
C. The Client and Representative shall each maintain, at their own expense,
liability insurance coverage in an amount sufficient to provide to the
other party not less than $1,000,000.00 of proceeds which would be
designated for damages if assessed or paid under Paragraph 12A and 12B
13. Limitation of Damages. Without the Client's approval no Insertion Order
---------------------
for Advertisements on Client's Web Sites shall be accepted by
Representative without the following language:
"NEITHER WEB SITE OWNER NOR PHASE2MEDIA (COLLECTIVELY "EITHER PARTY")
SHALL BE LIABLE OR RESPONSIBLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL,
CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES OF ANY NATURE WHATSOEVER
(INCLUDING, WITHOUT LIMITATION, ANY DAMAGES MEASURED BY, OR PREMISED ON,
LOST DATA, PROFITS, REVENUES, SAVINGS OR LOST BUSINESS OPPORTUNITY, LOSS OF
USE OF ANY PRODUCT, EQUIPMENT OR OTHER PROPERTY OR ASSET, COST OF CAPITAL,
COST OF ANY SUBSTITUTED EQUIPMENT, PRODUCT OR SERVICE, DOWNTIME, INJURY TO
PROPERTY, REPUTATION OR RELATIONSHIPS WITH EXISTING OR PROSPECTIVE CLIENTS,
WHETHER BASED UPON BREACH OF WARRANTY OR CONTRACT, NEGLIGENCE, STRICT TORT
OR ANY OTHER LEGAL THEORY AND REGARDLESS OF WHETHER EITHER PARTY HAS BEEN
ADVISED OF, OR IS OTHERWISE AWARE OF, THE POTENTIAL OR PROSPECT OF ANY SUCH
DAMAGES. IN NO EVENT SHALL THE LIABILITY OF EITHER PARTY WITH RESPECT TO
THIS AGREEMENT, REGARDLESS OF FAULT, EXCEED THE AGGREGATE DOLLAR AMOUNT OF
ADVERTISING PLACED HEREUNDER. ERRORS & OMISSIONS EXCLUDED"
14. No Poaching. Client on the one hand and Representative on the other hand
-----------
agree that, during the term of this Agreement and for a period of one (1)
year thereafter, it will not solicit or recruit, or encourage any third
party to solicit or recruit, or assist any third party in soliciting or
recruiting, the services of any of Representative's or Client's, respective
officers or employees and will not employ, hire or otherwise retain any
such officers and/or employees without the prior written consent of the
other party.
15. No Waiver. This Agreement shall not be waived, modified or amended except
---------
as expressly set forth in writing signed by the parties hereto. Without
limiting the generality of the foregoing, neither this Agreement nor any
provision hereof shall be deemed amended or modified by, and no waiver of
any term or condition hereof shall be implied from or deemed
7
<PAGE>
to have occurred on account of any course of conduct or course of dealing
by either of the parties hereto or between the parties hereto.
16. Assignment. The parties agree and understand that the services
----------
contemplated hereunder are personal in nature and that, accordingly, except
as provided below neither party hereto may assign, transfer or otherwise
encumber this agreement or any right or interest herein without express
prior written consent of the other party (which consent may be withheld in
such other party's sole and absolute discretion) provided any such
assignment, transfer or assumption shall not relieve Client or
Representative of liability hereunder. It is further provided that in the
event that either party has experienced a "change of control", neither
party shall be required to seek the consent of the other party. A "change
of control" shall be defined as a change in ownership in excess of 20% of
the ownership of the other party resulting from change.
17. Governing Law. This Agreement shall be governed by, and construed and
-------------
enforced in accordance with, the internal laws of the State of New York
applicable to contracts made and to be performed wholly therein, without
regard to principles of conflicts of laws. The parties agree that any
action, proceeding or other dispute arising under or with respect to this
Agreement or any term, condition or provision hereof shall be resolved in
or before one of the Federal or state courts situated in the City, County
and State of New York.
18. Notices. All notices required or permitted to be given hereunder shall be
-------
in writing and shall be either hand-delivered, telecopied, mailed by both
first class and registered or certified class mail (return receipt
requested), postage prepaid, or sent via electronic mail to the other party
hereto at the address(es) set forth below. A notice shall be deemed given
when delivered personally, when the telecopied notice is transmitted by the
sender and receipt thereof has been confirmed (electronically or
otherwise), three (3) business days after mailing or on the delivery date
if delivered by electronic mail. A copy of all notices shall be sent to (i)
Zukerman Gore & Brandeis, LLP, 900 Third Avenue, New York, NY 10022, Attn.
Andrew M. Chonoles, Esq., facsimile number (212) 233-6433, e-mail:
[email protected]; and (ii) Edward R. Curtin, Sr. V.P., General Counsel,
---------------------
PlasmaNet, 420 Lexington Avenue, 24/th/ Floor, New York, NY 10170, Attn.
Edward R. Curtin, Esq., facsimile number (212) 931-6761, e-mail: to be
supplied.
19. Entire Agreement. This Agreement constitutes the entire agreement by and
----------------
between the parties with respect to the subject matter hereof and
supersedes and incorporates all prior or contemporaneous agreements and
understandings (written or oral) of the parties with respect to such
subject matter and, except as otherwise expressly provided herein, is not
intended to confer upon any other person any rights or remedies hereunder.
20. Counterparts. This Agreement may be executed in original or facsimile
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same document.
21. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
8
<PAGE>
unenforceability without invalidating the remaining portions hereof of
affecting the validity or enforceability of such provision in any other
jurisdiction.
22. Headings. The Section and other headings contained in this Agreement are
--------
for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written:
REPRESENTATIVE: CKG MEDIA.COM, INC. d/b/a PHASE2MEDIA
By: /s/ Thomas Mannion
__________________________________________
Name: Thomas Mannion
Title: Senior Vice President of Advertising Sales
E-mail Address: [email protected]
------------------------
CLIENT: PLASMANET, INC.
By: /s/ Kevin J. Aronin
___________________________________________
Name: Kevin J. Aronin
Title: Chairman & Chief Executive Officer
E-mail Address: [email protected]
9
<PAGE>
Schedule A.
A1. Subject to the terms and conditions set forth in Paragraph 6 hereof, the
Client shall pay the Representative a fee of [***]% ([***] percent) of the net
Advertising revenue, including the Click2Win e-mail newsletters and a fee of
[***]% ([***] percent) of the net e-mail Advertising revenue, excluding the
Click2Win e-mails, sold by the Representative as agent for the Client, and
billed and collected on behalf of the Client, provided that the Representative's
commissions shall be reduced as set forth on Schedule A4 hereto with respect to
banner advertising sold at a rate of less than [***] cents per click. Net
Advertising revenue is defined as gross Advertising revenue less 15% (fifteen
percent) advertising agency discount, if any. It is understood that the Client
reserves the right to exchange advertising on its sites in exchange for
advertising on other sites, equity investment in other companies, or other non-
cash payments in kind, without compensation to the Representative. It is also
understood that the Representative will receive its full commission on any deal
it initiates and brings to the Client that involves generating revenues in cash
or in kind.
A2. Dedicated Sales Staff. For each $[***] per month in net billed
----------------------
Advertising revenue on the Client's Web Sites, The Representative shall employ
one account executive solely charged with the responsibility of selling the
Client's Advertising. Client and Representative shall cooperate so that by the
end of the second month from and after this Agreement, the Web Sites shall have
sufficient traffic so that Representative will be able to sell a minimum of
Thirty (30) million clicks per month at a maximum of Three (3) clicks per player
per day, and the Representative will be responsible for providing advertising to
support Thirty (30) million clicks per month. It is understood by the
Representative that the Client is rapidly growing its player base and that the
Representative is charged with the important responsibility of providing
advertising to support the increasing number of monthly "freebets" ("freebet" is
defined as a player entering a sweepstakes sponsored by the Client which
involves the picking of numbers from a grid of numbers and clicking on an
advertising banner or clicking a response to a question).
A3. Guarantees and Pricing: Representative guarantees to sell [***]% ([***]
----------------------
percent) of monthly (calendar) inventory based on 3 bets per unique user per day
as projected and outlined in Schedule B hereto as amended in writing to the
Representative from time to time by Client two months in advance at the average
monthly cost per click rate ("AMCPC") for the preceding month. The AMCPC will be
calculated from monthly market pricing conditions determined by an analysis of
buying rates achieved by a predetermined and mutually agreed upon list of 5
advertising agencies (Schedule C: To be mutually agreed upon within 2 weeks of
contract signing). If the Representative fails to sell at least [***]% ([***]
percent) of the projected "freebets" as outlined in Schedule B made by FreeLotto
players at the AMCPC for three (3) consecutive months, the Client will have the
right to terminate this Agreement upon notice to the. Representative. Clients
right to terminate this agreement will expire 5 (five) business days immediately
following Representative's failure to sell [***]% ([***] percent) of the
projected "freebets" as outlined in Schedule B made by FreeLotto players at the
AMCPC for three (3) consecutive months. Additionally, if the Representative
fails to sell at least [***]% ([***] percent) of the projected "freebets" as
outlined in Schedule B made by FreeLotto players at the AMCPC for three (3)
consecutive months, the Client shall be permitted to solicit additional
advertising through other sources without compensation to the Representative for
the unsold month's inventory (current month) as long as this inventory is not
resold. If at any time the Client decides to reduce the price of the unsold
inventory, the Representative shall be permitted to sell any or all of the
unsold inventory at this new "minimum commission price". The minimum commission
price is that price at which the Representative receives the lowest agreed
commission rate as set forth in Schedule A4. The Client will advise the
Representative of new pricing with five (5) business days written notice before
making the new price policy available to any advertiser. If sales or revenues
are lost due to failures in the ad delivery and e-mail systems, Client's right
to terminate this agreement will be negated during the month such failures occur
and the Representative will not be held responsible for failing to sell [***]%
of the inventory for the entire month.
10
<PAGE>
Schedule A4.
Pricing and Commission Structure
Phase2Media has been authorized to sell inventory BELOW [***] cents CPC without
further approval from Plasmanet under the condition that P2M agrees to reduced
commissions. Here is the present pricing structure and the P2M commission
structure.
A) Current Pricing & Commission Structure (Current Mininum Commission Price:
[***]
- --------------------------------------------------------------------------------
Cents CPC)
- ----------
Agency Net Rate P2M Commission
- --------------- --------------
If sold at [***] cents CPC or higher [***]%
If sold at [***] cents CPC [***]%
If sold at [***] cents CPC [***]%
If sold at [***] cents CPC [***]%
If sold at less than [***] cents CPC [***]%
If the Client (Plasmanet/FreeLotto) should lower the price structure for the
freebets, Phase2Media will be permitted to sell at the new pricing floor and
will be paid its commission based on the following commission structure:
B) Revised Pricing & Commission Structure
- -----------------------------------------
Agency Net Rate P2M Commission
- --------------- --------------
Minimum Commission Price + [***] cents or higher [***]%
Minimum Commission Price + [***] cents [***]%
Minimum Commission Price + [***] cent [***]%
Minimum Commission Price-M.C.P. [***]%
If sold at less than Minimum Commission Price (MCP) [***]%
11
<PAGE>
SCHEDULE B
__________
<TABLE>
<CAPTION>
Freelotto 200 Projected Players and Clics (12/27/99)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONTH Jan Feb March April May June July August Sept Oct Nov Dec Year
Players (month end 000) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Avg. Play/mo. [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Clics (MM) [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 10.8
INVESTMENT AGREEMENT
By and Between
CKG MEDIA.com, INC.,
GROUP OMNI-NET, INC.,
OMNI-NET.com (HOLDINGS), INC.,
ZULU-TEK, INC.,
ENHANCED SERVICES COMPANY, INC.,
and
RICHARD FISHER, as trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of April 2, 1999
<PAGE>
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (this "Agreement"), dated as of April 2, 1999,
between CKG MEDIA.com, INC., a Delaware corporation, having an address at 420
Lexington Avenue, Suite 2101, New York, New York 10170 ("CKG"), GROUP OMNI-NET,
INC., a Delaware corporation, having an address at 3415 S. Sepulveda Boulevard,
Suite 500, Los Angeles, California 90034 ("Omni"), OMNI-NET.com (HOLDINGS),
INC., a Delaware corporation having an address at 3415 S. Sepulveda Boulevard,
Suite 500, Los Angeles, California 90034 ("Holdings"), ZULU-TEK, INC., a Utah
corporation having an address at 3415 S. Sepulveda Boulevard, Suite 500, Los
Angeles, California 90034 ("Zulu"), ENHANCED SERVICES COMPANY, INC., a Colorado
corporation having an address at 3415 S. Sepulveda Boulevard, Suite 500, Los
Angeles, California 90034 ("Enhanced" and sometimes referred to collectively
with Omni, Holdings, and Zulu as "Investor"), and Richard Fisher, an individual
residing at 337 Rumstick Road, Barrington, Rhode Island 02806, as trustee of the
CKG Media.com, Inc. Stock Trust (the "Trustee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, CKG is engaged in the internet advertising business;
WHEREAS, simultaneously with the execution hereof, Omni is entering into
that certain CKG Stockholders' Agreement, dated as of the date hereof (the
"Stockholders' Agreement");
WHEREAS, Enhanced is the indirect majority stockholder of Omni, which
together with its predecessors, successors and any "Affiliates" (as that term is
defined in Rule 405 promulgated under the Securities Act of 1933, as amended
(the "Act")) is hereinafter referred to collectively as the "Company"; and
WHEREAS, Investor, through the use of a blind trust (the "Trust"), desires
to purchase from CKG, and CKG desires to issue to the Trustee of the Trust, 55
shares of common stock, par value $0.01 per share (the "Stock"), whereby the
Investor shall be the beneficial owner of, upon the execution and delivery of
this Agreement, one hundred percent (100%) of the issued and outstanding shares
of the Stock on the terms and conditions set forth herein
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and in order to set forth the terms and conditions of the
purchase and sale of the Stock and the manner of carrying the same into effect,
the parties hereto hereby agree as follows:
<PAGE>
1. Subscription for Purchase of Stock. 1On the basis of the
----------------------------------
representations, warranties, covenants and agreements contained herein, upon the
Closing hereof (as that term is defined in Section 5 below) CKG agrees to issue,
sell, transfer, convey and deliver to the Trustee, and Investor and/or the
Trustee, as the case may be, agrees to purchase, acquire and accept delivery
from CKG of, the Stock, subject to the terms and conditions set forth herein.
2. Consideration for Purchase of Stock. As full and total consideration
-----------------------------------
of the issuance, sale, transfer, conveyance, assignment and delivery of the
Stock at the Closing by CKG to the Trustee, Investor agrees to cause to be
delivered to CKG at the Closing (i) all rights, title and interest to the Omni
Assets (as that term is defined in Section 3(a) hereof) and (ii) One Million
Dollars ($1,000,000) (the "Cash Purchase Price") by wire transfer or certified
or official bank check drawn on a bank which is a member of the New York
Clearing House Association payable to the order of CKG.
3. (a) Assignment of Assets. Subject to and upon the terms and
--------------------
conditions set forth in this Agreement, the Company agrees to transfer, convey,
assign and deliver to CKG at the Closing the following assets (collectively, the
"Omni Assets"):
(i) all right, title and interest in and to any and all United
States and foreign: (A) patents (including design patents, industrial
designs and utility models) and patent applications (including
docketed patent disclosures awaiting filing, reissues, divisions,
continuations-in-part and extensions), patent disclosures awaiting
filing determination, inventions and improvements thereto; (B)
trademarks, service marks, trade names (including, without limitation,
any trade names acquired by the Company (as that term is defined in
Section 3(a)(v) hereof) in connection with the acquisition of a
Company's business), trade dress, logos, business and product names,
slogans, and registrations and applications for registration thereof;
(C) copyrights (including software) and registrations thereof; (D)
inventions, processes, designs, formulae, trade secrets, know-how,
industrial models, confidential and technical information,
manufacturing, engineering and technical drawings, product specif
ications and confidential business information; (E) mask work and
other semiconductor chip rights and registrations thereof; (F)
intellectual property rights similar to any of the foregoing; (G)
copies and tangible embodiments thereof (in whatever form or medium,
including electronic media); and (H) all internet related rights,
including but not limited to the Omni-net.com URL.
(ii) all rights (including, but not limited to, any and all
Intellectual Property rights, as that term is defined in Section
8(o)(i)) in and to the products and services sold, rented or leased
and in and to any products or other Intellectual Property rights under
research or development prior to or on the Closing Date;
2
<PAGE>
(iii) all of the rights of Omni under all Contracts (as hereinafter
defined) and, including, without limitation, any right to receive
payment for products sold or services rendered, and to receive goods
and services, pursuant to such Contracts and to assert claims and take
other rightful actions in respect of breaches, defaults and other
violations of such Contracts; provided, however, that Investor shall
not be responsible for obtaining the Consents (as hereinafter defined)
to the assignment of such Contracts;
(iv) all credits, prepaid expenses, deferred charges, return
allowances, advance payments, security deposits and prepaid items;
(v) all books, records, manuals and other materials (in any form
or medium), including, without limitation, all records and materials
maintained by Investor, advertising matter, catalogues, price lists,
correspondence, mailing lists, lists of customers, distribution lists,
photographs, production data, sales and promotional materials and
records, purchasing materials and records, manufacturing and quality
control records and procedures, blueprints, research and development
files, records, data and laboratory books, Intellectual Property
disclosures, media materials and plates, accounting records, and sales
order files;
(vi) to the extent their transfer is permitted by law, all
consents, approvals, authorizations, waivers, permits, grants,
franchises, concessions, agreements, licenses, exemptions or orders of
regulation, certificate, declaration or filing with, or report or
notice to any entity issued, executed, delivered or otherwise made to
or for the benefit of the Omni Assets, including, without limitation,
any consent to any instrument, lease, Contract, permit or other
agreement that requires the consent or approval of a third party, and
including all applications thereof (collectively, the "Consents")
(provided, however, that Omni shall not be responsible for obtaining
any Consents that it does not already possess) including, but not
limited to, the Consent (the "Governmental Approval") of any nation,
or government, any state or other political subdivision thereof, any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including,
without limitation, any government authority, agency, department,
board, commission or instrumentality of the United States, any state
of the United States or any political subdivision thereof, and any
tribunal or arbitrator(s) of competent jurisdiction, and any self-
regulatory organization (collectively, the "Governmental Authority" or
"Governmental Authorities);
(vii) all rights to choose in action, causes of action, claims and
rights of recovery or setoff, lawsuits, judgments, claims and demands
of any nature available to or being pursued by Omni with respect to
Omni's business or the ownership, use, function or value of any of the
Omni Assets whether arising by way of counterclaim or otherwise;
3
<PAGE>
(viii) all guarantees, warranties, indemnities and similar rights in
favor of the Company with respect to any of the Omni Assets;
(ix) accrued sales (in respect of outstanding proposals or work-in-
process), commitments, proposals, Contracts, understandings or
commitments, whether oral or written, to perform services;
(x) the employment contracts (the "Employment Contracts"), as such
are identified on Schedule A annexed to the Employment Contracts
Assignment (as such term is defined in Section 6(a)(i) hereof)
substantially in the form of Schedule 6(a)(i) annexed hereto; and
----------------
(xi) cash and cash equivalents (including marketable securities)
and accounts and notes receivable of Omni.
(b) Assumed Liabilities.
-------------------
(i) The Omni Assets shall be conveyed free and clear of all
liabilities, obligations, liens, claims and encumbrances, excepting
only those liabilities, obligations, liens, claims and encumbrances
which are expressly to be assumed by CKG hereunder, if any, CKG shall
assume at the Closing, and thereafter timely pay, perform or
discharge, when due, the "Assumed Liabilities," except to the extent
that any of such Assumed Liabilities have been paid or satisfied as of
the Closing Date. As used herein, the term "Assumed Liabilities"
shall mean the liabilities set forth on Schedule 3(b) annexed hereto.
-------------
(ii) CKG shall not and does not assume any liabilities, obligations
or commitments of Omni, other than the Assumed Liabilities, and the
Company shall be solely responsible, without limitation, for the
following:
(A) Legal, accounting, brokerage and finder's fees and income,
excise or real estate or other Transfer Taxes (as defined in
Section 6(d) hereof) or other expenses incurred by or Investor
in connection with this Agreement or the consummation of the
transactions contemplated hereby;
(B) Debts, liabilities or obligations of any nature to any
past or present shareholder of Omni;
(C) Any domestic, federal, state or local or foreign income,
franchise, excise, use, property, payroll or similar or other
Taxes (as defined in Section 8(i) hereof) (or penalties and
interest thereon)
4
<PAGE>
imposed on Omni including, without limitation, those due as a
result of the operation of Omni's business through the Closing
Date; and
(D) Except as CKG shall have otherwise agreed herein,
liabilities and obligations of Omni, if any, accruing prior
to, on or after the Closing Date relating to Omni's employment
of any of Omni's employees, including, without limitation,
compensation, severance payments, if any, contributions to
employee benefit plans, workers' compensation or other
insurance claims.
(c) Excluded Assets. The Omni Assets do not include, and
---------------
specifically exclude, the items set forth on Schedule 3(c) annexed hereto
-------------
(hereinafter referred to as the "Excluded Assets").
(d) Consent of Third Parties. Investor will cooperate with CKG in
------------------------
any lawful and economically feasible arrangement to provide that CKG shall
receive the interest of Omni and in the Omni Assets assigned to CKG pursuant to
this Agreement and/or any document executed in connection herewith, in the
benefits under any such instrument, Contract, lease or permit or other agreement
or arrangement, including performance by Omni as agent, if economically
feasible. Nothing in this Section 3(d) shall be deemed a waiver by CKG of its
right to have received on or before the Closing an effective assignment of all
of the Omni Assets nor shall this Section 3(d) be deemed to constitute an
agreement to exclude from the Omni Assets any assets described in Section 3(a)
hereof.
4. Issuance of Stock. As full and total consideration of (i) the sale,
-----------------
transfer, conveyance, assignment and delivery of the Omni Assets to CKG, (b) the
delivery of the Cash Purchase Price by Investor to CKG, and (c) in reliance upon
the representations and warranties made herein by Investor, CKG agrees to issue
and deliver to the Trustee 55 shares of Stock.
5. Closing. The closing of the transaction contemplated under this
-------
Agreement (the "Closing") shall take place with the execution and delivery of
this Agreement at the offices of Zukerman Gore and Brandies, LLP or at such
other location or in such other manner as the parties may mutually agree. The
day on which the Closing actually takes place is herein sometimes referred to as
the "Closing Date."
6. Investor's and the Company's Obligations at Closing;
----------------------------------------------------
(a) At the Closing, Investor, agrees to cause to be delivered to CKG
(and, as applicable, execute):
(i) an Assignment and Assumption of Employment Contracts duly
executed by Omni in substantially the form of Schedule 6(a)(i) hereto
----------------
(the "Employment Contracts Assignment");
5
<PAGE>
(ii) the Cash Purchase Price as provided in Section 2 hereof;
(iii) a certified copy of resolutions adopted by the Board of
Directors of the Company authorizing the execution, delivery and
performance of this Agreement;
(iv) a certified copy of the certificate of incorporation, as
amended, as appropriate, of Investor, from the appropriate officials
of the jurisdiction in which Investor is incorporated;
(v) certificates (and facsimiles dated as of the Closing Date) as
to the good standing of Investor, from the appropriate officials of
the jurisdiction in which Investor is qualified to transact business;
(vi) an opinion of Omni's counsel substantially in the form of
Schedule 6(a)(vi) annexed hereto;
-----------------
(vii) such other good and sufficient deeds, bills of sale,
endorsements, assignments, documents of title and other instruments of
conveyance, assignment and transfer, in form and substance reasonably
satisfactory to CKG's counsel, as shall be effective to vest in CKG
good title to the Omni Assets;
(viii) all contracts, files and other data (including, without
limitation, lists of orders and computer disks and tapes) and
documents pertaining to the Omni Assets;
(ix) a Sublease Agreement for the Lease (as defined in Section
8(y)(i) hereof) in substantially the form of Schedule 6(a)(ix) annexed
-----------------
hereto (the "Sublease Agreement");
(x) an Assignment Agreement for the Intellectual Property in
substantially the form of Schedule 6(a)(x) annexed hereto (the
----------------
"Intellectual Property Assignment");
(xi) that certain Stockholders' Agreement, dated as of the date
hereof, to be entered into by Investor (the "Stockholders'
Agreement");
(xii) Governmental Approvals;
(xiii) executed documents with respect to the Trust in substantially
the form of Exhibit 6(a)(xiii) annexed hereto;
------------------
(xiv) customary closing certificates from officers of the Company;
and
6
<PAGE>
(xv) The Mutual Release in substantially the form of Exhibit
-------
6(a)(xv) annexed hereto.
--------
(xvi) a copy of a proposed amendment to articles of incorporation of
Omni and Holdings (and any other corporations within the affiliated
group of corporations of which they are members which contain the work
"Omni"), duly executed by Investor, changing each of Omni's and
Holdings' name (and the name of any other such corporation within the
affiliated group) to a name that does not include any of the words
"Omni-net", "Omni", "omni-net", "Omni-net.com", "CKG", "CKG Media" or
"CKG Media.com", no matter what case, capital, lower or otherwise, or
punctuation is used, which Investor agrees to duly file promptly
following the Closing, it being understood that CKG has the present
intent to utilize the name "Omni" and its various derivative forms
described above in connection with its business;
(xvii) all other documents and instruments required to be delivered
to CKG pursuant to the provisions of this Agreement.
(b) Omni agrees that from and after the Closing Date, CKG shall
have the right and authority to bill and collect for its own account all
billings in respect of each Omni's accounts receivable and work-in-process, if
any, that are being transferred to CKG as provided herein. Omni agrees that it
will promptly transfer and deliver to CKG any cash or other property which Omni
may receive in respect of such billings.
(c) At any time and from time to time after the Closing, at CKG's
request and expense, without further consideration, Investor, shall execute and
deliver such other additional instruments of sale, transfer, conveyance,
assignment and confirmation and take such other action as CKG may reasonably
deem necessary or desirable in order to transfer, convey and assign to CKG, and
confirm CKG's title to and operating control of all of the business, properties,
assets and goodwill of the Omni Assets thereof and to assist CKG in exercising
all rights with respect thereto.
(d) Investor shall be responsible for the timely payment of all
income, sales (including, without limitation, bulk sales), use, value added,
documentary, stamp, gross receipts, registration, transfer, conveyance, excise,
recording, license and other similar Taxes (as defined in Section 8(i) hereof)
and fees (collectively, "Transfer Taxes"), arising out of or in connection with
or attributable to the transactions effected pursuant to this Agreement. Omni
shall prepare and timely file all tax returns required to be filed in respect of
Transfer Taxes (including, without limitation, all notices required to be given
with respect to bulk sales taxes), provided that CKG shall be permitted to
--------
prepare any such tax returns that are the primary responsibility of CKG under
Applicable Law. CKG's preparation of any such tax returns shall be subject to
Omni's approval, which approval shall not be unreasonably withheld or delayed.
(e) At any time and from time to time after the Closing, at CKG's
request and expense, without further consideration, Investor shall execute and
deliver such other
7
<PAGE>
additional instruments of sale, transfer, conveyance, assignment and
confirmation and take such other action as CKG may reasonably deem necessary or
desirable in order to transfer, convey and assign to CKG the Omni Assets and any
and all other assets transferred to CKG pursuant hereto or pursuant to any other
document executed in connection herewith, but subject to this Agreement, to put
CKG in actual possession and operating control thereof and to assist CKG in
exercising all of CKG's rights with respect thereto and to take such action and
execute such documents or instruments as may be reasonably requested by CKG in
connection with any governmental or regulatory matters or filings required to be
made by CKG, including, without limitation, any filings, documents or
instruments to be delivered to the United States Securities and Exchange
Commission or any other Governmental Authority, the New York Stock Exchange,
CKG's lenders, auditors or any other appropriate party.
7. CKG's Obligations at Closing. (a) At the Closing, CKG agrees to
----------------------------
deliver, or cause to be delivered, as the case may be, to Investor (and, as
applicable, execute):
(i) Stock certificate(s) in the Trustee's name, dated as of the
Closing Date, representing 55 shares of Stock;
(ii) certificate as to the good standing of CKG from the
appropriate officials of the jurisdictions in which CKG is
incorporated or qualified and authorized to do business as a foreign
corporation;
(iii) the opinion of CKG's counsel, substantially in the form of
Schedule 7(a)(iii) annexed hereto;
------------------
(iv) a true and correct copy of CKG's certificate of incorporation,
as certified by the Secretary of State of the State of Delaware and a
true and correct copy of CKG's by-laws, as certified by the secretary
of CKG;
(v) the Stockholders' Agreement;
(vi) the Employment Contracts Assignment;
(vii) the Sublease Agreement; and
(viii) all other documents and instruments required to be delivered
to Investor pursuant to the provision of this Agreement.
(b) At any time and from time to time after the Closing, at
Investor's request and expense, without further consideration, CKG shall execute
and deliver such other additional instruments of sale, transfer, conveyance,
assignment and confirmation and take such other action as Investor may
reasonably deem necessary or desirable in order to transfer, convey and assign
to Investor and/or the Trustee, as the case may be, and confirm Investor's
beneficial
8
<PAGE>
and the Trustee's legal title to, the Stock, and to assist Investor
and/or the Trustee, as the case may be, in exercising all rights with respect
thereto.
8. Representations and Warranties of the Company and Investor. Investor
----------------------------------------------------------
represents and warrants, to CKG, as of the date of this Agreement and as of the
Closing Date, as follows:
(a) Organization, Standing and Qualification. Except as set forth
----------------------------------------
on Schedule 8(a) annexed hereto, (i) Investor is a corporation, duly organized,
-------------
validly existing and in good standing under the laws of its state of
incorporation; (ii) Investor has all requisite corporate power and authority and
is entitled to carry on its business a now being conducted and to own, lease or
operate its properties in the places where such business is now conducted and
such properties are now owned, leased or operated; and (iii) Investor is duly
qualified, licensed and in good standing as a foreign corporation authorized to
do business in each state in with it transacts business. Investor has delivered
or has agreed to deliver to CKG true and complete copies of the certificate of
incorporation of each corporation which constitutes Investor and all amendments
thereto, certified as true and correct by the appropriate state agencies, and
the by-laws of each corporation which constitutes Investor, as presently in
effect, certified as true and correct by the secretary of Investor, as the case
may be.
(b) Subsidiaries. Omni has no subsidiaries or divisions. Omni's
------------
business has not been conducted through any other direct or indirect subsidiary,
division (other than Omni) or any Affiliate or any present or former
shareholder of Investor. Omni has no interest, directly or indirectly, and has
no commitment to purchase any interest, directly or indirectly, in any other
corporation or in any partnership, joint venture or other business enterprise or
entity
(c) Transactions with Certain Persons. Except as set forth on
---------------------------------
Schedule 8(c) annexed hereto, Omni has not directly or indirectly, purchased,
- -------------
leased from others or otherwise acquired any property of a material nature or
obtained any services from, or sold, leased to others or otherwise disposed of
any property of a material nature or furnished any services to, or otherwise
dealt with (except with respect to remuneration for services rendered as a
director, officer or employee of Omni), in the ordinary course of business or
otherwise (i) any shareholder of Omni, or (ii) any person, firm, partnership,
corporation or other entity which, directly or indirectly, alone or together
with others, controls, is controlled by or is under common control with Investor
or any shareholder of Investor. Except as set forth on Schedule 8(c) annexed
-------------
hereto, Omni does not owe any amount to, or have any contract with or commitment
to, any of its shareholders, directors, officers, employees or consultants
(other than compensation for current services not yet due and payable and
reimbursement of expenses arising in the ordinary course of business), and none
of such persons owes an amount in excess of $1,000 to Omni.
9
<PAGE>
(d) Execution, Delivery and Performance of Agreement; Authority.
-----------------------------------------------------------
Except as set forth on Schedule 8(d) annexed hereto, neither the execution,
-------------
delivery nor performance of this Agreement and all other agreements to which
Investor is a party required to be delivered by Investor pursuant to Section
6(a) hereof (which documents are hereinafter sometimes collectively referred to
as "Investor's Related Agreements") by Investor will, with or without the giving
of notice or the passage of time, or both, conflict with, result in a default,
right to accelerate or loss of rights under, or result in the creation of any
lien, charge or encumbrance pursuant to any provision of Investor's certificate
of incorporation or by-laws or any franchise, mortgage, deed of trust, lease,
license, agreement, Applicable Law, rule or regulation or any order, judgment or
decree to which Investor is a party or by which any of them may be bound or
materially or adversely affected or require any consent, authorization, approval
or any other action by, or any notice to, or filing or registration with, any
Governmental Authority or other third party. No Consent is required to be
obtained or made by Investor in connection with the execution and delivery of
this Agreement or the Investor's Related Agreements and to consummate the
transactions contemplated hereby. Investor has the full power and authority to
enter into this Agreement and, as applicable, Investor's Related Agreements and
to carry out the transactions contemplated hereby, as applicable, all
proceedings required to be taken by it to authorize and approve the execution,
delivery and performance of this Agreement and Investor's Related Agreements
have been properly taken, and this Agreement and Investor's Related Agreements
constitute valid and binding obligations of Investor, enforceable in accordance
with their terms, except that such enforcement may be subject to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium and similar
law affecting creditors' rights generally. The execution, delivery and
performance of this Agreement and Investor's Related Agreements have been duly
authorized, to the extent required by Applicable Law and by all requisite
corporate and shareholder action of Investor, if necessary.
(e) Capitalization. All of the presently authorized, issued and
--------------
outstanding shares of capital stock of Omni are owned by Investor and have been
duly authorized and validly issued and are fully paid and non-assessable. There
are no outstanding subscriptions, rights, options, warrants, calls, contracts,
demands, commitments, convertible securities or other agreements or arrangements
of any character or nature whatsoever under which Investor is or may become
obligated to issue, assign or transfer any shares of the capital stock of Omni.
(f) Ownership of Omni's Capital Stock. The lawful record and
---------------------------------
beneficial owner of Omni's capital stock is Enhanced, and its ownership is free
and clear of any liens, claims, encumbrances or restrictions of any kind.
Investor is not a party to or otherwise subject to any agreement, understanding
or arrangement regarding the transfer, sale, disposition, purchase, acquisition
or voting of Omni's capital stock.
(g) Financial Statements. Omni has delivered to CKG copies of the
--------------------
following financial statements (hereinafter, collectively, the "Financial
Statements"), copies of which are annexed hereto as Schedule 8(g), all of which
-------------
are true, accurate and correct, and have been prepared in good faith from the
books and records of Omni in conformity with generally
10
<PAGE>
accepted accounting principles consistently applied and fairly present the
financial position of Omni at such dates and for the periods then ended:
(i) Balance sheets and unaudited related statements of income and
retained earnings (including the notes thereto) of Omni, for the ___
month period then ended. (The balance sheets and related statements
of operations for the period ended March 31, 1999 is hereinafter
referred to as the "Balance Sheet" and the date March 31, 1999 is
hereinafter referred to as the "Balance Sheet Date").
Such Financial Statements do not contain any items of special or
nonrecurring income or any other income not earned in the ordinary course of
business except as expressly specified therein.
(h) Absence of Undisclosed Liabilities. As of the Balance Sheet
----------------------------------
Date, except as reflected in the Balance Sheet, Omni had no debts, liabilities
or obligations (whether absolute, accrued, contingent or otherwise) of any
nature whatsoever.
(i) Taxes. All Taxes imposed by the United States or by any
-----
foreign country or by any state, municipality, subdivision or instrumentality of
the United States or of any foreign country, or by any other taxing authority,
which are due or payable by Omni, and all interest and penalties thereon,
whether disputed or not, have been paid in full; all tax returns required to be
filed in connection therewith have been accurately prepared and duly and timely
filed prior to the expiration of any available extension periods; and all
deposits required by law to be made by Omni with respect to employees'
withholding taxes have been duly made, except for the current reporting period.
Omni is not currently delinquent in the payment of any foreign or domestic tax,
assessment or governmental charge or deposit and has no tax deficiency or claim
outstanding, or proposed or assessed against it, and, to Investor's knowledge,
there is no basis for any such deficiency or claim. There is not now in force
any extension of time with respect to the date on which any tax return was or is
due to be filed by or with respect to Omni. As used in this Agreement, "Taxes"
shall include, without limitation, all federal, state, provincial, local,
foreign or other income, alternative minimum, accumulated earnings, add-on,
personal holding, franchise, capital stock, net worth, capital, profits, gross
receipt, value added, sales, use, goods and services, transaction, excise
customs duties, transfer, conveyance, mortgage, registration, stamp,
documentary, recording, premium, charges, fees, severance, environmental
(including taxes under Section 59A of the Code), real property, gains tax,
personal property, ad valorem, intangibles, rent, occupancy, license,
occupational, employment, unemployment insurance, social security, disability,
workers' compensation, payroll, withholding, estimated or other similar tax,
duty or other governmental charge or assessment or deficiency thereof, including
all interest and penalties thereon and additional thereto whether disputed or
not.
(j) Absence of Changes or Events. Since the Balance Sheet Date,
----------------------------
Omni has conducted its business only in the ordinary course and has not:
11
<PAGE>
(i) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities for trade or business obligations in the ordinary course
of business and consistent with its prior practice, none of which
liabilities, in any case or in the aggregate, materially and adversely
affects the business, properties, assets, liabilities or condition,
financial or otherwise, of Omni;
(ii) discharged or satisfied any lien, charge or encumbrance other
than those then required to be discharged or satisfied, or paid any
obligation or liability, absolute, accrued, contingent or otherwise,
whether due or to become due, other than current liabilities shown on
the Balance Sheet and current liabilities incurred since the Balance
Sheet Date in the ordinary course of business and consistent with its
prior practice;
(iii) declared or made any payment of dividends or other
distribution to its shareholders or upon or in respect of any shares
of its capital stock, or purchased, retired or redeemed, or obligated
itself to purchase, retire or redeem, any of its shares of capital
stock or other securities;
(iv) mortgaged, pledged or subjected to lien, charge, security
interest or any other encumbrance or restriction any of its property,
business or assets, tangible or intangible;
(v) sold, transferred, leased to others or otherwise disposed of
any of its assets except in the ordinary course of business, or
canceled or compromised any debt or claim, or waived or released any
right of substantial value;
(vi) received any notice of termination of any contract, lease or
other agreement or suffered any damage, destruction or loss (whether
or not covered by insurance) which, in any case or in the aggregate,
has had a materially adverse effect on its assets, properties,
operations or prospects;
(vii) encountered any labor union organizing activity, had any
actual or threatened employee strikes, work stoppages, slow-downs or
lock-outs or had any material change in its relations with its
employees, agents, customers or suppliers;
(viii) transferred or granted any rights under, or entered into any
settlement regarding the breach or infringement of, any United
12
<PAGE>
States or foreign license, patent, copyright, trademark, trade name,
invention or similar rights, or modified any existing rights with
respect thereto;
(ix) made any material change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable, or
paid or agreed or orally promised to pay conditionally or otherwise,
any material bonus, extra compensation, pension or severance or
vacation pay, to any shareholder, director, officer, employee,
salesman, distributor or agent of Omni;
(x) issued or sold any shares of its capital stock or other
securities, or issued, granted or sold any options, rights or warrants
with respect thereto, or acquired any capital stock or other
securities of any corporation or any interest in any business
enterprise, or otherwise made any loan or advance to or investment in
any person, firm or corporation;
(xi) made any capital expenditures or capital additions or
betterments;
(xii) changed its banking or safe deposit arrangements;
(xiii) instituted, settled or agreed to settle any litigation, action
or proceeding before any court or governmental body relating to Omni
or its property;
(xiv) failed in any material manner to replenish its inventories and
supplies in a normal and customary manner consistent with its prior
practice or made any purchase commitment in excess of the normal,
ordinary and usual requirements of its business or at any price in
excess of the then current market price or upon terms and conditions
more onerous than those usual and customary in the industry, or made
any material change in its selling, pricing, advertising or personnel
practices inconsistent with its prior practice or, if so, consistent
with prudent business practices prevailing in the industry;
(xv) suffered any change, event or condition which, in any case or
in the aggregate, has had or may have a materially adverse affect on
Omni's condition (financial or otherwise), properties, assets,
liabilities, operations or prospects including, without limitation,
any change in Omni's revenues, costs, levels of
13
<PAGE>
committed business or relations with its employees, agents, customers
or suppliers;
(xvi) entered into any transaction, contract or commitment other
than in the ordinary course of business or paid or agreed to pay any
legal, accounting, brokerage, finder's fee, taxes or other expenses in
connection with, or incurred any severance pay obligations by reason
of this Agreement or the transactions contemplated hereby; or
(xvii) entered into any agreement or made any commitment, whether
written or oral, to take any of the types of action described in
subparagraphs (i) through (xvi) above.
(k) Litigation. There is no claim, legal action, suit,
----------
arbitration or other legal or administrative proceeding (or governmental
investigation) or any order, decree or judgment in progress, pending or in
effect, or, to the knowledge of Investor, threatened against or relating to
Omni, its officers or directors, its properties, assets or business in
connection with the transactions contemplated by this Agreement, and Investor
does not know or has no reason to be aware of any basis for the same.
(l) Compliance with Laws and Other Instruments. Omni has complied
------------------------------------------
in all material respects with all existing laws, rules, regulations, ordinances,
orders, judgments and decrees applicable to its business, properties or
operations. Neither the ownership nor use of the Omni Assets nor the conduct of
its business by Omni conflicts in any material respect with the rights of any
other person, firm or corporation; or violates, or with or without the giving of
notice or the passage of time, or both, will violate, conflict with or result in
a default, right to accelerate or loss of rights under, any terms or provisions
of Omni's certificate of incorporation or by-laws as presently in effect, or any
lien, encumbrance, mortgage, deed of trust, lease, license, agreement,
understanding, law, ordinance, rule or regulation, or any order, judgment or
decree to which Investor is a party or by which it may be bound or affected.
(m) Title to Properties. Omni has good and marketable title to
-------------------
the Omni Assets. None of the Omni Assets are subject to any loan agreement,
conditional sale or title retention agreement, equipment obligation, lease
purchase agreement, mortgage, indenture, pledge, security agreement, guaranty,
lien, charge, security interest, encumbrance, restriction, lease, license,
easement, liability or adverse claim of any nature whatsoever (excluding trade
and account payables), direct or indirect, whether accrued, absolute, contingent
or otherwise. Omni has not sold, transferred, assigned or otherwise conveyed any
right, title or interest in or to any of Omni's customer lists or any rights
thereto.
(n) Insurance. Set forth on Schedule 8(n) annexed hereto is an
--------- -------------
accurate and complete list of all fire, theft, casualty, liability and other
insurance policies procured by Omni or Investor with respect to Omni's business.
Except as set forth on Schedule 8(n) annexed hereto, all insurance policies
-------------
relating to Omni are in full force and effect, and all premiums due
14
<PAGE>
thereon have been paid. Set forth on Schedule 8(n) annexed hereto, is a
-------------
description of all open claims made by Omni under any policy of insurance and
all claims which in the opinion of Investor reasonably formed and held, should
or could be made under any such policy.
(o) Intellectual Property.
---------------------
(i) Title. Schedule 8(o)(i) annexed hereto contains a complete and
----- ----------------
correct list of all United States and foreign: (A) patents (including
design patents, industrial designs and utility models) and patent
applications (including docketed patent disclosures awaiting filing,
reissues, divisions, continuations-in-part and extensions), patent
disclosures awaiting filing determination, inventions and improvements
thereto; (B) trademarks, service marks, trade names, trade dress,
logos, business and product names, slogans, and registrations and
applications for registration thereof; (C) copyrights (including
software) and registrations thereof; (D) inventions, processes,
designs, formulae, trade secrets, know-how, industrial models,
confidential and technical information, manufacturing, engineering and
technical drawings, product specifications and confidential business
information; (E) mask work and other semiconductor chip rights and
registrations thereof; (F) intellectual property rights similar to any
of the foregoing; (G) copies and tangible embodiments thereof (in
whatever form or medium, including electronic media); (H) all internet
related rights, including but not limited to the Omni-net.com URL
(collectively, "Intellectual Property") that is owned by Omni (the
"Owned Intellectual Property") other than (1) inventions, trade
secrets, processes, formulas, compositions, designs and confidential
business and technical information and (2) Intellectual Property that
is not registered or subject to application for registration. Omni
owns or has the exclusive right to use pursuant to license,
sublicense, agreement or permission all Owned Intellectual Property,
free from any Encumbrances and free from any requirement of any past,
present or future royalty payments, license fees, charges or other
payments, or conditions or restrictions whatsoever. The Owned
Intellectual Property comprise all of the Intellectual Property
necessary for CKG to conduct and operate Omni's business as now being
conducted.
(ii) Transfer. Immediately after the Closing, CKG will own all of
--------
the Owned Intellectual Property and will have the right to use all
Intellectual Property, free from any liens and on the same terms of
any person in effect prior to the Closing.
(iii) No Infringement. To Investor's knowledge, the conduct of
---------------
Omni's business does not infringe or otherwise conflict with any
rights of any person in respect of any Intellectual Property.
(iv) Licensing Arrangements. Omni is not a party to any material
----------------------
agreements, arrangements or laws (A) pursuant to which Omni has
licensed Intellectual Property to, or the use of Intellectual Property
is otherwise permitted
15
<PAGE>
(through non-assertion, settlement or similar agreements or otherwise)
by, any other party and (B) pursuant to which Omni has had
Intellectual Property licensed to it, or has otherwise been permitted
to use Intellectual Property.
(v) No Intellectual Property Litigation. No claim or demand has
-----------------------------------
been made nor is there any proceeding that is pending, or to the
knowledge of Investor, threatened, which (A) challenges the rights of
Omni in respect of any Intellectual Property, or (B) asserts that Omni
is infringing or otherwise in conflict with, or is, required to pay
any royalty, license fee, charge or other amount with regard to, any
Intellectual Property. None of the Intellectual Property is subject to
any outstanding order, ruling, decree, judgment or stipulation by or
with any court, arbitrator, or administrative agency.
(p) [Intentionally omitted.]
(q) Receivables. All accounts and trade receivables of Omni which
-----------
are reflected on the Balance Sheet and which have arisen since the date thereof,
have arisen only from bona fide transactions in the ordinary course of Omni's
business and shall be (or have been) fully collectible when due, without, to
Investor's best knowledge, resort to litigation; and without offset or
counterclaim, in the aggregate face amounts thereof.
(r) Absence of Certain Business Practices. To the knowledge of
-------------------------------------
Investor, Omni has not, nor has any officer, employee or agent of Omni, nor any
other person acting on its behalf, directly or indirectly, given or agreed to
give any gift or similar benefit of a material nature to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of Omni (or assist Omni in connection with any actual or
proposed transaction) which (i) is likely to subject Omni to any damage or
penalty in any civil, criminal or governmental litigation or proceeding, (ii) if
not given in the past, is likely to have had an adverse effect on the assets,
business or operations of Omni as reflected on the Financial Statements or (iii)
if not continued in the future, is likely to adversely affect the assets,
business, operations or prospects or which might subject Omni to suit or penalty
in any private or governmental litigation or proceeding.
(s) Disclosure. No representation or warranty by Investor
----------
contained in this Agreement or in any other document furnished or to be
furnished by Investor in connection herewith or pursuant hereto contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact required to make the statements herein or therein contained
not misleading. The representations and warranties contained in this Section 8
shall not be affected or deemed waived by reason of the fact that CKG and/or its
representatives knew or should have known that any such representation or
warranty is or might be inaccurate in any respect.
(t) Labor Disputes. Omni is not a party to or bound by any
--------------
collective bargaining agreement and there are no labor unions or other
organizations representing or
16
<PAGE>
purporting to represent any employees employed by Omni. With respect to Omni's
business (i) no work stoppage by employees of Omni has occurred and is
continuing or is threatened, (ii) Investor does not have any actual knowledge of
any pending or threatened charges or claims against Omni of unfair labor
practices, wage and hour violations, FMLA violations, OSHA violations,
immigration law violations, ERISA violations, or discrimination based on age,
race, sex, religion, national origin or any other basis, which individually or
in the aggregate, would be materially adverse to the business of Omni, (iii)
there are no pending labor negotiations with or union organization efforts by
any employees of Omni or with any union representing or, to Investor's best
knowledge, attempting to represent any employees of Omni and (iv) Investor has
no any actual knowledge of employee grievances or complaints which in the
aggregate would be material and adverse to the business of Omni that has not
been settled or otherwise resolved to the satisfaction of Omni and the
employees.
(u) Advance Billings. Omni has not received any advance billings
----------------
from clients in respect of jobs which will be completed following the Closing.
(v) Contracts and Proposals.
-----------------------
(i) Schedule 8(v) annexed hereto contains a complete and correct
-------------
list of all agreements, contracts, licenses, commitments and other
instruments and arrangements (whether written or oral) by which Omni
is bound ("Contracts").
(ii) Omni has delivered to CKG complete and correct copies of all
written Contracts, together with all amendments thereto, including an
accurate description of all material terms of all oral Contracts, set
forth or required to be set forth in Schedule 8(v) hereto.
-------------
(iii) Except as set forth on Schedule 8(v), all Contracts are in
-------------
full force and effect and enforceable against each party thereto. To
the actual knowledge of Investor, there does not exist under any
Contract any event of default or event or condition that, after notice
or lapse of time or both, would constitute a violation, breach or
event of default thereunder on the part of Omni except as set forth in
Schedule 8(v) annexed hereto and except for such events or conditions
-------------
that, individually and in the aggregate, (A) has not had or resulted
in, and will not have or result in a default or an event which, after
notice or lapse of time, or both, would constitute a default or result
in a right to accelerate a loss of right (a "Material Adverse Effect")
and (B) has not and will not materially impair the ability of Omni to
perform its obligations under this Agreement and under the Investor's
Related Agreements. None of the existing or completed Contracts is
subject to renegotiation with any governmental body. Except as set
forth in Schedule 8(v), no consent of any third party is required
-------------
under any Contract as a result of or in connection with, and the
enforceability of any Contract will not be affected in any manner by,
the execution, delivery and performance of this
17
<PAGE>
Agreement or any of the Investor's Related Agreements or the
consummation of the transactions contemplated thereby.
(iv) Omni no has any outstanding power of attorney in favor of any
party relating to Omni.
(w) Directors and Officers. Schedule 8(w) annexed hereto contains
---------------------- -------------
a complete and accurate list of the names of all of Omni's directors and
officers.
(x) Inventories. Omni maintains no inventory of equipment held
-----------
for sale or rent, spare parts, replacement and component parts,
(y) Real Property.
-------------
(i) Lease. Schedule 8(y) annexed hereto is the real estate lease
----- -------------
(the "Lease") pursuant to which Omni occupies or uses real property in
connection with its business. Omni has delivered to CKG a correct and complete
copy of the Lease. The Lease is legal, valid, binding, enforceable, and in full
force and effect, except as may be limited by bankruptcy, insolvency,
reorganization and similar Applicable Laws affecting creditors generally and by
the availability of equitable remedies. To the knowledge of Investor, neither
Omni nor the landlord under the Lease is (or upon the consummation of the
transactions contemplated hereby, will be) in default, violation or breach in
any respect under the Lease, and no event has occurred and is continuing that
constitutes or, with notice or the passage of time or both, would constitute a
default, violation or breach in any respect under the Lease. The Lease has not
been pledged, mortgaged, assigned, modified or amended by Omni. The Lease grants
Omni the exclusive right to use and occupy the demised premises thereunder. Omni
has good and valid title to the leasehold estate under the Lease free and clear
of all liens created by Omni. Omni enjoys peaceful and undisturbed possession
under its lease for the leased real property. Except as set forth on Schedule
--------
8(y)(i) annexed hereto, no consent is required by any landlord, lessor, ground
- -------
lessor, mortgagee, or other party holding any interest in connection with or in
respect of the Lease, by virtue of the transactions contemplated hereby.
(ii) No Proceedings. There are no eminent domain or other similar
--------------
proceedings pending or, to the knowledge of Investor, threatened affecting any
portion of the leased real property and there is no proceeding pending or, to
the knowledge of Investor, threatened for the taking or condemnation of any
portion of the leased real property. There is no writ, injunction, decree, order
of judgment outstanding, nor any action, claim, suit or proceeding, pending or,
to the knowledge of Investor, threatened, relating to the ownership, lease, use,
occupance or operation by any person of any of the leased real property.
18
<PAGE>
(iii) Current Use. To the knowledge of Investor, the use and
-----------
operation of the real property in the conduct of Omni's business does not
violate in any material respect any instrument of record or agreement affecting
the real property. To the knowledge of Investor, there is no violation of any
covenant, condition, restriction, easement or order of any Governmental
Authority having jurisdiction over such property or of any other person entitled
to enforce the same affecting the real property or the use or occupancy hereof.
Except as set forth on Schedule 8(y)(iii) annexed hereto, no damage or
------------------
destruction has occurred with respect to any of the real property.
(z) Investment Intent. In order to induce CKG to issue the Stock
-----------------
to the Trustee, and upon reliance thereof, Investor hereby represents and
warrants to CKG:
(i) Investor has such knowledge and experience in
financial, business, investment and banking matters (including but not
limited to investments in restricted, non-listed and non-registered
securities) such that Investor is capable of evaluating the merits,
risks and advisability of the acquisition of the Stock;
(ii) Investor has adequate means of providing for its
current financial needs and possible contingencies and has no need for
liquidity of its investment in the Stock;
(iii) Investor is able to bear the economic risks inherent in
an investment in the Stock and that an important consideration bearing
on its ability to bear the economic risk of the purchase of the Stock
is whether Investor can afford a complete loss of Investor's
investment in the Stock and the undersigned Investor represents and
warrants that it can afford such a complete loss;
(iv) The Stock is being acquired solely for Investor's own
account, for investment purposes only and not with a view towards the
distribution or resale to others and he has no present commitment or
arrangement providing for the distribution thereof;
(v) Investor is an "accredited investor" as such term is
defined in Rule 501 of Regulation D promulgated under the Act;
(vi) Investor's decision to receive the Stock as partial
consideration hereunder is not based on any promotional, marketing or
sales materials, and Investor and its representatives have been
afforded, prior to the entering into of this Agreement and the receipt
of the Stock by the Trustee, the opportunity to ask questions of, and
to receive answers from, CKG and its management, and has had access to
all documents and information which Investor deems material to a
decision to receive the Stock hereunder.
19
<PAGE>
(vii) Investor will not cause the Trustee nor will the
Trustee transfer any Stock unless such Stock is registered under the
Act, and under any applicable state securities or "blue sky" laws
(collectively, the "Securities Laws"), or unless an exemption is
available under such Securities Laws, and that CKG may, if it chooses,
where an exemption from registration is claimed by Investor, condition
any transfer of the Stock out of Trustee's name on an opinion of CKG's
counsel to the effect that the proposed transfer is being effected in
accordance with, and does not violate, an applicable exemption from
registration under the Securities Laws;
(viii) Investor acknowledges, understands and appreciates that
the Stock has not been registered under the Act, by reason of a
claimed exemption under the provisions of such Act and a similar
exemption to the registration provisions of applicable state
securities laws, all of which depends, in large part, upon the
representations as to investment intent and other related matters set
forth herein;
(ix) Investor understands it is the view of the Securities
and Exchange Commission (the "SEC") that, among other things, a
purchase with a present intent to distribute or resell would represent
a purchase and acquisition with an intent inconsistent with the
representations herein made by Investor, and consequently, the SEC
might regard such a transfer as a deferred sale for which the
exemption from registration is not available;
(x) Investor understands, acknowledges, and appreciates
that CKG is relying upon, and it is entitled to rely upon, all of the
representations and warranties contained in this Section 8;
(xi) Investor agrees and consents to the placement of a
legend on the certificate(s) representing the Stock substantially in
the form set forth in Section 13(n) below which shall state that the
Stock has not been registered under the Act or applicable state
securities laws; and
(xii) Investor understands, acknowledges, and agrees that no
return on investment, whether through distributions, appreciation,
transferability or otherwise, and no performance by, through or of
CKG, has been promised, assured, represented or warranted by CKG with
respect to the Stock, or by any director, officer, employee, agent or
representative thereof and the Stock to be received under this
Agreement is not registered under applicable federal or state
securities laws, and thus may not be sold, conveyed, assigned or
transferred unless registered under such laws or unless an exemption
from registration is available under such laws, and therefore, there
is no present public or other market for such Stock, and Investor may
not be able to liquidate its investment in the event of an emergency
or otherwise, the transferability of the Stock is severely limited,
and, as such, Investor could sustain a complete loss with respect to
the Stock.
20
<PAGE>
(aa) Subordination of Stock. Investor understand, acknowledges and
----------------------
agrees that this Agreement and Investor's beneficial ownership and the Trustee's
legal ownership of the Stock pursuant to the transaction contemplated herein, is
subject to the terms and conditions of (i) the certificate of incorporation of
CKG and (ii) the Stockholders' Agreement.
21
<PAGE>
9. Representations and Warranties of CKG. CKG represents and warrants to
-------------------------------------
Investor as follows:
(a) Organization, Standing and Qualification. CKG is a corporation
----------------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware; has all requisite corporate power and authority and is
entitled to carry on its business as now being conducted and to own, lease or
operate its properties in the places where such business is now conducted and
such properties are now owned, leased or operated; and is duly qualified,
licensed and in good standing as a foreign corporation authorized to do business
in the states listed on Schedule 9(a) annexed hereto, which are the only states
-------------
where the failure to be so qualified would have a material adverse effect on the
condition, financial or otherwise, of CKG. CKG has delivered to Investor true
and complete copies of the certificate of incorporation of CKG, certified as
true and correct by the Office of the Secretary of State of the State of
Delaware, and the by-laws of CKG as presently in effect, certified as true and
correct by CKG's secretary.
(b) Execution, Delivery and Performance of Agreement; Authority.
-----------------------------------------------------------
Except as set forth on Schedule 9(b) hereto, neither the execution, delivery nor
-------------
performance of this Agreement will, with or without the giving of notice or the
passage of time, or both, conflict with, result in a default, right to
accelerate or loss of rights under, or result in the creation of any lien,
charge or encumbrance pursuant to any provision of CKG's certificate of
incorporation or by-laws or any franchise, mortgage, deed of trust, lease,
license, agreement, law, rule or regulation or any order, judgment or decree to
which CKG is a party or by which CKG may be bound or materially or adversely
affected or require any consent, authorization, approval or any other action by,
or any notice to or filing or registration with, any governmental authority or
other third party. Except as set forth on Schedule 9(b) hereto, no other party,
-------------
including, without limitation, any present or former partner, shareholder in
common with, or employee of CKG has, may or will have any right to any of the
proceeds of the sale of the Stock. CKG has the full power and authority to
enter into this Agreement and to carry out the transaction contemplated hereby,
all proceedings required to be taken by CKG to authorize and approve the
execution, delivery and performance of this Agreement have been properly taken,
this Agreement constitutes a valid and binding obligations of CKG, enforceable
in accordance with its terms, except that such enforcement may be subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium and
similar law affecting creditors' rights generally. The execution, delivery and
performance of this Agreement by CKG has been duly authorized, to the extent
required by applicable law and by all requisite corporate and shareholder action
of CKG, if necessary.
(c) Capitalization. All of the shares of capital stock of CKG has
--------------
been duly authorized and validly issued and are fully paid and non-assessable.
Except for the Class A Common Stock which is convertible upon an initial public
offering into common stock of CKG, there are no outstanding subscriptions,
rights, options, warrants, calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements of any character or nature
whatsoever under which CKG is or may become obligated to issue, assign or
transfer any shares of the capital stock of CKG.
22
<PAGE>
(d) Ownership of CKG's Capital Stock. CKG is not a party to or
--------------------------------
otherwise subject to any agreement, understanding or arrangement regarding the
transfer, sale, disposition, purchase, acquisition or voting of the Stock. Upon
the delivery thereof to the Trustee at Closing, the Trustee will acquire good,
marketable and valid title to the Stock free and clear of any liens, claims,
encumbrances or restrictions of any kind.
10. Indemnification. (a) Investor, on the one hand, and CKG, on the other
---------------
hand (as the case may be, the "Indemnifying Party") hereby indemnifies and
agrees to defend and hold CKG, its shareholders, officers, directors, members,
employees, counsel, accountants and agents, on the one other hand, and Investor,
its shareholders, officers, directors, members, employees, counsel, accountants
and agents, on the other hand (as the case may be, an "Indemnified Party")
harmless from damages, liabilities, losses, costs or expenses (including,
without limitation, reasonable counsel fees and expenses) suffered or paid,
directly or indirectly, as a result of or arising out of the failure of any
respective representation or warranty made by the Indemnifying Party (but only
to the best of Indemnifying Party's knowledge) in this Agreement or in any
Schedule or Exhibit attached hereto to be true, complete and correct in all
material respects as of the date of this Agreement and as of the Closing Date.
(i) If any action, suit, proceeding or investigation is
commenced, as to which an Indemnified Party proposes to demand indemnification,
it shall notify the Indemnifying Party (the "Indemnity Notice") with reasonable
promptness; provided, however, that any failure by an Indemnified Party to
-------- -------
notify the Indemnifying Party shall not relieve the Indemnifying Party from its
obligations hereunder, except to the extent that the Indemnifying Party shall
have been materially prejudiced in their respective ability to defend the
action, suit, proceedings or investigation for which such indemnification is
sought by reason of such failure. An Indemnified Party shall have the right to
retain counsel of its own choice in its sole discretion, and the Indemnifying
Party shall pay the reasonable fees, reasonable expenses and reasonable
disbursements of such counsel; and such counsel shall to the extent consistent
with its professional responsibilities cooperate with the Indemnifying Party and
any counsel designated by the Indemnifying Party. The Indemnifying Party shall
be liable for any settlement of any claim against an Indemnified Party made with
the Indemnifying Party written consent, which consent shall not be unreasonably
withheld. The Indemnifying Party shall not, without prior written consent of an
Indemnified Party, settle or compromise any claim, or permit a default or
consent to the entry of any judgment in respect thereof, unless such settlement,
compromise or consent includes, as an unconditional term thereof, the giving by
the claimant to an Indemnified Party of an unconditional release from all
liability in respect to such claim.
(ii) In order to provide for just and equitable
contribution, if a claim for indemnification pursuant to these indemnification
provisions is made but it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) that such indemnification may not
be enforced in such case, even though the express provisions hereof provide for
indemnification in such case, then the Indemnifying Party, on the one hand, and
an Indemnified Party, on the other, shall contribute to the losses, claims,
damages, obligations, penalties, judgments, awards, liabilities, costs and
expenses to which the indemnified persons
23
<PAGE>
may be subject in accordance with the relative benefits received by the
Indemnifying Party, on the one hand, and an Indemnified Party, on the other
hand, in connection with the statements, acts or omissions which resulted in
expenses and the relevant equitable considerations shall also be considered. No
person found liable for a fraudulent misrepresentation shall be entitled to
contribution from any person who is not also found liable for such fraudulent
misrepresentation.
(iii) The obligations to indemnify and hold harmless pursuant
to this Section 10 shall survive the Closing Date.
11. Nature and Survival of Representations and Warranties; Rules Regarding
----------------------------------------------------------------------
Indemnification and Other Actions.
- ---------------------------------
(a) All statements, representations, warranties and indemnities
made by each of the parties hereto (and in any schedule or exhibit annexed
hereto) are and shall be true and correct as of the date hereof and as of the
Closing Date, and each of them shall survive the Closing as provided in Section
11(b) hereof and shall be subject to Section 10 hereof.
(b) No claim shall be made or enforced against an Indemnifying
Party, whether pursuant to Section 10 hereof or by an action at law or any other
action including, but not limited to, a claim of a breach of a representation
and warranty (collectively, "Other Action") unless and to the extent that the
Indemnity Notice or notice of an Other Action shall have been given by the party
seeking indemnification or instituting an Other Action to the Indemnifying Party
not later than 36 months after the Closing Date or, with respect to Taxes, the
date upon which the applicable period of limitation on assessment or refund of
any relevant tax has expired; provided that claims asserted pursuant to an
Indemnity Notice prior to the expiration of the applicable survival period shall
survive until such claim shall be resolved and payment in respect thereof, if
any is owing, shall be made.
12. Notices. Any and all notices, demands or requests required or
-------
permitted to be given under this Agreement shall be given in writing and sent,
by registered or certified U.S. mail, return receipt requested, by hand, or by
overnight courier, addressed to the parties hereto at their addresses set forth
above or such other addresses as they may from time-to-time designate by written
notice, given in accordance with the terms of this Section, together with copies
thereof as follows:
In the case of CKG, with a copy to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022-4728
Facsimile no.: (212) 223-6433
Attention: Andrew M. Chonoles, Esq.
24
<PAGE>
In the case of Investor, with a copy to:
Justin Walker, Esq.
3145 S. Sepulveda Boulevard
Suite 500
Los Angeles, California 90034
(In addition, without constituting notice hereunder, the parties shall use
reasonable efforts to send by facsimile to counsel for the party to whom notice
is to be sent copies of all notices sent by such party). Notice given as
provided in this Section shall be deemed effective: (i) on the date hand
delivered, (ii) on the first business day following the sending thereof by
overnight courier, and (iii) on the seventh calendar day (or, if it is not a
business day, then the next succeeding business day thereafter) after the
depositing thereof into the exclusive custody of the U.S. Postal Service.
13. Miscellaneous. (a) This Agreement, including, without limitation,
-------------
the schedules and other documents referred to herein, constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, arrangements or understandings with
respect hereto, and may not be modified or amended except by a written agreement
specifically referring to this Agreement signed by all of the parties hereto.
(b) No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or default
of the same or similar nature.
(c) This Agreement shall be binding upon and inure to the benefit
of each corporate party hereto, its successors and assigns, and each individual
party hereto and his heirs, personal representatives, successors and assigns.
(d) The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
sections.
(e) Each party hereto shall cooperate, shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
(f) Except as otherwise provided herein or in agreements
delivered in connection with this Agreement, all legal, accounting and other
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party or parties incurring
the same.
(g) This Agreement may be executed in one or more original or
facsimile counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument.
25
<PAGE>
(h) This Agreement and all amendments hereto shall be governed by,
construed and enforced in accordance with the internal laws of the State of New
York without reference to principles of conflict of laws.
(i) If any provision of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision, only to the extent it is invalid or unenforceable, and shall not in
any manner affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be carried out as if any
such invalid or unenforceable provision were not contained herein.
(j) All schedules attached hereto shall be incorporated by
reference herein as if set forth herein in full.
(k) CKG and Investor, represent and warrant to the other that
there is no obligation to pay any commission, finder's fee, broker's fee or
similar charge in connection with the transactions provided for in this
Agreement, resulting from any agreements or other action of such representing
party.
(l) The parties hereto hereby irrevocably consent to the exclusive
jurisdiction of all Federal and State courts in New York County, New York in
connection with any proceedings brought by CKG the Trustee or Investor, or their
successors or assigns, in connection with this Agreement.
(m) This Agreement is not intended to, and shall not confer any
rights upon, any parties other than the express parties hereto.
(n) Public Announcements. Investor agrees that is shall not
--------------------
release any public announcement which relates to CKG's business without
obtaining the prior written approval of CKG, which approval shall not be
unreasonably withheld or delayed. For purposes of this Agreement the parties
agree that the term "delayed" shall mean a failure by CKG to respond by
telecopier to Investor's beneficial owner within two (2) business days.
Investor's beneficial owner shall first transmit via telecopier to CKG the text
of any proposed public announcement. CKG shall use its best efforts to timely
forward to Investor, via telecopier, CKG's reasonable suggested revisions to the
proposed announcement, provided, however, that in all events CKG shall send its
suggested revisions to the proposed public announcement no later than two (2)
business day from the time such proposed announcement was received by CKG. If
CKG does not respond within two (2) business days of its receipt of the proposed
public announcement, or if the Investor's beneficial owner agrees with CKG's
revisions, the Investor may make the public announcement, as revised,
immediately. In the event that Investor shall be unwilling to accept CKG's
revisions, the Trustee who is the legal owner of Investor's interest in CKG and
counsel for CKG, and/or CKG's President shall immediately confer with respect to
the text of the proposed public announcement and seek to reach an agreement in
connection with the proposed public announcement. In the event that Investor
shall be unwilling to accept CKG's proposed revisions or if the Trustee and
counsel for CKG and/or CKG's President shall fail to
26
<PAGE>
reach an agreement, as the case may be, and should Investor release the proposed
public announcement without obtaining CKG's prior written approval, Investor
shall, each time it issues any public announcement in violation of the
provisions of this Section 13(n) shall pay to CKG an amount equal to $10,000,
which amount shall be considered as and for liquidated damages for such
violation of this Section 13(n) and not as a penalty.
(o) Use of Name. Except as provided for pursuant to the terms and
-----------
conditions of Section 13(n) hereof, Investor shall make no use of any of the
words "Omni-net", "Omni", "omni-net", "Omni-net.com", "CKG", "CKG Media" or "CKG
Media.com", no matter what case, capital, lower or otherwise, or punctuation is
used. Investor shall, each time it makes use of any such word in violation of
the provisions of the immediately preceding sentence, pay to CKG an amount equal
to $10,000, which amount shall be considered as and for liquidated damages for
such violation of this Section 13(o) and not as a penalty.
(p) Life Insurance. The Investor may, at Investor's sole cost and
--------------
expense, obtain life insurance (whether by purchasing one or more policies,
collectively, the "Policy") on the life of CKG's President, Richard Glassberg
(the "Insured Stockholder") in the face amount not to exceed $5,000,000, and the
Investor shall be the beneficiary of such Policy. The Insured Stockholder agrees
to cooperate in good faith in connection with the application for such policy,
including, submitting to the necessary examinations for and making the necessary
disclosures for, and otherwise cooperate in obtaining a Policy.
(q) Each certificate representing the Stock shall contain a
restrictive legend on their reverse side substantially in the following form:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. THE COMMON
STOCK REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED (I) IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT WITH RESPECT THERETO
UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAW OR
(II) UNLESS AN OPINION OF CKG MEDIA.COM, INC.'S COUNSEL THAT SUCH
REGISTRATION AND QUALIFICATION IS NOT REQUIRED UNDER APPLICABLE FEDERAL AND
STATE SECURITIES LAWS AND THERE IS AN EXEMPTION THEREFROM.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CKG MEDIA.COM, INC.
By: /s/ Richard Glassberg
_____________________________
Name: Richard Glassberg
Title: President
OMNI-NET.COM (HOLDINGS), INC.
By: /s/ Justin Walker
_____________________________
Name: Justin Walker
Title: VP & General Counsel
GROUP OMNI-NET, INC.
By: /s/ Justin Walker
______________________________
Name: Justin Walker
Title: VP & General Counsel
ZULU-TEK, INC.
By: /s/ Justin Walker
_______________________________
Name: Justin Walker
Title: VP & General Counsel
For Purposes of Sections 7(b), 8(z)(vii), ENHANCED SERVICES COMPANY, INC.
13(n) and 13(o):
Agreed to and Accepted By:
By: /s/ Justin Walker
The CKG Media.com, _______________________________
Inc. Stock Trust Name: Justin Walker
Title: VP & General Counsel
By: /s/ Richard Fisher, Trustee
__________________________________
Richard Fisher
Trustee
28
<PAGE>
====================================================
EXHIBIT 10.9
SECURITIES PURCHASE AGREEMENT
Dated as of August 16, 1999
by and
among
CKG MEDIA.com, INC.
(d/b/a Phase2Media),
VECTOR CAPITAL II, L.P.
and
EACH OF THE PARTIES LISTED ON SCHEDULE A AND SCHEDULE B
========================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I........................................................................ 1
1. SALE OF SECURITIES........................................................... 1
1.1 Sale of Stock.......................................................... 1
1.2 Consideration.......................................................... 2
1.3 Closings............................................................... 3
ARTICLE II....................................................................... 3
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ 3
2.1 Corporate Power and Authority......................................... 3
2.2 Authorization and Noncontravention.................................... 4
2.3 Existence and Good Standing........................................... 4
2.4 Capital Stock......................................................... 4
2.5 Valid Issuance of Securities; No Personal Liability................... 5
2.6 Subsidiaries and Investments.......................................... 6
2.7 Financial Statements and No Material Changes.......................... 6
2.8 Title to Properties; Encumbrances..................................... 6
2.9 Leases................................................................ 7
2.10 Material Contracts.................................................... 7
2.11 Restrictive Documents................................................. 8
2.12 Litigation............................................................ 9
2.13 Taxes................................................................. 9
2.14 Liabilities........................................................... 10
2.15 Compliance with Laws.................................................. 10
2.16 Accounts Receivable................................................... 10
2.17 Employees; Employee Benefit Plans..................................... 10
2.18 No Changes Since Balance Sheet Date................................... 11
2.19 Disclosure............................................................ 11
2.20 Broker's or Finder's Fees............................................. 12
2.21 Environmental Matters................................................. 12
2.22 Proprietary Rights.................................................... 13
2.23 Related-Party Transactions............................................ 13
2.24 Insurance............................................................. 13
2.25 Filing of 83(b) Elections............................................. 14
2.26 Section 1202 of the Internal Revenue Code............................. 14
ARTICLE III..................................................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS............................... 14
3.1 Experience; Certain Risks............................................... 14
3.2 Accredited Investor or Business and Financial Experience................ 15
3.3 Investment.............................................................. 15
3.4 Rule 144................................................................ 16
3.5 Access to Information................................................... 17
3.6 Authorization........................................................... 17
3.7 Brokers or Finders...................................................... 17
3.8 Litigation.............................................................. 17
ARTICLE IV........................................................................ 17
4. COVENANTS OF THE COMPANY...................................................... 17
4.1 Conduct of Business..................................................... 17
4.2 Review of the Company................................................... 18
4.3 Certain Corporate Actions............................................... 19
4.4 Termination of Agreements with The CKG Media.com, Inc. Stock Trust...... 19
ARTICLE V......................................................................... 19
5. CONDITIONS TO THE COMPANY'S OBLIGATIONS....................................... 19
5.1 Representations and Warranties............................................ 19
5.2 Securityholders' Agreement................................................ 20
5.3 Approvals................................................................. 20
5.4 Receipt of Consideration.................................................. 20
5.5 Performance of Agreements................................................. 20
5.6 Proceedings............................................................... 20
5.7 Termination of Certain Agreements......................................... 20
5.8 Registration Rights Agreement............................................. 20
ARTICLE V1........................................................................ 21
6. CONDITIONS TO THE INVESTORS' OBLIGATIONS...................................... 21
6.1 Opinion of the Company's Counsel.......................................... 21
6.2 Good Standing and Other Certificates...................................... 21
6.3 No Material Adverse Change................................................ 21
6.4 Truth, Completeness and Correctness of Representations and Warranties..... 21
6.5 Performance of Agreements................................................. 22
6.6 No Litigation............................................................. 22
6.7 Employment Agreements..................................................... 22
6.8 Non Competition Agreements................................................ 22
6.9 Governmental Approvals.................................................... 22
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
6.10 Approval of Amended and Restated Certificate of Incorporation........... 22
6.11 Approval of the Company's By-Laws....................................... 22
6.12 Securityholders' Agreement.............................................. 22
6.13 Valid Issuance.......................................................... 23
6.14 Proceedings............................................................. 23
6.15 Key-Man Life Insurance.................................................. 23
6.16 Obligation to Effect Second Closing..................................... 23
6.17 Conversion of Loan...................................................... 24
6.18......................................................................... 24
6.19 Registration Rights Agreement. The Company shall have entered into the
Regin Rights Agreement ................................................. 24
ARTICLE VII.................................................................. 24
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY........................ 24
7.1 Survival of Representations and Warranties............................... 24
7.2 Indemnification.......................................................... 24
ARTICLE VIII................................................................. 26
8. MISCELLANEOUS................................................................ 26
8.1 Preservation of Confidential Information.............................. 26
8.2 Expenses.............................................................. 26
8.3 Governing Law......................................................... 26
8.4 Prevailing Party...................................................... 26
8.5 Captions.............................................................. 27
8.6 Publicity............................................................. 27
8.7 Notices............................................................... 27
8.8 Successors and Assigns................................................ 28
8.9 Counterparts.......................................................... 28
8.10 Entire Agreement...................................................... 28
8.11 Amendments............................................................ 28
8.12 Severability.......................................................... 28
8.13 Third Party Beneficiaries............................................. 28
8.14 Termination of Agreement.............................................. 28
8.15 Several Representations, Warranties, Covenants,
Agreements and Obligations............................................ 29
8.16 Certain Remedies of the Company....................................... 29
</TABLE>
Schedules
Schedule A -
Schedule B -
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT
-----------------------------
SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of August
16, 1999 by and among CKG Media.com, Inc. (d/b/a Phase2Media), a Delaware
corporation (the "Company"), Vector Capital II, L.P. a Delaware limited
partnership ("Vector") and each of the parties listed on each of on the Schedule
of Investors annexed hereto as Schedule A, and Schedule B, which shall include
---------- ----------
Vector, and their respective successors and assigns (each an "Investor" and,
collectively, the "Investors").
W I T N E S S E T H:
-------------------
WHEREAS, Schedule 2.4 annexed hereto sets forth each of those persons
------------
and entities (individually, a "Stockholder" and, collectively, the
"Stockholders") who own those shares of common stock, par value $.001 per share,
respectively, of the Company (the "Common Stock"), set forth opposite their
names on such Schedule, which, in the aggregate, represent all of the issued and
---------
outstanding shares of capital stock of the Company; and
WHEREAS, the Investors desire to invest in the Company through the
purchase of equity securities in the Company.
NOW, THEREFORE, in consideration of the premises and of the respective
representations and warranties hereinafter set forth and the respective
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
1. SALE OF SECURITIES
------------------
1.1 Sale of Stock. Subject to the terms and conditions herein
-------------
stated, the Company agrees, for the benefit of the Investors:
(a) to issue and sell to the Investors on the "Initial Closing
Date" (as that term is defined in Section 1.3 below), and the Investors agree to
purchase from the Company on the Initial Closing Date, an aggregate of 3,798
shares of the Company's Series A Redeemable Preferred Stock, par value $.001 per
share, having such terms and conditions as set forth in the Certificate of
Designations, Preferences and Rights relative to the Series A Redeemable
Preferred Stock (the "Series A Preferred Stock") annexed hereto as Exhibit D
---------
(the "Series A Certificate of Designation") and 11,668,300 shares of the
Company's Series B Convertible Preferred Stock, par value $.001 per share,
having such terms and conditions as set forth in the Certificate of
Designations, Preferences and Rights relative to the Series B Preferred Stock
(the "Series B Preferred Stock") annexed hereto as Exhibit E (the "Series B
---------
Certificate of Designation") and each Investor agrees to purchase, and the
Company agrees to issue and sell to each such Investor, that number of shares of
the Series A Preferred Stock and the Series B
1
<PAGE>
Preferred Stock set forth opposite each Investor's name on Schedule A annexed
----------
hereto (the Series A Preferred Stock and Series B Preferred Stock are sometimes
hereinafter collectively referred to as the "Preferred Stock" or the
"Securities"), and
(b) to issue and sell to the Investors on the "Second Closing
Date" (as that term is defined in Section 1.3 below) an aggregate of 3,600
shares of Series A Preferred Stock and such number of shares of Series B
Preferred Stock as provided for in the Certificate of Designations, Preferences
and Rights relative to the Series B Preferred Stock, and each Investor agrees to
purchase, subject to satisfaction of Section 6.17 below, and the Company agrees
to issue and sell to each such Investor, that number of shares of the Series A
Preferred Stock and the Series B Preferred Stock set forth opposite each
Investor's name on Schedule B annexed hereto.
----------
1.2 Consideration. As full and total consideration for the
-------------
purchase by the Investors of the Securities to be acquired by the Investors
pursuant to the "Initial Closing" (as that term is defined in Section 1.3
below), the Investors shall pay to the Company on the Initial Closing Date,
individually, the amounts set forth on Schedule A opposite their names, and in
----------
the aggregate, Six Million Dollars ($6,000,000) (the "Initial Purchase Price");
provided, however, that up to One Million Seven Hundred Eighty Thousand Dollars
- -------- -------
($1,780,000) that otherwise would be provided by the Investors at the Initial
Closing may be provided by Investors designated by Vector at any time in one or
more closings within ninety (90) days subsequent to the Initial Closing (each, a
"Supplemental Initial Closing"); provided further, however, that in the event
that within ninety (90) days after the Initial Closing, Investors designated by
Vector have not invested the entire One Million Seven Hundred Eighty Thousand
Dollars ($1,780,000) in the Company, the Company shall thereafter have the
right, for the thirty (30) day period subsequent to the expiration of the
aforementioned ninety (90) day period, to have any other person or entity invest
in the Company upon identical terms and conditions set forth herein and become
an Investor hereunder. As full and total consideration for the purchase by the
Investors of the Securities to be acquired by the Investors pursuant to the
"Second Closing" (as that term is defined in Section 1.3 below), the Investors
shall pay to the Company on the Second Closing Date, individually, the amounts
set forth on Schedule B opposite each of their names, and in the aggregate, Four
----------
Million Dollars ($4,000,000) (the "Balance of the Purchase Price"); it being
expressly understood and agreed that in order to effect the Second Closing no
less than seventy percent (70%) of the sums to be received by the Company on the
Second Closing must be sums invested directly by Vector. On each of the Initial
Closing Date and the Second Closing Date, the Company will deliver to each
Investor certificates registered in such Investor's name and for the number of
shares of Series A Preferred Stock and Series B Preferred Stock as shown on
Schedule A and Schedule B, representing the Preferred Stock to be issued to such
- ---------- ----------
Investor at each such "Closing" (as that term is defined in Section 1.3 below),
dated the Initial Closing Date or the Second Closing Date, as the case may be,
against receipt of that portion of the Initial Purchase Price or the Balance of
the Purchase Price, as the case may be, to be paid by such Investor by wire
transfer of same-day funds.
2
<PAGE>
1.3 Closings. (a) The sales and issuances referred to in
--------
Section 1.1 (a) shall take place at 10:00 A.M. at the office of Zukerman Gore &
Brandeis, LLP, 900 Third Avenue, New York, New York on August 16, 1999, or at
such other time and date as the parties hereto may mutually agree. Such time
and date, as same may be adjourned, is sometimes hereinafter referred to as the
"Initial Closing Date" or the "Initial Closing." Unless otherwise expressly set
forth herein to the contrary, all references to the Initial Closing Date shall
include the date of any Supplemental Initial Closing and all references to the
Initial Closing shall include any and all Supplemental Initial Closings.
(b) The sales and issuances referred to in Section 1.1(b) shall
take place at 10 a.m. at the offices of Zukerman Gore & Brandeis, LLP five (5)
business days subsequent to the Company's delivery to Vector of the "Second
Closing Notice" (as that term is defined in Section 6.16 below), or at such
other time and date as set forth in Section 6.16 below. Any such time and date,
as same may be adjourned, is sometimes hereinafter referred to as the "Second
Closing Date" or the "Second Closing". The Initial Closing Date and the Second
Closing Date are sometimes hereinafter collectively referred to as the "Closing
Date" or "Closing Dates," and the Initial Closing and the Second Closing are
sometimes hereinafter collectively referred to as the "Closing" or "Closings."
For the avoidance of doubt, the Investors shall have the right to effect the
Second Closing at any time upon five (5) "business days" (which shall be any day
on which commercial banks are open for business in New York City) prior written
notice to the Company even if the "Gross Margin Milestone" (as that term is
defined in Section 6.16 below) has not been satisfied, provided that the Company
has theretofore received the entire Initial Purchase Price from Investors in
accordance with the provisions of Section 1.2 above.
ARTICLE II
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
2. Representations and Warranties of the Company. The Company warrants
---------------------------------------------
and represents, as of the date hereof and as of each Closing Date as if such
representations and warranties were made on the Closing Date, as follows:
2.1 Corporate Power and Authority. The Stockholders are, prior to
-----------------------------
the sales and issuances contemplated hereby, the lawful, beneficial and record
owners of the shares of Common Stock and Class A Common Stock, of the Company
set forth on Schedule 2.4 annexed hereto, representing all of the issued and
---------------------------
outstanding shares of capital stock of the Company and such Stockholders own
such shares free and clear of all liens, encumbrances, restrictions and claims
of every kind, except as set forth on Schedule 2.1. The Company has the full
------------
legal right, power and authority to enter into this Agreement and the Series A
Certificate of Designation, the Series B Certificate of Designation, and the
Securityholders' Agreement, and to issue and sell the Securities to be issued
pursuant to this Agreement and to issue the Common Stock or Class A Common
Stock, as the case may be, issuable upon conversion of the Series B Preferred
Stock in accordance with the terms of the Certificate of Incorporation, and the
delivery
3
<PAGE>
to the Investors of the Securities pursuant to the provisions of this Agreement
will transfer to the Investors valid title thereto, free and clear of all liens,
encumbrances, restrictions and claims of every kind except as set forth on
Schedule 2.1.
- ------------
2.2 Authorization and Noncontravention. This Agreement has been
----------------------------------
duly and validly authorized, executed and delivered by the Company and
constitutes a valid and legally binding agreement of the Company, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles. The execution
and delivery by the Company of this Agreement and the other agreements and
instruments, including, without limitation, the Securityholders' Agreement among
the Company, the Stockholders, and the Investors, dated as of August 16, 1999
(the "Securityholders' Agreement") to be executed and delivered by them in
connection herewith do not and the consummation of the transactions contemplated
hereby and thereby will not: (i) violate any provision of the Certificate of
Incorporation or By-Laws of the Company; (ii) except as set forth on Schedule
--------
2.2, violate any provision of, or result in the termination or acceleration of,
- ---
or default under, or entitle any party to accelerate (whether after the filing
of notice or lapse of time or both) any obligation under, or result in the
creation or imposition of any lien, charge, pledge, security interest or other
encumbrance upon any of the assets of the Company pursuant to any provision of
any mortgage, lien, lease, agreement, license, or instrument, or violate any
law, regulation, order, arbitration award, judgment or decree to which the
Company is a party or by which its property is bound; (iii) violate or conflict
with, or create a default under, any other material restriction of any kind or
character to which the Company is subject; (iv) require any governmental
consent, authorization, filing, approval, or exemption, except as may be
required by Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act"); or (v) violate any consent decree or requirement
to which the Company is subject.
2.3 Existence and Good Standing. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the power to own its property and to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in the jurisdictions listed on Schedule 2.3,
------------
which are the only jurisdictions in which the character or location of the
properties owned or leased by the Company or the nature of the business
conducted by the Company makes such qualification necessary, except where the
failure to qualify individually or in the aggregate will not have a material
adverse effect on the business of the Company.
2.4 Capital Stock.
-------------
(a) A description of the authorized capital stock of the Company,
together with the number of shares of each class outstanding, the names of each
of the holders of such shares and the number of shares held by each Stockholder
as of the Closing Date, is set forth on Schedule 2.4 hereto. All of such shares
------------
of capital stock of the Company have been duly
4
<PAGE>
authorized, validly issued, are fully paid and nonassessable and were issued in
compliance with all applicable federal and state securities laws. No securities
directly or indirectly convertible into or exchangeable for any of the capital
stock of the Company, and no options, warrants, rights, calls or commitments
relating to such shares or other such securities, are outstanding, except as
reflected on Schedule 2.4 hereto. Except as set forth in the registration rights
------------
agreements by and among the Company and the Investors (the "Registration Rights
Agreement") of even date herewith in substantially the form annexed hereto as
Exhibit A, or as set forth on Schedule 2.4, the Company is not under any
------------
contractual obligation to register under the Securities Act any of its presently
outstanding securities or any securities which it may hereafter issue.
(b) As of the Closing, the Company shall not be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock and the Company shall not have any
outstanding warrants, options, or other rights to acquire its capital stock,
except as set forth on Schedule 2.4 or in this Agreement.
------------
(c) As of the Closing Date, sufficient shares of authorized but
unissued Common Stock and authorized but unissued Class A Common Stock will have
been reserved by appropriate corporate action in connection with the prospective
conversion of the Series B Preferred Stock into Common Stock or Class A Common
Stock, as the case may be. The issuance of the Common Stock or Class A Common
Stock, as the case may upon conversion of the Series B Preferred Stock into
Common Stock or Class A Common Stock, as the case may be, will not require any
further corporate action by the Stockholders or directors of the Company, nor
will it be subject to preemptive rights of any present or future stockholders of
the Company, nor will it conflict with any provision of any agreement to which
the Company is a party or by which it or its assets are bound.
2.5 Valid Issuance of Securities; No Personal Liability. When
---------------------------------------------------
issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, the Preferred Stock (and the shares of Common
Stock or Class A Common Stock, as the case may be, issuable upon the conversion
of the Series B Preferred Stock) will be duly and validly issued, the Preferred
Stock (and the shares of Common Stock or Class A Common Stock, as the case may
be, issuable upon the conversion of the Series B Preferred Stock) will be fully
paid, non-assessable and free of preemptive rights, and, when executed and
delivered by the Company, each of this Agreement, and the Preferred Stock (and
the shares of Common Stock or Class A Common Stock, as the case may be,
issuable upon the conversion of the Series B Preferred Stock) will constitute
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other law affecting
creditors' rights generally and of general principles of equity (regardless of
whether considered in a proceeding at law or in equity). Based in part upon the
representations of the Investors in this Agreement, the Preferred Stock will be
issued in compliance with all applicable federal and state securities laws and
the offer, sale and issuance of the Preferred Stock and the shares of the Common
Stock or Class A
5
<PAGE>
Common Stock, as the case may be, issuable upon conversion of the Series B
Preferred Stock will constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act. The Investors, upon purchase of
the Preferred Stock (and the shares of Common Stock or Class A Common Stock, as
the case may be, issuable upon the conversion of the Series B Preferred Stock),
will not be subject to personal liability by reason of being holders of
Securities.
2.6 Subsidiaries and Investments. The Company has no (and has
----------------------------
never had any) subsidiaries and does not own, directly or indirectly, any
capital stock or other equity or ownership or proprietary interest in any
corporation, partnership, association, trust, joint venture or other entity.
2.7 Financial Statements and No Material Changes.
--------------------------------------------
(a) The Company has heretofore furnished the Investors with a
true, correct and complete unaudited balance sheet of the Company and the
related statements of income and retained earnings as of June 30, 1999 prepared
by the Company. (The balance sheet of the Company as at June 30, 1999 is
hereinafter referred to as the "Balance Sheet" and such date is hereinafter
referred to as the "Balance Sheet Date"). The Balance Sheet fairly presents in
all material respects the financial condition of the Company at the date thereof
and, except as indicated therein, reflects all known or asserted material claims
against and all material debts and liabilities of the Company, fixed or
contingent, as at the date thereof and the related statements of income and
retained earnings fairly present in all material respects the results of the
operations of the Company and the changes in its financial position for the
period indicated, except as specified therein.
(b) Except as specified in Schedule 2.7(b), since the Balance
---------------
Sheet Date there has been (i) no material adverse change in the assets or
liabilities, or in the business (present or anticipated) or condition, financial
or otherwise, or in the results of operations of the Company and (ii) no
material adverse change in the assets or liabilities, or in the business
(present or anticipated) or condition, financial or otherwise, or in the results
of operations of the Company except in the ordinary course of business; and to
the best knowledge, information and belief the Company, no fact or condition
(not of general knowledge) exists or is contemplated or threatened which might
cause such a change in the future.
2.8 Title to Properties; Encumbrances. Except as set forth on
---------------------------------
Schedule 2.8 attached hereto and except for properties and assets reflected in
- ------------
the Balance Sheet or acquired since the Balance Sheet Date which have been sold
or otherwise disposed of in the ordinary course of business, the Company has,
and on each Closing Date, will have, good, valid and marketable title to (a) all
of its properties and assets (real and personal, tangible and intangible),
including, without limitation, all of the properties and assets reflected in the
Balance Sheet, except as indicated in the notes thereto or in a Schedule to this
Agreement, and (b) all of the properties and assets purchased by the Company
since the Balance Sheet Date; in each case
6
<PAGE>
subject to no encumbrance, lien, charge or other restriction of any kind or
character, except for (i) liens reflected in the Balance Sheet or in a Schedule
to this Agreement, (ii) liens consisting of zoning or planning restrictions,
easements, permits and other restrictions or limitations on the use of real
property or irregularities in title thereto which do not materially detract from
the value of, or impair the use of, such property by the Company in the
operation of its business, and (iii) liens for current taxes, assessments or
governmental charges or levies on property not yet due and delinquent and liens
of carriers, warehousemen, vendors and materialmen incurred in the ordinary
course of business securing sums not yet due and payable (liens of the type
described in clauses (i), (ii) and (iii) above are hereinafter sometimes
referred to as "Permitted Liens"). Such properties and assets are sufficient to
enable the Company to carry out its business as presently conducted and as
proposed to be conducted. The Company has all franchises, permits, licenses, and
any other similar authority necessary for the conduct of its business as now
being conducted or proposed to be conducted, the lack of which could materially
and adversely affect the business, properties, prospects, or financial condition
of the Company. The Company is not in default in any material respect under any
of such franchises, permits, licenses, or other similar authority.
2.9 Leases. Schedule 2.9 attached hereto contains an accurate and
------ ------------
complete list of all leases to which the Company is a party (as lessee or
lessor).
Each lease set forth on Schedule 2.9 (or required to be set forth on Schedule
------------ --------
2.9) is in full force and effect; all rents and additional rents due to date on
- ---
each such lease have been paid; in each case, the lessee has been in possession
since the commencement of the original term of such lease and, to its knowledge,
is not in material default thereunder; and there exists no event of default or
event, occurrence, condition or act (including the purchase of the Preferred
Stock, or any of the conditions precedent hereunder) which, with the giving of
notice, the lapse of time or the happening of any further event or condition,
would become a material default under such lease. The Company is not currently
in default of any of the terms or conditions under any such lease in any
material respect, and, to the best knowledge, information and belief of the
Company, all of the covenants to be performed by any other party under any such
lease have been fully performed. The property leased by the Company is in a
state of good maintenance and repair.
2.10 Material Contracts. Except as set forth on Schedule 2.10
------------------ -------------
attached hereto, the Company is not bound by (a) any agreement, contract or
commitment relating to the employment of any person by the Company, or any
bonus, deferred compensation, pension, profit sharing, stock option, employee
stock purchase, retirement or other employee benefit plan, or arrangement or any
collective bargaining agreement or any other contract with any labor union or
severance agreements, programs, policies or arrangements, (b) any agreement,
indenture or other instrument which contains restrictions with respect to
payment of dividends or any other distribution in respect of its capital stock,
(c) any agreement, contract or commitment relating to capital expenditures not
yet made, which involves $50,000 or more and was not entered into the ordinary
course of business, (d) any loan or advance to, or investment in, any
individual, partnership, limited liability company, joint venture, corporation,
trust, unincorporated organization, government or other entity (each a "Person")
or any agreement, contract or
7
<PAGE>
commitment relating to the making of any such loan, advance or investment which
involves $50,000 or more, (e) any guarantee or other contingent liability in
respect of any indebtedness or obligation of any Person (other than the
endorsement of negotiable instruments for collection in the ordinary course of
business), (f) any employment agreement or other contract for the employment of
any officer or employee providing for annual compensation in excess of $100,000
except for the Glassberg Agreement, or any management service, consulting or any
other similar type of contract, unless entered into or incurred in the ordinary
course of business and not involving compensation in excess of $100,000, (g) any
agreement, contract or commitment limiting the freedom of the Company to engage
in any line of business or to compete with any Person, (h) any bank debt, loan,
credit or other financing arrangement, (i) except as otherwise disclosed in this
Agreement or a Schedule or Exhibit annexed hereto, any agreement, contract or
commitment not entered into in the ordinary course of business which involves
$50,000 or more and is not cancelable without penalty within 30 days, (j) any
contract or group of related contracts with the same party or group of
affiliated parties the performance of which involves (or is reasonably expected
to involve) consideration in excess of $50,000 during any twelve month period,
(k) any assignment, license, indemnification or other agreement with respect to
the Proprietary Rights or other intangible property, (l) any agreement under
which the Company has granted any Person any rights related to the registration
of securities under the Securities Act of 1933, as amended (including, without
limitation, demand or piggyback registration rights), (m) any sales,
distribution or franchise agreement, or (n) any other agreement which is
material to its operation and business prospects. Each contract or agreement set
forth on Schedule 2.10 (or required to be set forth on Schedule 2.10) has been
------------- -------------
or simultaneously upon the execution and delivery hereof will be executed and
delivered and is (or will be) valid, binding, and enforceable in accordance with
its terms and is in full force and effect; and there exists no material default
or event of default or event, occurrence, condition or act (including the
purchase of the Preferred Stock or any of the conditions precedent hereunder)
which, with the giving of notice, the lapse of time or the happening of any
further event or condition, would become a material default or event of default
thereunder. The Company is not currently in default in any material respect of
any of the terms or conditions of any contract or agreement set forth on
Schedule 2.10 (or required to be set forth on Schedule 2.10) in any respect,
- ------------- -------------
which would, in the aggregate, have a material adverse effect on such party.
2.11 Restrictive Documents. Except as set forth on Schedule 2.11
--------------------- -------------
attached hereto, the Company is not subject to, or a party to, any charter, by-
law, mortgage, lien, lease, license, permit, agreement, contract, instrument,
law, rule, ordinance, regulation, order, judgment or decree, or any other
restriction of any kind or character, which materially and adversely affects the
business (present or anticipated) or condition of the Company, financial or
otherwise, or any of its assets taken as a whole, or which would prevent
consummation of the transactions contemplated by this Agreement, compliance by
the Company with the terms, conditions and provisions hereof or the continued
operation of the Company's business after the date hereof or the Closing Date on
substantially the same basis as heretofore operated or which would restrict the
ability of the Company to acquire any property or conduct business in any area.
8
<PAGE>
2.12 Litigation. Except as set forth on Schedule 2.12 attached
---------- -------------
hereto, there is no action, suit, proceeding at law or in equity, arbitration or
administrative or other proceeding by or before or any investigation by any
governmental or other instrumentality or agency, pending, or, to the best
knowledge, information and belief of the Company, threatened, against or
affecting the Company, or any of its properties or rights; and the Company does
not know of any valid basis for any such action, proceeding or investigation.
The foregoing includes, without limitation, actions pending or threatened
involving the prior employment of any of the Company's officers, employees or
consultants, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
There are no actions, suits, proceedings or investigations by the Company
currently pending against any third party, at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suits, proceedings
or investigations with respect to the transactions contemplated by this
Agreement). The Company is not subject to any arbitration proceedings under
collective bargaining agreements or otherwise or any governmental investigations
or inquiries. Except as set forth on Schedule 2.12, the Company is not party or
-------------
subject to any judgment, order, writ, injunction, or decree entered in any
lawsuit or proceeding which may affect its operations, business practices,
present or anticipated, or ability to acquire any property or conduct business.
2.13 Taxes. Except as set forth on Schedule 2.13:
----- -------------
(a) All taxes and assessments, including, without limitation,
income, property, sales, use, franchise, value added, employees' income
withholding and social security taxes and import duties, including interest and
penalties thereon, imposed by the United States or by any foreign country or by
any state, municipality, subdivision or instrumentality of the United States or
of any foreign country, or by any other taxing authority, for which the Company
may be liable in respect of all periods prior to each of the Closing Dates
(including taxes in respect of tax periods ending on each of the Closing Dates
and taxes in respect of tax periods ending after each of the Closing Dates to
the extent attributable to the portion of that period which ends on each of the
Closing Dates), either have been paid when due or will be paid when due. All tax
returns required to be filed through the date hereof (and each of the Closing
Dates), including, without limitation, information returns, have been (or will
be) accurately prepared and duly and timely filed and all deposits and payments
required by law to be made by the Company, including with respect to employees'
withholding taxes, have been duly made in accordance with all applicable laws to
the best of the Company's knowledge or belief.
(b) There are no tax sharing agreements or arrangements or tax
indemnity agreements between the Company and any other person.
(c) The Company has never been an includable corporation in any
affiliated group of corporations within the meaning of Section 1504 of the Code
(or any similar provision of state or other tax law).
9
<PAGE>
(d) The Company has not filed a consent pursuant to the
collapsible corporation provisions of section 341(f) of the Code (or any similar
provision of state or other tax law) or agreed to have section 341(f)(2) of the
Code or any similar provision of state or other tax law) apply to any
disposition of any asset owned by the Company.
(e) All taxes arising from the transactions described in this
Agreement and payable by the Company, if any, will be paid by the Company.
2.14 Liabilities. The Company does not have any outstanding
-----------
material obligations, claims, liabilities or indebtedness, contingent or
otherwise, except as set forth in the Balance Sheet or referred to in the
footnotes thereto, other than liabilities incurred subsequent to the Balance
Sheet Date in the ordinary course of business, and, except as set forth on
Schedule 2.14, not involving borrowings by the Company. The Company maintains a
- -------------
standard system of accounting in accordance with GAAP. The Company's financial
reserves reflected in the Balance Sheet are adequate to cover claims already
incurred and reasonably expected to be incurred and the Company's provisions for
taxes as set forth in the Balance Sheet are adequate and accurate for taxes due
and accrued. Except as set forth on Schedule 2.14, the Company is not in
-------------
default in respect of the terms or conditions of any indebtedness.
2.15 Compliance with Laws. Except as set forth on Schedule 2.15,
-------------------- -------------
the Company is in compliance in all material respects with all applicable laws,
regulations, orders, judgments and decrees. Neither the Company nor any
employee of the Company has at any time made any payments for improper or
unlawful political contributions or made any bribes, kickback payments or other
illegal payments.
2.16 Accounts Receivable. The amount of all accounts receivable,
-------------------
unbilled invoices and other debts due or recorded in the records and books of
account of the Company as being due to it at each of the Closing Dates (less the
amount of any provision or reserve therefor made in the records and books of
account of the Company) constitute valid and enforceable claims that have arisen
only from bona fide transactions in the ordinary course of business and none of
such accounts receivable or other debts is or will, to the best knowledge of the
Company, at each of the Closing Dates be subject to any counterclaim or set-off
except to the extent of any such provision or reserve, and there are no known,
contingent or asserted claims, or refusals to pay against any such receivables
or debts. There has been no material adverse change since the Balance Sheet
Date in the amount of accounts receivable or other debts due the Company or the
allowances with respect thereto, or accounts payable of the Company from that
reflected in the Balance Sheet.
2.17 Employees; Employee Benefit Plans. No employee or consultant
---------------------------------
of the Company has any agreement or contract, written or oral, except as
described on Schedule 2.17, regarding such person's employment or consultancy
-------------
with the Company. To the best of the Company's knowledge, no employee of the
Company nor any consultant with whom the Company has contracted is in violation
of any term of any employment contract, non-disclosure
10
<PAGE>
agreement or any other similar contract or agreement relating to the
relationship of such employee or consultant with the Company, any former
employer or any other party. No employee of the Company has been granted the
right to continued employment by the Company or to any material compensation
following termination of employment with the Company except as set out on
Schedule 2.17 hereto. The Company is not aware that any officer or key employee,
- -------------
or that any group of key employees, intends to terminate their employment with
the Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of key employees. Set forth on
Schedule 2.17 attached hereto is an accurate and complete list of all employee
- -------------
benefit plans ("Employee Benefit Plans") within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations thereunder ("ERISA"), whether or not any such Employee Benefit
Plans are otherwise exempt from the provisions of ERISA, established, maintained
or contributed to by the Company. All such Employee Benefit Plans are fully
funded and are and at all times have been in compliance in all material respects
with applicable law, including the provisions of ERISA.
2.18 No Changes Since Balance Sheet Date. Since the Balance
-----------------------------------
Sheet Date, except as expressly contemplated hereby or as disclosed in a
Schedule or Exhibit hereto, the Company has not (a) incurred any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise),
except in the ordinary course of business, or paid any material obligation or
liability, other than current liabilities paid in the ordinary course of
business, (b) permitted any of its assets to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind
(other than Permitted Liens), (c) sold, transferred or otherwise disposed of any
assets, including without limitation, any Proprietary Rights, except in the
ordinary course of business, (d) made any capital expenditure or commitment
therefor, except in the ordinary course of business, (e) declared or paid any
dividend or made any distribution, in cash or other property, on any shares of
its capital stock, or redeemed, purchased or otherwise acquired any shares of
its capital stock or any option, warrant or other right to purchase or acquire
any such shares, (f) made any bonus or profit sharing distribution or payment of
any kind, (g) increased its indebtedness for borrowed money or made any loan to
any Person, (h) written off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business charged to applicable
reserves, none of which individually or in the aggregate would have a material
adverse effect to the Company or suffered any damage, destruction or casualty
loss exceeding $50,000 in the aggregate, (i) granted any increase in the rate of
wages, salaries, bonuses or other remuneration of any executive employee or
other employees, (j) cancelled or waived any claims or rights of substantial
value, (k) made any change in any method of accounting or audit practice, (l)
otherwise conducted its business or entered into any transaction, except in the
ordinary course of business, or (m) agreed, whether or not in writing, to do any
of the foregoing. Since the Balance Sheet Date there has been no material
adverse change in the financial condition, operating results, assets,
operations, business, prospects, employee relations or customer or supplier
relations of the Company.
2.19 Disclosure. None of this Agreement, the financial statements
----------
referred to in Section 2.7 hereof (including the footnotes thereto), any
Schedule, Exhibit or certificate
11
<PAGE>
attached hereto or delivered in accordance with the terms hereof or any document
or statement in writing which has been supplied by the Company or by any of its
directors or officers in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which made.
There is no fact (presently understood as such and not of general knowledge)
known to the Company which materially and adversely affects the business,
present or anticipated, or financial condition of the Company or its properties
or assets which has not been set forth in this Agreement, the financial
statements referred to in Section 2.7 hereof (including the footnotes thereto),
any Schedule, Exhibit or certificate attached hereto or delivered in accordance
with the terms hereof or any document or statement in writing which has been
supplied by or on behalf of the Company or by any of its directors or officers
in connection with the transactions contemplated by this Agreement.
2.20 Broker's or Finder's Fees. No agent, broker, person or firm
-------------------------
acting on behalf of the Company is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement. Company agrees to indemnify and hold each Investor harmless with
respect to the foregoing.
2.21 Environmental Matters. The Company has been and is in material
---------------------
compliance with all provisions of all pollution control laws; hazardous waste
generation, storage, disposal, transportation, handling and cleanup laws; other
environmental protection laws; occupational safety and health standards laws;
and all rules, standards, regulations, permits, license requirements and
authorizations required by or related to such laws (collectively "Environmental
and Safety Laws"), and has obtained all permits, licenses and other
authorizations required thereunder. No proceeding or investigation is pending
or, to its knowledge, threatened, alleging or to the effect that the Company has
violated or is in violation of or bears any liability pursuant to any such law,
rule, standard, regulation, permit, license or authorization or any related
common law theory. The Company is not, and has not been, subject to or bound by
any order, decree or otherwise relating to any of the foregoing. To its
knowledge, no underground storage tanks, asbestos containing material, or PCB-
containing materials or equipment is present at any property owned or occupied
by the Company. Without limiting the generality of the foregoing, no facts,
events or conditions relating to the past or present properties or operations of
the Company will, to the Company's knowledge, prevent, hinder or limit continued
compliance with Environmental and Safety Laws or give rise to any liabilities
(contingent or otherwise) or corrective, investigatory or remedial obligations
pursuant to Environmental and Safety Laws, including, without limitation,
obligations or liabilities relating to onsite or offsite hazardous substance
releases, personal injury, property damage or natural resources damage.
12
<PAGE>
2.22 Proprietary Rights. Schedule 2.22 contains a complete and
------------------ -------------
accurate list of all (a) pending patent applications and applications for
registrations of other intellectual property rights filed by or on behalf of the
Company, (b) material unregistered trade names and corporate names owned or used
by the Company and (c) material unregistered trademarks, service marks,
copyrights, mask works and computer software owned or used by the Company
(together the "Proprietary Rights"). Schedule 2.22 also contains a complete and
-------------
accurate list of all licenses and other rights granted by the Company to any
third party or by any third party to the Company with respect to any Proprietary
Rights. The Company exclusively owns, free and clear of liens or encumbrances,
all rights, title and interests to, or has sufficient rights to use pursuant to
a valid license, all Proprietary Rights listed on Schedule 2.22 without conflict
-------------
with or infringement of the rights of others. The Company believes that the
Proprietary Rights are all the rights necessary for the operation of the
businesses of the Company as presently conducted and as presently proposed to be
conducted. To the best of the Company's knowledge, there is no loss or
expiration of any Proprietary Right threatened, pending or reasonably
foreseeable. The Company has taken all reasonably necessary actions to maintain
and protect the Proprietary Rights which it owns and uses. Except as set forth
in Schedule 2.22, as of the date hereof, (i) there have been no claims made
-------------
against the Company asserting the invalidity, misuse or unenforceability of any
Proprietary Rights, and, to the best of the Company's knowledge, there are no
grounds for the same, (ii) the Company has not received a notice of conflict
with the asserted rights of others within the last five years, (iii) the conduct
of the Company's business has not misappropriated or infringed, to the Company's
knowledge, and does not misappropriate or infringe any Proprietary Rights of
other Persons, nor would any future conduct as presently contemplated infringe
any Proprietary Rights of other Persons and (iv) to the best of the Company's
knowledge, the Proprietary Rights owned by or licensed to the Company have not
been infringed or misappropriated by other Persons.
2.23 Related-Party Transactions. No consultant, employee, officer,
--------------------------
director or stockholder of the Company or member of such person's immediate
family is indebted to the Company, nor is the Company indebted (or committed to
make loans or extend or guarantee credit) to any of them. None of such persons
has any direct or indirect ownership interest in any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that consultants, employees, officers, directors or stockholders of the Company
and members of their immediate families may own less than 5% of the outstanding
stock in a publicly traded company that may compete with the Company. No member
of the immediate family of any employee, officer, or director of the Company is
directly or indirectly interested in any material contract, commitment,
undertaking or transaction with the Company.
2.24 Insurance. The Company has insurance policies in effect covering
---------
the risks associated with its businesses and properties which are of such
character and in such amounts as are customarily maintained by similarly
situated entities engaged in the same or similar businesses.
13
<PAGE>
2.25 Filing of 83(b) Elections. Each officer of the Company that has
-------------------------
received securities of the Company subject to the right of repurchase by the
Company in Section 5.1 of the Securityholder Agreement has duly and timely filed
an election pursuant to Section 83(b) of the Internal Revenue Code with respect
to such securities.
2.26 Section 1202 of the Internal Revenue Code. As of the date of the
-----------------------------------------
Initial Closing, the Preferred Shares issuable hereunder will constitute
"Qualified Small Business Stock" within the meaning of Section 1202 of the
Internal Revenue Code of 1986, as amended (the "Code"), except to the extent
that the IRS may determine that the Company's principal asset is the reputation
or skill of one (1) or more of its employees. The Company hereby covenants that
it shall use commercially reasonable efforts to cause the Preferred Shares to
continue to constitute Qualified Small Business Stock so long as any Preferred
Shares are held by any Investor (or held by a permitted transferee of any
Purchaser in whose hands the Shares are eligible to qualify as Qualified Small
Business Stock as defined in Section 1202(c) of the Code).
The Company shall notify the Investor hereunder of any action known to the
Company, pending or threatened, by any state or federal agency, that questions
or challenges the status of the Preferred Shares as "qualified small business
stock."
The Company shall submit to the Internal Revenue Service any reports,
forms, schedules or other filings required to be submitted under Section 1202 or
related Treasury Regulations (collectively, the "Required Reports") and to the
extent required pursuant to Section 1202 or the Treasury Regulations promulgated
thereunder, the Company shall submit copies of such Required Reports to the
Investor.
ARTICLE III
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
-----------------------------------------------
3. Representations and Warranties of the Investors. Each Investor hereby
-----------------------------------------------
represents, warrants and agrees, as of the date hereof and as of each of the
Closing Dates, as if made on each of the Closing Dates, as follows:
3.1 Experience; Certain Risks. Investor has substantial experience
-------------------------
in evaluating and investing in private placement transactions of securities in
companies similar to the Company, is capable of evaluating the merits and risks
of investment in the Company and has the capacity to protect its own interests.
Investor is aware that: (i) the Preferred Stock, and the shares of Common Stock
issuable upon the conversion of the Series B Preferred Stock, represents equity
securities in a private corporate entity that has an accumulated deficit; (ii)
no return on investment, whether through distributions, appreciation,
transferability or otherwise, and no performance by, through or of the Company,
has been promised, assured, represented or warranted by the Company, or by any
director, officer, employee, agent or representative thereof;
14
<PAGE>
(iii) the shares of Preferred Stock subscribed for under this Agreement, and the
shares of Common Stock or Class A Common Stock, as the case may, issuable upon
the conversion of the Series B Preferred Stock, (x) are not registered under
applicable federal or state securities laws, and thus may not be sold, conveyed,
assigned or transferred unless registered under such laws or unless an exemption
from registration is available under such laws, as more fully described below,
and (y) are not quoted, traded or listed for trading or quotation on any
organized market or quotation system, and there is therefore no present public
or other market for such shares of Preferred Stock, or the shares of Common
Stock or Class A Common Stock, as the case may be, issuable upon the conversion
of the Series B Preferred Stock, and there have not been any representations
made by the Company to Investor that the Preferred Stock, or the Common Stock or
Class A Common Stock, as the case may be, issuable upon the conversion of the
Series B Preferred Stock, ever will be quoted, traded or listed for trading or
quotation on any organized market or quotation system or that there ever will be
a public market for the Preferred Stock or the shares of Common Stock or Class A
Common Stock, as the case may be, issuable upon the conversion of the Series B
Preferred Stock; and (iv) the purchase of Preferred Stock is a speculative
investment, involving a degree of risk, and is suitable only for a person or
entity of adequate financial means who has no need for liquidity in this
investment in that, among other things, (a) such person or entity may not be
able to liquidate its investment in the event of an emergency or otherwise, (b)
transferability is limited, and (c) in the event of a dissolution or otherwise,
such person or entity could sustain a complete loss of its entire investment.
Investor has adequate means of providing for its current financial needs and
possible contingencies and has no need for liquidity of its investment in the
Preferred Stock. Investor is able to bear the economic risks inherent in an
investment in the Preferred Stock, and an important consideration bearing on its
ability to bear the economic risk of the purchase of the Preferred Stock is
whether the Investor can afford a complete loss of the Investor's investment in
the Preferred Stock, and the Investor represents and warrants that the Investor
can afford such a complete loss. The Investor has such knowledge and experience
in business, financial, investment and banking matters (including, but not
limited to investments in restricted, non-listed and non-registered securities)
that the Investor is capable of evaluating the merits, risks and advisability of
an investment in the Preferred Stock.
3.2 Accredited Investor or Business and Financial Experience.
--------------------------------------------------------
Investor either (i) is an accredited investor as defined in Rule 501 under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act") (as hereinafter defined), or (ii) if not an
accredited investor, by reason of such Investor's business or financial
experience, has the capacity to protect its own interest in connection with the
purchase of the Preferred Stock and the issuance of the Common Stock or Class A
Common Stock, as the case may be, upon the conversion thereof. The primary
business or residence address of such Investor is set forth on Schedule A and
----------
Schedule B hereof.
- ----------
3.3 Investment. Investor is acquiring the Securities for
----------
investment purposes only and solely for its own account, not as a nominee or
agent, and not with the view towards the resale or distribution thereof except
in a manner that would be exempt from the
15
<PAGE>
registration and prospectus delivery requirements of the Securities Act.
Investor is not a corporation or a general, limited or limited liability
partnership, or a limited liability company, or any other entity formed solely
for the purpose of investing in the Securities, or if Investor is a corporation
or a general, limited or limited liability partnership, or limited liability
company or any other entity formed solely for the purpose of investing in the
Securities, each equity holder of any such entity formed solely for the purpose
of investing in the Securities is an accredited investor as defined in Rule 501
under the Securities Act. Investor understands that the Securities have not
been, and will not be, registered under the Securities Act or qualified under
any state securities laws, by reason of a specific exemption from the
registration provisions of the Securities Act and various states' securities
laws, which exemption depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of Investor's representations as
expressed herein. The Investor understands that, in the view of the United
States Securities and Exchange Commission (the "SEC"), among other things, a
purchase with a present intent to distribute or resell would represent a
purchase and acquisition with an intent inconsistent with its representation to
the Company, and the SEC might regard such a transfer as a deferred sale for
which the registration exemption is not available. Consequently, the Investor
agrees and consents to the placement of a legend on the certificate(s)
representing the Preferred Stock purchased and acquired hereunder, and upon the
shares of Common Stock or Class A Common Stock, as the case may be, issuable
upon the conversion of the Series B Preferred Stock, substantially to the effect
that such shares of Preferred Stock and the shares of Common Stock or Class A
Common Stock, as the case may be, issuable upon conversion of the Series B
Preferred Stock have not been registered under federal securities laws and
applicable state securities laws and the Investor further agrees and consents to
a stop transfer order being placed on the Company's books and records with
respect to Securities represented by the certificates issued to the Investors
hereunder and upon the certificates representing the shares of Common Stock or
Class A Common Stock, as the case may be, issued upon the conversion of the
Series B Preferred Stock. The Company also agrees to include a legend on the
certificates referencing the registration rights set forth in Section 4 of the
Securityholders' Agreement.
3.4 Rule 144. Investor acknowledges that the Preferred Stock and
--------
any shares of Common Stock or Class A Common Stock, as the case may be, issuable
upon the conversion of the Series B Preferred Stock must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from such registration is available. Investor is aware of the provisions of Rule
144 promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, in most circumstances (i) the
existence of a public market for the securities, (ii) the availability of
certain current public information about the Company, (iii) the resale occurring
not less than one year after an Investor has purchased and fully paid for the
shares to be sold from the Company or affiliate of the Company, (iv) the sale
being effected through a "broker's transaction" or in transactions directly with
a "market maker" (as provided by Rule 144(f)) and (v) the number of shares being
sold during any three-month period not exceeding specified limitations.
16
<PAGE>
3.5 Access to Information. Investor has had an opportunity to
---------------------
discuss the Company's business, management, and financial affairs with the
Company's management and executive officers and have had the opportunity to
review the Company's facilities. Investor has also had an opportunity to ask
questions of the executive officers of the Company, all of which questions have
been answered to the Investor's satisfaction. Notwithstanding the foregoing,
Investor expressly acknowledges and agrees that Investor has not relied on any
representation, warranty or statements, written or oral, other than the express
representations and warranties contained herein, and that Investor's decision to
purchase the Preferred Stock is not based on any promotional, marketing or sales
materials, and Investor and its representatives have been afforded, prior to the
purchase of the Securities, access to all documents and information that the
Investor deems material to an investment decision with respect to the purchase
of the Preferred Stock hereunder.
3.6 Authorization. This Agreement, when executed and delivered by
-------------
Investor, will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditor's rights generally and of general principles of equity
(regardless of whether considered in a proceeding at law or in equity.)
3.7 Brokers or Finders. No agent, broker, person or firm acting on
------------------
behalf of the Investor is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any Person controlling or
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated by this Agreement.
Investor agrees to indemnify and hold the Company harmless with respect to the
foregoing.
3.8 Litigation. There is no material action, suit, proceeding at
----------
law or in equity, arbitration or administrative or other proceeding by or before
(or to the best knowledge, information and belief of the Investor, any
investigation by) any governmental or other instrumentality or agency, pending,
or, to the best knowledge, information and belief of the Investor, threatened,
against or affecting the Investor which in any manner challenges or seeks to
prevent, enjoin or materially delay the transactions contemplated hereby.
ARTICLE IV
4. COVENANTS OF THE COMPANY
------------------------
4.1 Conduct of Business. During the period from the date of this
-------------------
Agreement to each of the Closing Dates, except as may be described in any
Schedule or Exhibit to this Agreement, the Company shall:
17
<PAGE>
(a) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material licenses,
authorizations and permits from governmental entities necessary to the conduct
of its businesses;
(b) pay and discharge when payable all material taxes,
assessments and governmental charges imposed upon its properties or upon the
income or profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all material claims for labor, materials or
supplies which if unpaid would by law become a lien upon any of its property,
unless and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance with
GAAP, consistently applied) have been established on the Company's financial
statements with respect thereto;
(c) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, as such
obligations become due, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with GAAP, consistently applied) have been established
on the Company's books with respect thereto;
(d) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which could reasonably be
expected to have a material adverse effect upon its financial condition,
operating results, assets, operations or business prospects;
(e) apply for and continue in force, at its expense, adequate
insurance covering risks of such types and in such amounts as are customary for
corporations of similar size engaged in similar lines of business; and
(f) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on the Company's financial statements for all
such proper reserves as in each case are required in accordance with GAAP,
consistently applied.
4.2 Review of the Company. The Investors may, prior to each of the
---------------------
Closing Dates, through their representatives, review the properties, books and
records of the Company and its financial and legal condition as the Investors
deem necessary or advisable to familiarize themselves with such properties and
other matters; such review shall not, however, affect the representations and
warranties made by the Company hereunder or the remedies of the Investors for
breaches of those representations and warranties. The Company shall permit the
Investors and their representatives to have, after the date of execution of this
Agreement, upon prior reasonable notice and at reasonable times during business
hours, full access to the premises and to all the books and records of the
Company and to cause the officers of the Company to furnish the Investors with
such financial and operating data and other information with respect to
18
<PAGE>
the business and properties of the Company as the Investors shall from time
to time reasonably request. The Investors shall keep confidential any non-public
information obtained from the Company concerning the Company's properties,
operations and business (unless readily ascertainable from public or published
information or trade sources) until the same ceases to be non-public (or becomes
so ascertainable) and, at the request of the Company, in the event of
termination of this Agreement, shall return to the Company all copies of any
Schedules, statements, documents or other written information obtained in
connection therewith. The Company shall deliver or cause to be delivered such
additional instruments as the Investors may reasonably request for the purpose
of consummating the transactions contemplated by this Agreement.
4.3 Certain Corporate Actions. The Company shall use its best
-------------------------
efforts to take any and all actions, in a manner reasonably satisfactory to the
Investors, to meet each condition to closing set forth in Article VI hereunder,
to keep all its representations and warranties hereunder true, complete and
correct and to effect the amendment to and restatement of the Company's
Certificate of Incorporation, approval of the revised By-Laws of the Company,
and all other actions contemplated by this Agreement required to be effected on
or prior to the Closing Date. The Company shall timely provide to the Investors
drafts of all contracts, agreements, and written understandings with respect to
the foregoing actions for review and comments by the Investors and their counsel
and such contracts, agreements and written understandings shall be in form and
substance reasonably satisfactory to the Investors and their counsel.
4.4 Termination of Agreements with The CKG Media.com, Inc. Stock
------------------------------------------------------------
Trust. Simultaneously upon and as a condition to the Company repurchasing, or
- -----
causing to be repurchased, all of the Common Stock of the Company owned by The
CKG Media.com, Inc. Stock Trust pursuant to that certain Agreement of Purchase
and Sale of Stock by and among CKG Media.com, Inc. and Richard Fisher, solely in
his capacity as Trustee of The CKG Media.com, Inc. Stock Trust dated June 9,
1999, as amended on August 6, 1999, or otherwise, the Company shall terminate
all agreements by and between the Company, Richard Glassberg, and/or The CKG
Media.com, Inc. Stock Trust.
ARTICLE V
5. CONDITIONS TO THE COMPANY'S OBLIGATIONS
---------------------------------------
5. Conditions to the Company's Obligations. The obligation of the
---------------------------------------
Company to consummate the transactions contemplated by this Agreement on each of
the Closing Dates is conditioned upon satisfaction, on or prior to each of the
Closing Dates, of the following conditions:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investors contained in this Agreement shall be true, complete
and correct on and as of each of
19
<PAGE>
the Closing Dates with the same effect as though such representations and
warranties had been made on and as of such date.
5.2 Securityholders' Agreement. The Investors shall have entered
--------------------------
into the Securityholders' Agreement.
5.3 Approvals. All governmental and other consents and approvals,
---------
if any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
5.4 Receipt of Consideration. The Company shall have received by
------------------------
certified official bank check or wire transfer (to the Company or as directed by
the Company) the consideration specified in Section 1.2 hereof and no less than
seventy percent (70%) of such consideration shall actually be provided directly
by Vector and not by any other third party, whether introduced to the Company by
Vector or otherwise.
5.5 Performance of Agreements. All of the agreements of the
-------------------------
Investors to be performed on or before each of the Closing Dates pursuant to the
terms hereof shall have been duly performed in all material respects.
5.6 Proceedings. All proceedings to be taken in connection with
-----------
the transactions contemplated by this Agreement and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Company
and its counsel, and the Company shall have received copies of all such
documents and other evidences as it or its counsel may reasonably request in
order to establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
5.7 Termination of Certain Agreements. Provided that the Company
---------------------------------
complies with the conditions set forth in Section 6.17 below, all actions,
filings and documentation reasonably necessary to terminate as of the date of
the Initial Closing all of the following shall be effected: (i) that certain
Security Agreement dated as of May 26, 1999 by and between the Company and
Vector as amended as of June 24, 1999, (ii) that certain Note and Warrant
Purchase Agreement dated as of May 26, 1999 by and between the Company and
Vector, amended as of June 24, 1999, and as further amended as of July 23, 1999
(iii) that certain Common Stock Purchase Warrant of the Company dated as of May
27, 1999, issued to Vector, (iv) that certain Common Stock Purchase Warrant of
the Company dated as of June 24, 1999, issued to Vector, (v) that certain 6 1/2%
Senior Note dated as of May 27, 1999 in the principal amount of $1,000,000
issued to Vector, (vi) that certain 6 1/2% Senior Note dated as of June 24,1999
in the principal amount of $500,000 issued to Vector and (vii) that certain 6
1/2 % Senior Note dated as of July 23, 1999 in the principal amount of $500,000
issued to Vector.
5.8 Registration Rights Agreement. The Investors shall have
-----------------------------
entered into the Registration Rights Agreement.
20
<PAGE>
ARTICLE VI
6. CONDITIONS TO THE INVESTORS' OBLIGATIONS
----------------------------------------
6. Conditions to the Investors' Obligations. The obligation of the
----------------------------------------
Investors to consummate the transactions contemplated by this Agreement on each
of the Closing Dates is conditioned upon satisfaction, on or prior to such date,
of the following conditions:
6.1 Opinion of the Company's Counsel. The Company shall have
--------------------------------
furnished the Investors with a favorable opinion, dated as of each of the
Closing Dates, of Zukerman Gore & Brandeis, LLP in form and substance
satisfactory to the Investors and their counsel, to the effect set forth on
Exhibit 6.1 attached hereto.
- -----------
6.2 Good Standing and Other Certificates. The Company shall have
------------------------------------
delivered to the Investors (a) copies of the Company's Certificate of
Incorporation, including all amendments thereto, certified by the Secretary of
State of the State of Delaware, (b) certified copies of the Series A Certificate
of Designation and the Series B Certificate of Designation, certified by the
Secretary of State of the State of Delaware, as having been filed on or before
the Closing Date, (c) a certificate from the Secretary of State of the State of
Delaware to the effect that the Company is in good standing or subsisting in
such State and listing all charter documents of the Company on file, (d) a
certificate from the Secretary of State or other appropriate official in each
State in which the Company is qualified to do business to the effect that the
Company is in good standing in such State, (e) a certificate as to the tax
status of the Company from the appropriate official in its jurisdiction of
incorporation and each State in which the Company is qualified to do business
and (f) a copy of the By-laws and the Certificate of Incorporation of the
Company certified by the Secretary of the Company as being true, complete and
correct and in effect on the Closing Date, after giving effect to the filing
described in Section 6.10 hereof, and accompanied by a copy of the adopting
resolutions authorizing the Series A and Series B Certificates of Designation
and approving the stock issuance contemplated thereby.
6.3 No Material Adverse Change. Prior to each of the Closing
--------------------------
Dates, there shall be no material adverse change in the assets or liabilities,
the business (present or anticipated), or condition, financial or otherwise, or
in the results of operations, of the Company since the Balance Sheet Date and
the Company shall have delivered to the Investors a certificate, dated the
Closing Date, to such effect.
6.4 Truth, Completeness and Correctness of Representations and
----------------------------------------------------------
Warranties. The representations and warranties of the Company contained in this
- ----------
Agreement or in any Exhibit or Schedule attached hereto shall be true, complete
and correct on and as of each of the Closing Dates with the same effect as
though such representations and warranties had been made on and as of such date,
and the Company shall have delivered to the Investors a certificate, dated the
Closing Date, to such effect.
21
<PAGE>
6.5 Performance of Agreements. All of the agreements of the
-------------------------
Company to be performed on or before each of the Closing Dates pursuant to the
terms hereof or the terms of any Exhibit hereto, shall have been duly performed,
and the Company shall have delivered to the Investors a certificate, dated as of
each of the Closing Dates, to such effect.
6.6 No Litigation. No action or proceeding shall have been
-------------
instituted or, to the best knowledge, information and belief of the Company,
threatened before a court or other government body or by any public authority to
restrain or prohibit any of the transactions contemplated hereby, and the
Company shall have delivered to the Investors a certificate, dated the Closing
Date, to such effect.
6.7 Employment Agreements. Richy Glassberg shall have entered into
---------------------
an employment agreement substantially in the form set forth on Exhibit 6.7
-----------
annexed hereto (the "Glassberg Employment Agreement").
6.8 Non Competition Agreements. Each of Richy Glassberg, Rob
--------------------------
Chmiel, Scott Ford and Tom Mannion shall have entered into a non-competition
agreement substantially in the forms set forth on Exhibit 6.8 annexed hereto
-----------
(collectively, the "Non-Competition Agreements").
6.9 Governmental Approvals. All governmental and other consents,
----------------------
filings and approvals, if any, necessary to permit the consummation of the
transactions contemplated by this Agreement shall have been received.
6.10 Approval of Amended and Restated Certificate of Incorporation.
-------------------------------------------------------------
On each of the Closing Dates, the Amended and Restated Certificate of
Incorporation of the Company shall have been properly and validly filed with the
Secretary of State of the State of Delaware, and shall be in full force and
effect, which Amended and Restated Certificate of Incorporation shall include
the Certificate of Designations, Preferences and Rights for each of the Series A
Preferred Stock and the Series B Preferred Stock and shall also comply with the
provisions of Section 6.18 below.
6.11 Approval of the Company's By-Laws. On each of the Closing
---------------------------------
Dates, the revised By-Laws of the Company in the form set forth on Exhibit 6.11
------------
annexed hereto shall be in full force and effect.
6.12 Securityholders' Agreement. Prior to each of the Closing
--------------------------
Dates, the Investors, the Stockholders and the Company shall have properly and
validly executed the Securityholders' Agreement and taken all actions required
to be taken by them hereunder, including establishing the Board of Directors and
naming the officers of the Company in accordance therewith.
22
<PAGE>
6.13 Valid Issuance. The Preferred Stock to be issued and sold by
--------------
the Company and to be acquired by the Investors shall be (and the shares of
Common Stock or Class A Common Stock, as the case may be, issuable upon
conversion of the Series B Preferred will be upon issuance by the Company and
acquisition by the Investors) duly authorized and validly issued to the
Investors, free and clear of all liens, encumbrances, restrictions and claims of
every kind. The Investors shall have each received properly completed stock
certificate(s) representing the shares of Preferred Stock being purchased by the
Investors on each of the Closing Dates.
6.14 Proceedings. All proceedings to be taken in connection with
-----------
the transactions contemplated by this Agreement and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Investors
and their counsel, and the Investors shall have received copies of all such
documents and other evidences as they or their counsel may reasonably request in
order to establish the consummation of such transactions and the taking of all
proceedings in connection therewith, including but not limited to documentation
relative to the equity ownership of the CKG Media.com Trust (the "Trust") in the
Company in the event that the Trust is an equity owner of the Company on the
Closing Date.
6.15 Key-Man Life Insurance. The Company shall have obtained a key-
----------------------
man term life insurance policy (or an unconditional binder relating thereto),
naming the Company as the beneficial owner thereof insuring the life of Richy
Glassberg in the principal amount of Eight Million ($8,000,000) Dollars.
6.16 Obligation to Effect Second Closing. Provided that the Company
-----------------------------------
shall have received the entire Initial Purchase Price from the Investors in
accordance with the provisions of Section 1.2 above, the Investors shall have
the right to effect the Second Closing at any time prior to January 31, 2000,
upon no less than five (5) business days prior written notice to the Company.
The Investors shall not be obligated to effect the Second Closing unless on or
before January 31, 2000 the Company shall have actually billed at least Three
Million Dollars ($3,000,000) in "gross margins" (as hereinafter defined) (the
"Gross Margin Milestone") as certified in writing by the Company's independent
auditors (the "Auditors' Certificate"), which certification shall be binding on
all of the parties. In the event that the Company provides written notice (the
"Second Closing Notice") to Vector at any time that it has satisfied the Gross
Margin Milestone, which written notice from the Company, to be effective, shall
include a copy of the Auditors' Certificate, the Second Closing shall occur as
provided in Section 1.1 (b) above. In the event that the Gross Margin Milestone
is not met by the Company on or before January 31, 2000, the Investors shall
have the right, but not the obligation, subject to all of the other terms and
conditions hereof, to effect the Second Closing, in whole or in part, on or
before the one (1) year anniversary of the date of the Initial Closing, on no
less than five (5) business days prior written notice. As used herein, the term
"gross margin" shall mean gross billings, less payments or obligations to make
payments to web sites in connection with such billings, and advertising serving
fees paid or owed relative to such billings.
23
<PAGE>
6.17 Conversion of Loan. Simultaneously upon the Initial Closing,
------------------
the entire, aggregate principal amount and all accrued interest with respect to
each of the 6 1/2% Senior Note in the principal amount of $1,000,000 dated May
27, 1999, the 6 1/2% Senior Note in the principal amount of $500,000 dated June
24, 1999, and the 6 1/2% Senior Note in the principal amount of $500,000 dated
July 23, 1999, each payable to the order of Vector Capital II, L.P. shall be
credited towards Vector's purchase of Securities pursuant to Section 1.2 above.
6.18 Amendment of the Company's Certificate of Incorporation.
-------------------------------------------------------
Simultaneously upon the Initial Closing, the Company shall have filed an
amendment to its Certificate of Incorporation, satisfactory in form and
substance to the Investor's counsel, providing that upon the earlier to occur of
(a) the Closing of the Company's initial public offering of equity securities
pursuant to Section 5 of the Securities Act and (b) a "Liquidation Event" as
hereinafter defined, all shares of Class A Common Stock shall automatically
become shares of Common Stock and all options, warrants, convertible securities,
or any other derivative securities exercisable for or convertible into shares of
Class A Common Stock shall automatically become exercisable for or convertible
into shares of Common Stock, and the Company shall no longer be authorized to
issue any additional shares of Class A Common Stock except as may be authorized
by the stockholders of the Company, subject to the provisions of Section 1.4 of
the Securityholders' Agreement. For purposes of this Section 6.18 "Liquidation
Event" shall have the meaning (i) set forth in Section 5 of the Certificate of
Designations, Preferences and Rights for the Series A Preferred Stock, in
addition to (ii) the definition of "change of control" as set forth in subclause
1.4(d)(iii) of the Securityholders' Agreement.
6.19 Registration Rights Agreement. The Company shall have entered
-----------------------------
into the Registration Rights Agreement.
ARTICLE VII
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY
-----------------------------------------------------
7.1 Survival of Representations and Warranties. The respective
------------------------------------------
representations and warranties of the Company and the Investors contained in
this Agreement or in any Schedule or Exhibit attached hereto, and the
indemnification provisions set forth in Section 7 hereof, shall survive the
Closing until all of the Series A Preferred Stock has been redeemed in full in
accordance with its terms.
7.2 Indemnification.
---------------
(a) The Company agrees to indemnify and hold the Investors and
each of their respective partners, officers, directors, members, employees,
counsel, accountants, agents, successors and assigns (collectively, an
"Indemnified Party") harmless from damages, liabilities, losses, costs or
expenses (including, without limitation, reasonable counsel fees and expenses)
suffered or paid, directly or indirectly, as a result of or arising out of the
failure of any
24
<PAGE>
respective representation or warranty made by the Company in this Agreement or
in any Schedule or Exhibit attached hereto to be true, complete and correct in
all material respects as of the date of this Agreement and as of the Closing
Date.
(b) If any action, suit, proceeding or investigation is
commenced, as to which an Indemnified Party proposes to demand indemnification,
it shall notify the Company with reasonable promptness; provided, however, that
-------- -------
any failure by an Indemnified Party to notify the Company shall not relieve the
Company from its obligations hereunder, except to the extent that the Company
shall have been materially prejudiced in its ability to defend the action, suit,
proceedings or investigation for which such indemnification is sought by reason
of such failure. Except as set forth below, an Indemnified Party shall not have
the right to retain counsel of its own choice, and the Company shall pay the
reasonable fees, reasonable expenses and reasonable disbursements of counsel
selected by the Company; and such counsel shall to the extent consistent with
its professional responsibilities cooperate with the Company and any counsel
designated by the Company.
In the event the Company does not assume or fails to conduct in a diligent
manner the defense of any claim or litigation resulting therefrom, (a) the
Indemnified Party may defend, using its own counsel, against such claim or
litigation, in such manner as it deems appropriate, including, but not limited
to, settling such claim or litigation, after giving notice of the same to the
Company, on such terms as the Indemnified Party may deem appropriate, and (b)
the Company shall be entitled to participate in (but not control) the defense of
such action, with its counsel and at its own expense. The Company shall pay the
reasonable fees, reasonable expenses and reasonable disbursements of counsel
selected by an Indemnified Party in the circumstances described in the previous
sentence. If the Company thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of any
such settlement, the Company shall have the burden to prove by a preponderance
of the evidence that the Indemnified Party did not defend or settle such third
party claim in a reasonably prudent manner.
The Company shall be liable for any settlement of any claim against an
Indemnified Party made with the Company's written consent or made in connection
with the circumstances described in the first sentence of the previous
paragraph. The Company shall not, without prior written consent of an
Indemnified Party, which consent shall not be unreasonably withheld or delayed,
settle or compromise any claim, or permit a default or consent to the entry of
any judgment in respect thereof.
Each party agrees to cooperate fully with the other, such cooperation to
include, without limitation, attendance at depositions and the provision of
relevant documents as may be reasonably requested by the other parties, provided
that the Company will reimburse the Indemnified Party for all of its out-of-
pocket expenses incurred in connection with such cooperation by the Indemnified
Party.
25
<PAGE>
(c) In order to provide for just and equitable contribution, if
a claim for indemnification pursuant to these indemnification provisions is made
but it is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) that such indemnification may not be enforced in such
case, even though the express provisions hereof provide for indemnification in
such case, then the Company (as applicable), on the one hand, and an Indemnified
Party, on the other, shall contribute to the losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs and expenses to
which the indemnified persons may be subject in accordance with the relative
benefits received by the Company (as the case may be), on the one hand, and an
Indemnified Party, on the other hand, in connection with the statements, acts or
omissions which resulted in expenses and the relevant equitable considerations
shall also be considered. No person found liable for a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
also found liable for such fraudulent misrepresentation.
ARTICLE VIII
8. MISCELLANEOUS
-------------
8.1 Preservation of Confidential Information. The Investors shall
----------------------------------------
keep confidential any and all non-public information obtained from the Company
concerning the Company's properties, operations and business (unless readily
ascertainable from public or published information or trade sources) until the
same ceases to be non-public (or becomes so ascertainable).
8.2 Expenses. The actual, documented expenses relating to the
--------
transactions contemplated by this Agreement, not to exceed Fifty Thousand
Dollars ($50,000), including, without limitation, the reasonable fees and
expenses of Skadden, Arps, Slate, Meagher & Flom LLP, in its capacity as counsel
to the Investors accounting fees, travel expenses and due diligence expenses of
the Investors, shall be reimbursed by the Company upon demand therefor whether
or not the transactions contemplated by this Agreement shall be consummated,
provided, however, that no such demand therefor shall be made on or before the
Initial Closing Date. All other expenses of the parties hereto shall be borne
by the party incurring such expenses.
8.3 Governing Law. The interpretation and construction of this
-------------
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York applicable to agreements executed and to be performed solely
within such State.
8.4 Prevailing Party. The prevailing party or parties in any such
----------------
litigation shall be entitled to receive from the losing party or parties all
costs and expenses, including reasonable counsel fees, incurred by the
prevailing party or parties.
26
<PAGE>
8.5 Captions. The Article and Section captions used herein are for
--------
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
8.6 Publicity. Except as otherwise required by law, none of the
---------
parties hereto shall issue any press release or make any other public statement,
In each case relating to, connected with or arising out of this Agreement or the
matters contained herein. Any statement so issued or made shall require the
reasonable prior approval of the other parties hereto as to the contents and the
manner of presentation and publication thereof.
8.7 Notices. All notices, statements, instructions or other
-------
documents required to be given hereunder, shall be in writing and shall be given
either by hand delivery, by overnight delivery service, by facsimile
transmission or by mailing the same in a sealed envelope, first-class mail,
postage prepaid and either certified or registered, return receipt requested,
addressed as follows:
if to the Investors, to the addresses set forth on Schedule A and
----------
Schedule B hereto, with a copy to:
----------
Vector Capital II, L.P.
456 Montgomery Street, 19/th/ floor
San Francisco, CA 94104
Facsimile No. (415) 293-5100
Attention: Mr. Alex Slusky
with a copy simultaneously by like means to its counsel:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-4728
Facsimile No. (212) 735-2000
Attention: James Schell, Esq.
if to the Company to:
CKG Media.com, Inc. (d/b/a Phase2Media)
420 Lexington Avenue
New York, NY 10170
Facsimile No. (917) 368-7227
Attention: Mr. Richy Glassberg, CEO
with a copy simultaneously by like means to their counsel:
27
<PAGE>
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022
Facsimile No. (212) 223-6433
Attention: Andrew M. Chonoles, Esq.
and to any other parties at their addresses reflected in the stock records of
the Company. Each Investor, by written notice given to the Company in
accordance with this Section 8.7, and the Company by written notice to the
Investors, may change the address to which notices, statements, instruction or
other documents are to be sent to such party. All notices, statements,
instructions and other documents delivered hereunder shall be deemed effective
upon receipt.
8.8 Successors and Assigns. This Agreement may not be transferred,
----------------------
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
8.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
8.10 Entire Agreement. This Agreement, including the other
----------------
documents referred to herein or annexed as Exhibits or Schedules hereto which
form a part hereof, contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and therein and supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
8.11 Amendments. This Agreement may not be changed orally, but only
----------
by an agreement in writing signed by the parties hereto.
8.12 Severability. In case any provision in this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
8.13 Third Party Beneficiaries. Each party hereto intends that this
-------------------------
Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto.
8.14 Termination of Agreement. All parties hereto agree to use
------------------------
their best efforts to fulfill the requirements of Articles V and VI as soon as
practicable. This Agreement may be terminated upon mutual agreement of the
parties.
28
<PAGE>
8.15 Several Representations, Warranties, Covenants, Agreements and
--------------------------------------------------------------
Obligations. The representations, warranties, covenants, agreements and
- -----------
obligations of the Company hereunder shall be several and not joint.
8.16 Certain Remedies of the Company. In the event that
-------------------------------
notwithstanding the Company's delivery to Vector of the Second Closing Notice,
and the Company's satisfying all of the other terms and conditions set forth in
Article VI relative to the Second Closing, the Investors fail to effect the
Second Closing in accordance with the provisions of Section 1.1(b) hereof,
notwithstanding anything set forth herein to the contrary, the Investors shall,
upon such failure, automatically lose their right to provide any additional
financing to the Company, and the Company's sole and exclusive remedy shall be
to effect a partial redemption of the Series B Preferred Stock issued in
connection with the Initial Closing in accordance with the provisions of Section
5(a) of the Series B Certificate of Designation.
29
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
COMPANY:
CKG MEDIA.com, Inc.
(d/b/a Phase2Media)
By: /s/ Robert E. Chmiel
____________________________
VECTOR CAPITAL II, L.P.
By: Vector Capital Partners II, LLC, as General
Partner
/s/ Alex Slusky
_____________________________
By: Alex Slusky
Title: Managing Member
/s/ Robert Amen
_____________________________
Robert Amen
/s/ Barbara Lewis
_____________________________
Barbara Lewis
<PAGE>
=====================================================
EXHIBIT 10.10
PURCHASE AGREEMENT
Dated as of October 15, 1999
by and
among
CKG MEDIA.com, INC.
(d/b/a Phase2Media),
HACHETTE FILIPACCHI INTERACTIONS S.A.
and
VECTOR CAPITAL II, L.P.
=====================================================
<PAGE>
PURCHASE AGREEMENT
------------------
PURCHASE AGREEMENT (this "Agreement") dated as of October 15, 1999 by
and among CKG Media.com, Inc. (d/b/a Phase2Media), a Delaware corporation (the
"Company") with an office at 420 Lexington Avenue, 26/th/ floor, New York, NY
10170, Hachette Filipacchi Interactions S.A., a French corporation ("Hachette")
with an office at 149, rue Anatole France, 92534 Levallois-Perret Cedex, France,
and Vector Capital II, L.P, a Delaware limited partnership ("Vector") with an
office at 456 Montgomery Street, 19/th/ floor, San Francisco, CA 94104.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to that certain Securities Purchase Agreement (the
"Securities Purchase Agreement"), dated as of August 16, 1999, by and among the
Company, Vector and each of the parties listed on Schedule A and Schedule B
attached thereto, the Company issued pursuant to the "Initial Closing", as that
term is defined in the Securities Purchase Agreement, an aggregate of (i) 3,798
shares of the Company's Series A Redeemable Preferred Stock, par value $.001 per
share (the "Series A Preferred Stock"), and (ii) 11,668,300 shares of the
Company's Series B Convertible Preferred Stock, par value $.001 per share (the
"Series B Preferred Stock"), for an aggregate purchase price of $4,220,000 and;
WHEREAS, pursuant to Section 1.2 of the Securities Purchase Agreement,
up to One Million Seven Hundred and Eighty Thousand Dollars ($1,780,000) of the
Company's "Securities" (as that term is defined in the Securities Purchase
Agreement) that were not purchased at the Initial Closing may be purchased by
parties designated by Vector at any time in one or more closings within ninety
(90) days subsequent to the Initial Closing, which subsequent closings are
defined as "Supplemental Initial Closings" under the Securities Purchase
Agreement; and
WHEREAS, Vector has agreed to designate Hachette to effect a
Supplemental Initial Closing, and Hachette desires to effect a Supplemental
Initial Closing, with respect to the entire One Million Seven Hundred and Eighty
Thousand Dollars ($1,780,000) of the Company's Securities that were not sold by
the Company at the Initial Closing;
NOW, THEREFORE, in consideration of the premises and of the respective
representations and warranties hereinafter set forth and the respective
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Unless expressly set forth herein to the contrary, all capitalized
terms set forth herein shall have the meanings assigned to them in the
Securities Purchase Agreement.
2. The Company agrees to issue and sell to Hachette, and Hachette agrees
to purchase from the Company, an aggregate of (i) 1,602 shares of the Company's
Series A
1
<PAGE>
Preferred Stock, and (ii) 4,921,700 shares of the Company's Series B Preferred
Stock (the Series A Preferred Stock and Series B Preferred Stock are hereinafter
collectively referred to as the "Preferred Stock"). As full and total
consideration for the purchase of the Preferred Stock, Hachette shall pay to the
Company One Million Seven Hundred and Eighty Thousand Dollars ($1,780,000) (the
"Purchase Price").
3. Upon the execution and delivery on the date hereof, and the
satisfaction of all of the terms and conditions set forth herein no later than
the date hereof, Hachette shall be deemed to be an "Investor" under the
Securities Purchase Agreement and all references to an Investor and Investors
under the Securities Purchase Agreement shall be deemed to include Hachette.
4. Hachette, in its capacity as an Investor, hereby affirms that all of
the representations and warranties set forth in Section 3 of the Securities
Purchase Agreement are true and correct as of the date hereof. In addition,
Hachette represents and warrants that Hachette is a wholly owned subsidiary of
Hachette Filipacchi Presse S.A., a French corporation, which, in turn, is a
wholly owned subsidiary of Hachette Filipacchi Medias S.A., a French public
company.
5. The Company hereby affirms that, subject to the proviso set forth at
the end of this Section 5, all of the representations and warranties set forth
in Section 2 of the Securities Purchase Agreement, and all of the Schedules
delivered by the Company under Section 2 of the Securities Purchase Agreement ,
are true and correct as of the date hereof and all of such Schedules shall be
deemed to be re-delivered to Hachette as of the date hereof; provided, however
that it is expressly agreed by the Company and Hachette that each of Sections
2.1, 2.4, 2.9, 2.10, 2.12, 2.14 and 2.22 are hereby modified by the new
Schedules 2.1, 2.4, 2.9, 2.10, 2.12, 2.14 and 2.22 annexed hereto, which shall
- --------------------------------------------------
be deemed to replace the Schedules 2.1, 2.4, 2.9, 2.10, 2.12, 2.14 and 2.22
--------------------------------------------------
delivered at the Initial Closing.
6. The obligation of the Company to consummate the Supplemental Initial
Closing is conditioned upon satisfaction, or the waiver by the Company, of all
of the following conditions on or before the date hereof:
(a) Hachette shall have satisfied each of Sections 5.1, 5.3, 5.5 and
5.6 of the Securities Purchase Agreement.
(b) Hachette shall have entered into Amendment No. 1 to the First
Amended and Restated Securityholders' Agreement of even date hereof by and among
the Company, Hachette, Vector and Richard E. Glassberg, in his capacity as the
Common Stockholders ("Amendment No. 1 to the First Amended and Restated
Securityholders' Agreement").
(c) Hachette shall have entered into the First Amended and Restated
Registration Rights Agreement (the "Amended Registration Rights Agreement") by
and among
2
<PAGE>
the Company, each of the persons listed on the Schedule of Investors attached
thereto as Schedule 1 and each of the persons listed on the Schedule of Series C
Investors attached thereto as Schedule 2 by executing and delivering a signature
page with respect to such Amended Registration Rights Agreement.
(d) Hachette shall have executed and delivered the Securities Purchase
Agreement by executing and delivering a signature page with respect thereto.
(e) Hachette shall have delivered to the Company, either by wire
transfer or certified check drawn on a commercial bank located in New York City,
the Purchase Price.
7. The obligation of Hachette to effect the Supplemental Initial Closing is
conditioned upon satisfaction, or the waiver by Hachette, of all of the
following conditions on or before the date hereof:
(a) The Company shall have satisfied each of Sections 6.1, 6.2, 6.3,
6.4, 6.5, 6.6, 6.9, 6.10, 6.11, 6.13 and 6.14 of the Securities Purchase
Agreement.
(b) The Company shall have entered into Amendment No. 1 to the First
Amended and Restated Securityholders' Agreement.
(c) The Company shall have amended the Certificate of Designations,
Preferences and Rights of the Series B Preferred Stock in the form annexed
hereto.
(d) The Company shall have delivered stock certificates for the
Preferred Stock, each issued in the name of Hachette containing the legends set
forth in accordance with Section 7.1 of the "Securityholders' Agreement" (as
that term is defined in Section 11 below).
8. The Company represents and warrants that the closing conditions
provided for in each of Sections 6.7, 6.8, 6.12, 6.15, 6.17, 6.18 and 6.19 of
the Securities Purchase Agreement have heretofore been satisfied.
9. Vector hereby acknowledges and agrees that Hachette shall be the sole
Investor with respect to the Supplemental Initial Closing for all of the One
Million Seven Hundred Eighty Thousand Dollars ($1,780,000) as provided in
Section 1.2 of the Securities Purchase Agreement.
10. In the event that the Company reaches the Gross Margin Milestone,
Hachette shall purchase 29.67% of the Securities to be acquired by the Investors
at the Second Closing subject to the terms and conditions of Sections 1.2 and
6.16 of the Securities Purchase Agreement. In the event that the Company has
not reached the Gross Margin Milestone, Vector and the Company agree that
Hachette shall nonetheless have the right to purchase up to 29.67% of the
Securities that the Investors are entitled to purchase at the Second Closing,
subject to the terms and conditions of Section 1.2 and 6.16 of the Securities
Purchase Agreement, regardless of
3
<PAGE>
whether Vector or any other Investors exercise their right to purchase the
Securities that the Investors are entitled to purchase at the Second Closing
(subject to all of the terms and conditions of Sections 1.2 and 6.16 of the
Securities Purchase Agreement).
11. In the event that Vector (x) shall consent to an amendment to any of
the Securities Purchase Agreement, the Amended Securityholders' Agreement (as
defined below), or the Amended Registration Rights Agreement, in accordance with
the applicable provisions of each of the foregoing agreements, (y) shall consent
to an amendment to either the Company's Certificate of Incorporation or the
Company's By-Laws in accordance with applicable law, the provisions of such
governing documents or as otherwise permitted pursuant to the Amended
Securityholders' Agreement, or (z) shall enter into an agreement or arrangement
the effect of which is an amendment or change to any such documents (any such
amendment, agreement or arrangement being an "Amendment") and, in connection
therewith, Vector receives or becomes entitled to receive any direct or indirect
economic or other benefit (collectively, the "Benefit"), Vector shall share any
such Benefit ratably with all of the Investors; provided, however, that in the
-------- -------
event that Vector provides cash consideration to the Company or any third party
in connection with an Amendment, then Vector's obligation hereunder to share
such Benefit with any Investor shall be subject to such Investor paying its pro
---
rata share of such cash consideration; provided, further however, in the event
- ---- -------- ------- -------
Vector provides consideration other than cash in connection with such Amendment,
no Investor shall be required to pay or provide any consideration other than its
pro rata share of any cash consideration in order to participate ratably in such
- --- ----
Benefit. No Amendment shall be valid unless Vector complies with the terms of
this Section 11.
12. Vector agrees that it shall provide to Hachette copies of all notices
that Vector shall send to the Company, simultaneously by like means, pursuant to
each of the Securities Purchase Agreement, the First Amended and Restated
Securityholders' Agreement dated as of August 26, 1999 by and among the Company,
Vector, Glassberg, Robert E. Chmiel, R. Scott Ford, Thomas Mannion, Jason
Liebowitz, Matthew Spengler and each of the parties listed on Schedule A and
Schedule B attached thereto (the "Amended Securityholders' Agreement") and the
Amended Registration Rights Agreement. The Company agrees that it shall
promptly provide to Hachette copies of all notices that the Company receives
from Vector, and that it shall send to Hachette, simultaneously by like means,
copies of all notices that the Company delivers to Vector, pursuant to each of
the Securities Purchase Agreement, the Amended Securityholders' Agreement and
the Amended Registration Rights Agreement. Copies of all such notices shall be
provided to Hachette at the following address:149, rue Anatole France, 92534
Levallois-Perret Cedex, France.
13. The Company has prepared and delivered to Hachette, and Hachette
expressly acknowledges receipt of, revised projected pro forma financial
information and financial forecasts of the Company (the "Revised Pro Forma
Information"), a copy of which is attached hereto as Exhibit 1. The Revised Pro
---------
Forma Information has been prepared in good faith by management of the Company
based on certain assumptions, believed to be reasonable by
4
<PAGE>
management and reflect management's best good faith estimate of the Company's
future prospects at the time such Revised Pro Forma Information was prepared.
The Company does not represent or warrant that the results reflected in the
Revised Pro Forma Information will be achieved. However, based upon the Revised
Pro Forma Information, management currently believes that it is more likely that
the Company will not attain the Gross Margin Milestone on or before January 31,
2000 as opposed to attaining the Gross Margin Milestone on or before January 31,
2000.
14. Miscellaneous.
(a) The interpretation and construction of this Agreement, and all
matters relating hereto, shall be governed by the laws of the State of New York
applicable to agreements executed and to be performed solely within such State.
(b) Except as otherwise required by law, none of the parties hereto
shall issue any press release or make any other public statement, in each case
relating to, connected with or arising out of this Agreement or the matters
contained herein. Any statement so issued or made shall require the reasonable
prior approval of the other parties hereto as to the contents and the manner of
presentation and publication thereof.
(c) This Agreement may not be transferred, assigned, pledged or
hypothecated by any party hereto, other than by operation of law. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
(d) This Agreement may be executed in one or more original or
facsimile counterparts, all of which taken together shall constitute one
instrument.
(e) This Agreement, including the other documents referred to herein,
the Securities Purchase Agreement and the Amended Securityholders' Agreement
contain the entire understanding of the parties hereto with respect to the
subject matter contained herein and therein and supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
(f) This Agreement may not be changed orally, but only by an agreement
in writing signed by the parties hereto.
(g) In case any provision in this Agreement shall be held invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions hereof will not in any way be affected or impaired thereby.
(h) Each party hereto intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any Person other than the
parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
COMPANY:
CKG MEDIA.com, Inc.
(d/b/a Phase2Media)
By: /s/ Richard Glassberg
_________________________________
CEO/Chairman
HACHETTE FILIPACCHI
INTERACTIONS S.A.
By: /s/ Patricia Carnese
_________________________________
Name: Patricia Carnese
Title: General Counsel - International
SOLELY WITH RESPECT TO THE
PROVISIONS OF SECTIONS 9, 10, 11 AND
12 HEREOF:
VECTOR CAPITAL II, L.P.
By: Vector Capital Partners II, LLC, as General
Partner
/s/ Alex Slusky
____________________________________
By: Alex Slusky
Title: Managing Member
<PAGE>
===========================================================
EXHIBIT 10.11
SECOND CLOSING
PURCHASE AGREEMENT
Dated as of December 23, 1999
by and
among
PHASE2MEDIA, INC.
(f/k/a CKG Media.com, Inc.),
VECTOR CAPITAL II, L.P.
and
HACHETTE FILIPACCHI INTERACTIONS S.A.
and
Each of the Parties set forth on Schedule A annexed hereto.
===========================================================
1
<PAGE>
SECOND CLOSING PURCHASE AGREEMENT
---------------------------------
SECOND CLOSING PURCHASE AGREEMENT (this "Agreement") dated as of
December 23, 1999 by and among Phase2Media, Inc. (f/k/a CKG Media.com.Inc.) a
Delaware corporation (the "Company") with an office at 420 Lexington Avenue,
26/th/ floor, New York, NY 10170, Vector Capital II, L.P, a Delaware limited
partnership ("Vector") with an office at 456 Montgomery Street, 19/th/ floor,
San Francisco, CA 94104, Hachette Filipacchi Interactions S.A., a French
corporation ("Hachette") with an office at 149, rue Anatole France, and each of
the parties set forth on Schedule A annexed hereto, each having an address as
set forth on such Schedule A (the "Schedule A Purchasers").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to that certain Securities Purchase Agreement (the
"Securities Purchase Agreement"), dated as of August 16, 1999, by and among the
Company, Vector and each of Amen and Lewis the Company issued, pursuant to the
"Initial Closing", as that term is defined in the Securities Purchase Agreement,
an aggregate of (i) 3,798 shares of the Company's Series A Redeemable Preferred
Stock, par value $.001 per share (the "Series A Preferred Stock"), and (ii)
11,668,300 shares of the Company's Series B Convertible Preferred Stock, par
value $.001 per share (the "Series B Preferred Stock"), for an aggregate
purchase price of $4,220,000 and;
WHEREAS, pursuant to Section 1.2 of the Securities Purchase Agreement,
and in accordance with that certain Purchase Agreement dated as of October 15,
1999 by and among the Company, Vector and Hachette (the "Hachette Purchase
Agreement"), Vector agreed to designate Hachette to effect a "Supplemental
Initial Closing" (as that term is defined in the Securities Purchase Agreement),
and Hachette effected a "Supplemental Initial Closing", with respect to certain
securities of the Company that were not sold by the Company in the Initial
Closing; specifically, an aggregate of (i) 1,602 shares of the Company's Series
A Preferred Stock, and (ii) 4,921,700 shares of the Company's Series B Preferred
Stock were sold by the Company to Hachette for an aggregate purchase price of
$1,780,000 in the Supplemental Initial Closing.
NOW, THEREFORE, in consideration of the premises and of the respective
representations and warranties hereinafter set forth and the respective
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Unless expressly set forth herein to the contrary, all capitalized
terms set forth herein shall have the meanings assigned to them in the
Securities Purchase Agreement.
2. The Company agrees to issue and sell to each of Vector, Hachette and
the Schedule A Purchasers, and each of Vector, Hachette and each of the Schedule
A Purchasers agrees to purchase from the Company, an aggregate of (i) 3,600
shares of the Company's Series
2
<PAGE>
A Preferred Stock, and (ii) 6,320,000 shares of the Company's Series B Preferred
Stock (the Series A Preferred Stock and Series B Preferred Stock are hereinafter
collectively referred to as the "Preferred Stock") in the respective amounts set
forth on Schedule B annexed hereto. As full and total consideration for the
purchase of the Preferred Stock, Vector, Hachette and the Schedule A Purchases
(sometimes hereinafter collectively referred to as the "Purchasers," and
individually as a "Purchaser") shall pay to the Company an aggregate of Four
Million ($4,000,000) Dollars (the "Purchase Price"), and each Purchaser shall
pay their pro rata portion of the Purchase Price as set forth opposite their
name on Schedule B annexed hereto. Such sale of the Preferred Stock by the
Company to the Purchasers hereunder shall be deemed to be the Second Closing
under the Securities Purchase Agreement.
3. The Company acknowledges and agrees that the Purchasers are not
obligated under the terms of the Securities Purchase Agreement to effect at the
Second Closing at this time. Accordingly, as consideration the Purchaser's
agreement to effect the Second Closing at the present time, in addition to the
Preferred Stock, the Company shall also deliver to the Purchasers,
simultaneously with the delivery of the Preferred Stock, for no additional
consideration, an aggregate of 450,000 three (3) year common stock purchase
warrants (the "Warrants") exercisable to purchase 450,000 shares of the
Company's Common Stock at an exercise price of $.63 per share. The Warrants
shall be evidenced by a certificate having such terms and conditions as set
forth in that form of common stock purchase warrant annexed hereto as Exhibit A.
Each Purchaser shall receive their pro rata share of the Warrants as set forth
opposite their name on Schedule A annexed hereto.
4. Each of the Purchasers in its capacity as an Investor, hereby affirms
that all of the representations and warranties set forth in Section 3 of the
Securities Purchase Agreement are true and correct as of the date hereof. In
addition, Hachette represents and warrants that Hachette is a wholly owned
subsidiary of Hachette Filipacchi Presse S.A., a French corporation, which, in
turn, is a wholly owned subsidiary of Hachette Filipacchi Medias S.A., a French
public company.
5. The Company hereby affirms that, subject to the proviso set forth at
the end of this Section 5, all of the representations and warranties set forth
in Section 2 of the Securities Purchase Agreement, and all of the Schedules
delivered by the Company under Section 5 of the Hachette Purchase Agreement, are
true and correct as of the date hereof and all of such Schedules shall be deemed
to be re-delivered to the Purchasers as of the date hereof; provided, however
that it is expressly agreed by the Company and the Purchasers that Sections 2.1,
-------------
2.4, 2.9, 2.10, 2.14, 2.17 and 2.22 are hereby modified by the new Schedules
- ----------------------------------- ---------
2.1, 2.4, 2.9, 2.10, 2.14, 2.17 and 2.22 annexed hereto, which shall be deemed
- ----------------------------------------
to replace the Schedules 2.1, 2.4, 2.9, 2.10, 2.14, 2.17 and 2.22, delivered at
---------------------------------------------------
the Initial Closing.
6. The obligation of the Company to consummate the Second Closing is
conditioned upon satisfaction, or the waiver by the Company, of all of the
following conditions on or before the date hereof:
3
<PAGE>
(a) Each of the Purchasers shall have satisfied each of Sections 5.1,
5.3, 5.5 and 5.6 of the Securities Purchase Agreement.
(b) The Purchasers shall have delivered to the Company, either by wire
transfer or certified check or personal check, the Purchase Price.
7. The obligation of each of the Purchasers to effect the Second Closing is
conditioned upon satisfaction, or the waiver by each of the Purchasers, of all
of the following conditions on or before the date hereof:
(a) The Company shall have satisfied each of Sections 6.1, 6.2, 6.3,
6.4, 6.5, 6.6, 6.9, 6.10, 6.11, 6.13 and 6.14 of the Securities Purchase
Agreement.
(b) The Company shall have delivered stock certificates for the
Preferred Stock, each issued in the name of each of the Purchasers in the amount
set forth on Schedule B containing legends set forth in accordance with Section
7.1 of the Securityholders' Agreement, as amended by Amendment No. 1 thereto on
October 15, 1999.
(c) The Company shall deliver the certificates for the Warrants, each
issued in the name of each of the Purchases in the amount set forth on Schedule
B containing legends set forth in accordance with Section 7.1 of the
Securityholders' Agreement, as amended by Amendment No. 1 thereto on October 15,
1999.
8. The Company represents and warrants that the closing conditions
provided for in each of Sections 6.7, 6.8, 6.12, 6.15, 6.17, 6.18 and 6.19 of
the Securities Purchase Agreement have heretofore been satisfied.
9. The Company has prepared and delivered to the Purchasers, and the
Purchasers expressly acknowledge receipt of, revised projected pro forma
financial information and financial forecasts of the Company (the "Revised Pro
Forma Information"), a copy of which is attached hereto as Exhibit 1. The
---------
Revised Pro Forma Information has been prepared in good faith by management of
the Company based on certain assumptions, believed to be reasonable by
management and reflect management's best good faith estimate of the Company's
future prospects at the time such Revised Pro Forma Information was prepared.
The Company does not represent or warrant that the results reflected in the
Revised Pro Forma Information will be achieved. However, based upon the Revised
Pro Forma Information, management currently believes that it is more likely that
the Company will not attain the Gross Margin Milestone on or before January 31,
2000 as opposed to attaining the Gross Margin Milestone on or before January 31,
2000.
10. Each of the Purchasers expressly acknowledges and agrees that upon the
execution hereof the Company shall have filed an amendment to the Certificate of
Designations, Preferences and Rights of the Series B Preferred Stock (the
"Certificate of Designation") pursuant to which, among other things, each of the
"Conversion Price" and "Liquidation Preference" (as each of those terms are
defined in the Certificate of Designation) has been amended to reflect the
economics of the transaction among the parties such that the Conversion Price
and Liquidation Preference with respect to the shares Series B Preferred Stock
issued
4
<PAGE>
pursuant to the Initial Closing is different than the Conversion Price and the
Liquidation Preference of the shares of the Series B Preferred Stock issued
pursuant to the Second Closing. Specifically, the Conversion Price and
Liquidation Preference with respect to any and all shares of Series B Preferred
Stock issued in connection with the Initial Closing shall remain the same, which
is $.036166365, subject to adjustment as provided in the Certificate of
Designation. The Conversion Price and Liquidation Preference with respect to any
and all shares of Series B Preferred Stock issued pursuant to the Second Closing
is $.063291139, subject to adjustment as provided in the Certification of
Designation. All of the shares of Series B Preferred Stock, in accordance with
the provisions of the Certificate of Designation, shall initially be convertible
into shares of the Company's Common Stock (and under certain circumstances, in
accordance with the provisions of the Certificate of Designation, into shares of
the Company's Class A Common Stock) on a one-for-one basis. In addition, each of
the Purchasers expressly agrees that any transfer of any shares of Series B
Preferred Stock shall be expressly conditioned upon any such transferee (and any
subsequent transferee thereof) expressly acknowledging in writing to the Company
that such transferee (or subsequent transferee) is aware that the Conversion
Price and Liquidation Preference of Series B Preferred Stock is different,
depending upon whether the shares of Series B Preferred Stock were initially
acquired pursuant to the Initial Closing or the Second Closing, and such
transferee (or subsequent transferee) shall further confirm in writing to the
Company that the shares of Series B Preferred Stock being acquired are either
shares of Series B Preferred Stock initially purchased at the Initial Closing or
the Second Closing, as the case may be, and the transferee (or subsequent
transferee) agrees to be bound by the terms and conditions of the Certificate of
Designation as if such transferee (or subsequent transferee) had actually
acquired the shares of Series B Preferred Stock directly from the Company
pursuant to the Initial Closing or the Second Closing, as the case may be.
11. Miscellaneous.
(a) The interpretation and construction of this Agreement, and all
matters relating hereto, shall be governed by the laws of the State of New York
applicable to agreements executed and to be performed solely within such State.
(b) Except as otherwise required by law, none of the parties hereto
shall issue any press release or make any other public statement, in each case
relating to, connected with or arising out of this Agreement or the matters
contained herein; provided, however, that the Company acknowledges and agrees
-------- -------
that the restrictions in this Section 10(b) shall not prevent Vector from
fulfilling its reporting obligations to its investors and from disclosing
information to its limited partners, in each case, regarding Vector's investment
in the Company and the performance of the Company. Any statement so issued or
made shall require the reasonable prior approval of the other parties hereto as
to the contents and the manner of presentation and publication thereof.
(c) This Agreement may not be transferred, assigned, pledged or
hypothecated by any party hereto, other than by operation of law. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
5
<PAGE>
(d) This Agreement may be executed in one or more original or
facsimile counterparts, all of which taken together shall constitute one
instrument.
(e) This Agreement, including the other documents referred to herein,
the Securities Purchase Agreement and the Securityholders' Agreement, as
amended, contain the entire understanding of the parties hereto with respect to
the subject matter contained herein and therein and supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
(f) This Agreement may not be changed orally, but only by an agreement
in writing signed by the parties hereto.
(g) In case any provision in this Agreement shall be held invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions hereof will not in any way be affected or impaired thereby.
(h) Each party hereto intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any Person other than the
parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
COMPANY:
PHASE2MEDIA, INC.
(f/k/a CKG Media.com)
/s/ Robert Chmiel
By:_______________________________
HACHETTE FILIPACCHI
INTERACTIONS S.A.
/s/ Herve Digne
By:______________________________
Name: Herve Digne
Title: President
VECTOR CAPITAL II, L.P.
By: Vector Capital Partners II, LLC, as General
Partner
/s/ Alex Slusky
_________________________________
By: Alex Slusky
Title: Managing Member
/s/ Robert Amen
_________________________________
Robert Amen
/s/ Barbara Lewis
_________________________________
Barbara Lewis
/s/ Christopher G. Nicholson
_________________________________
Christopher G. Nicholson
/s/ Jennifer Taylor
_________________________________
Jennifer Taylor
7
<PAGE>
EXHIBIT 10.12
SUBSCRIPTION AND PURCHASE AGREEMENT
FOR
9,750,000 SHARES OF SERIES C CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.001 PER SHARE
OF
CKG MEDIA.com, INC.
(d/b/a Phase2Media)
(a Delaware corporation)
SUBSCRIPTION AND PURCHASE AGREEMENT (the "Agreement") dated as of the
26/th/ day of August, 1999, by and between CKG MEDIA.com, INC., (d/b/a
Phase2Media) a Delaware corporation having offices at 420 Lexington Avenue, New
York, New York 10170 (the "Company"), and the Subscribers listed on Schedule I
attached hereto (collectively, the "Subscribers" and each individual a
"Subscriber").
W I T N E S S E T H:
-------------------
WHEREAS, the Subscribers and the Company have arranged for this Agreement
(the "Agreement") to provide for the subscription and, if such subscription as
set forth in this Agreement is accepted by the Company, the purchase by the
Subscribers, on the terms and subject to the conditions set forth in this
Agreement, of an aggregate of 9,750,000 shares of the Company's newly authorized
Series C Convertible Preferred Stock, par value $.001 per share (the "Series C
Preferred Stock") of the Company;
WHEREAS, on the basis of the representations and warranties, and subject to
the terms and conditions set forth herein, the Subscribers desire to subscribe
for and purchase the Series C Preferred Stock and the Company desires to cause
to be sold to each Subscriber, the number of shares of Series C Preferred Stock
set forth opposite each such Subscriber's name on Schedule I annexed hereto;
WHEREAS, the Series C Preferred Stock sold in accordance with this
Agreement, upon the execution of this Agreement, shall not be registered
securities under federal or state securities laws or quoted or listed for
trading on any securities exchange, organized market or quotation system at the
time of acquisition hereunder; and
WHEREAS, in reliance upon certain representations made by the Company and
the Subscribers herein, the transactions contemplated by this Agreement are such
that the offer and
<PAGE>
sale of Series C Preferred Stock hereunder will be exempt from registration
under applicable federal and state securities laws pursuant to exemptions made
available under such laws.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. Subscription for Purchase of Series C Preferred Stock. On the basis
-----------------------------------------------------
of the representations, warranties, covenants and agreements, and subject to the
terms and conditions set forth herein, upon the Closing hereof (as that term is
defined in Section 2(a) below) the Company agrees to sell, transfer, convey and
deliver to the Subscribers, and the Subscribers agree to purchase, acquire and
accept delivery of the number of shares of the Series C Preferred Stock set
forth opposite such Subscriber's name on Schedule I attached hereto from the
Company for an aggregate purchase price of $3,800,000 (the "Purchase Price").
2. Closing.
-------
(a) The closing of the purchase of the Series C Preferred Stock
contemplated by this Agreement shall occur on or about August 26, 1999, at the
offices Zukerman Gore & Brandeis, LLP, 900 Third Avenue, New York, New York
10022 or at such other mutually convenient time or at such other mutually
convenient place as agreed upon by the parties (the "Closing"). The date on
which the Closing takes place is hereinafter referred to as the "Closing Date."
At the Closing, the Subscribers shall deliver the Purchase Price to the Company
or as directed by the Company, in certified funds or by wire transfer, and the
Company shall deliver to each Subscriber a certificate or certificates
representing the Series C Preferred Stock in such amount as set forth opposite
each Subscriber's name on Schedule I annexed hereto and in such denominations as
requested by each Subscriber.
(b) All certificates representing the Series C Preferred Stock shall
bear the restrictive legend referred to in Section 6 below.
3. Representations, Warranties and Covenants of the Subscriber. In
-----------------------------------------------------------
connection with this Agreement, each of the undersigned Subscribers hereby
represents, warrants and covenants to the Company as follows, all of which
representations, warranties and covenants shall be deemed to be of the essence
hereof:
(a) Investment Intent. The Subscriber represents and warrants that
-----------------
the Series C Preferred Stock being purchased is being purchased or acquired
solely for the Subscriber's own account, for investment purposes only and not
with a view towards the distribution or resale to others. The Subscriber
acknowledges, understands and appreciates that the shares of Series C Preferred
Stock have not been registered under the Securities Act of 1933, as amended (the
"Securities Act") by reason of a claimed exemption under the provisions of such
Act which depends, in large part, upon the Subscriber's representations as to
investment intention, investor
2
<PAGE>
status and related and other matters set forth herein. The Subscriber
understands that, in the view of the United States Securities and Exchange
Commission (the "SEC"), among other things, a purchase with a present intent to
distribute or resell would represent a purchase and acquisition with an intent
inconsistent with its representation to the Company, and the SEC might regard
such a transfer as a deferred sale for which the registration exemption is not
available. The Subscriber agrees and consents to the placement of a legend on
the certificate(s) representing the Series C Preferred Stock purchased and
acquired hereunder, stating that such shares of Series C Preferred Stock have
not been registered under the Act or applicable state securities laws. Such
legend shall be removed promptly following such time as a registration statement
under the Act covering any such shares of Series C Preferred Stock is declared
effective by the SEC.
(b) Certain Risks. That (i) the Series C Preferred Stock represents
-------------
equity securities in a private corporate entity that has an accumulated deficit,
(ii) no return on investment, whether through distributions, appreciation,
transferability or otherwise, and no performance by, through or of the Company,
has been promised, assured, represented or warranted by the Company, or by any
director, officer, employee, agent or representative thereof; (iii) the shares
of Series C Preferred Stock subscribed for under this Agreement (x) are not
registered under applicable federal or state securities laws, and thus may not
be sold, conveyed, assigned or transferred unless registered under such laws or
unless an exemption from registration is available under such laws, as more
fully described below, and (y) are not quoted, traded, listed for trading or
quotation on any organized market or quotation system, and there is therefore no
present public or other market for such shares of Series C Preferred Stock, and
there have not been any representations made by the Company to the Subscriber
that the Series C Preferred Stock ever will be quoted, traded or listed for
trading or quotation on any organized market or quotation system or that there
ever will be a public market for the Series C Preferred Stock; and (iv) that the
purchase of Series C Preferred Stock is a speculative investment, involving a
degree of risk, and is suitable only for a person or entity of adequate
financial means who has no need for liquidity in this investment in that, among
other things, (x) such person or entity may not be able to liquidate their
investment in the event of an emergency or otherwise, (y) transferability is
limited, and (z) in the event of a dissolution or otherwise, such person or
entity could sustain a complete loss of their entire investment.
(c) Sophisticated Investor. That (i) the Subscriber has adequate
----------------------
means of providing for the Subscriber's current financial needs and possible
contingencies and has no need for liquidity of the Subscriber's investment in
the Series C Preferred Stock; (ii) Subscriber is able to bear the economic risks
inherent in an investment in the Series C Preferred Stock and that an important
consideration bearing on its ability to bear the economic risk of the purchase
of the Series C Preferred Stock is whether the Subscriber can afford a complete
loss of the Subscriber's investment in the Series C Preferred Stock and the
undersigned Subscriber represents and warrants that the Subscriber can afford
such a complete loss; and (iii) the Subscriber has such knowledge and experience
in business, financial, investment and banking matters (including, but not
limited to investments in restricted, non-listed and non-registered securities)
that the Subscriber is capable of evaluating the merits, risks and advisability
of an investment in the Series C Preferred Stock.
3
<PAGE>
(d) Accredited Investor. That the Subscriber is an "accredited
-------------------
investor," as such term is defined in Rule 501 of Regulation D promulgated under
the Act.
(e) Documents, Information and Access. That (i) the Subscriber's
---------------------------------
decision to purchase the Series C Preferred Stock is not based on any
promotional, marketing or sales materials, and (ii) Subscriber and its
representatives have been afforded, prior to purchase thereof, the opportunity
to ask questions of, and to receive answers from, the Company and its
management, and has had access to all documents and information which the
Subscriber deems material to an investment decision with respect to the purchase
of the Series C Preferred Stock hereunder.
(f) No Registration, Review or Approval. The Subscriber acknowledges
-----------------------------------
and understands that the limited private offering and sale of Series C Preferred
Stock pursuant to this Agreement has not been reviewed or approved by the SEC or
by any state securities commission, authority or agency, and is not registered
under the Act or under the securities or "blue sky" laws, rules or regulations
of any state. The Subscriber acknowledges, understands and agrees that the
Series C Preferred Stock is being offered and sold hereunder pursuant to (i) a
private placement exemption to the registration provisions of the Act pursuant
to Section 4(2) of such Act, and (ii) a similar exemption to the registration
provisions of applicable state securities laws.
(g) Transfer Restrictions. That the Subscriber will not transfer any
---------------------
Series C Preferred Stock purchased under this Agreement unless such Series C
Preferred Stock is registered under the Act and under any applicable state
securities or "blue sky" laws (collectively, the "Securities Laws"), or unless
an exemption is available under such Securities Laws, and that the Company may,
if it chooses, where an exemption from registration is claimed by such
Subscriber, condition any transfer of Series C Preferred Stock out of such the
Subscriber's name on an opinion of the Company's counsel, to the effect that the
proposed transfer is being effected in accordance with, and does not violate, an
applicable exemption from registration under the Securities Laws.
(h) Reliance. The Subscriber understands, acknowledges and
--------
appreciates that the Company is relying upon all of the representations,
warranties, covenants, understandings, acknowledgments and agreements contained
in this Agreement in determining whether to accept this subscription, sell and
issue the Series C Preferred Stock to the Subscriber.
(i) Accuracy of Representations and Warranties. That all of the
------------------------------------------
representations, warranties, understandings and acknowledgments that the
Subscriber has made herein are true and correct in all material respects as of
the date of execution hereof, and that the Subscriber will perform and comply
fully in all material respects with all covenants and agreements set forth
herein, and the Subscriber covenants and agrees that until the acceptance of
this Agreement by the Company, the Subscriber shall inform the Company
immediately in writing of any changes in any of the representations or
warranties provided or contained herein.
4
<PAGE>
(j) Survival. Subscriber expressly acknowledges and agrees that all
--------
of its representations, warranties and covenants set forth in this Agreement
shall be of the essence hereof and shall survive the execution, delivery and
Closing of this Agreement, the sale and purchase of the Series C Preferred
Stock.
4. Representations and Warranties of the Company. In order to induce
---------------------------------------------
each Subscriber to enter into this Agreement and to purchase the Series C
Preferred Stock, the Company hereby represents and warrants to the Subscriber as
follows:
(a) Corporate Power and Authority. The stockholders of the Company
-----------------------------
are, prior to the sales and issuances contemplated hereby, the lawful,
beneficial and record owners of the shares of the Company's common stock, par
value $.001 per share (the "Common Stock"), Class A common stock, Series A
redeemable preferred stock and Series B convertible preferred stock, of the
Company set forth on Schedule 4(d) annexed hereto, representing all of the
-------------
issued and outstanding shares of capital stock of the Company and such
stockholders own such shares free and clear of all liens, encumbrances,
restrictions and claims of every kind, except as set forth on Schedule 4(a).
-------------
The Company has the full legal right, power and authority to enter into this
Agreement, the First Amended and Restated Securityholders' Agreement dated as of
the date hereof by and among the Company and the stockholders of the Company
party thereto (the "Amended Securityholders' Agreement") and the First Amended
and Restated Registration Rights Agreement dated as of the date hereof by and
among the Company and persons listed on Schedule 1 and Schedule 2 thereto (the
"Amended Registration Rights Agreement" and together with this Agreement and the
Amended Securityholders' Agreement, the "Transaction Documents"), and to issue
and sell the shares of Series C Preferred Stock pursuant to this Agreement and
to issue the Common Stock issuable upon conversion of the Series C Preferred
Stock in accordance with the terms of the Certificate of Designations,
Preferences and Rights of the Series C Preferred Stock (the "Series C
Certificate of Designations") and the delivery to Subscriber of the Series C
Preferred Stock pursuant to the provisions of this Agreement will transfer to
the Subscriber valid title thereto, free and clear of all liens, encumbrances,
restrictions and claims of every kind except as set forth on Schedule 4(a).
-------------
(b) Authorization and Noncontravention. Each Transaction Document has
----------------------------------
been duly and validly authorized, executed and delivered by the Company and
constitutes a valid and legally binding agreement of the Company, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles. The Series C
Certificate of Designations has been duly and validly authorized by all
necessary corporate action and has been duly filed with the Secretary of State
of the State of Delaware and is in full force and effect. The execution and
delivery by the Company of each Transaction Document and the other agreements
and instruments, to be executed and delivered by them in connection herewith do
not and the consummation of the transactions contemplated hereby and thereby
will not: (i) violate any provision of the Certificate of Incorporation or By-
Laws of the Company; (ii) except as set forth on Schedule 4(b), violate any
-------------
provision of, or result in the termination or acceleration of, or default under,
or entitle any party to accelerate (whether after the filing of
5
<PAGE>
notice or lapse of time or both) any obligation under, or result in the creation
or imposition of any lien, charge, pledge, security interest or other
encumbrance upon any of the assets of the Company pursuant to any provision of
any mortgage, lien, lease, agreement, license, or instrument, or violate any
law, regulation, order, arbitration award, judgment or decree to which the
Company is a party or by which its property is bound; (iii) violate or conflict
with, or create a default under, any other material restriction of any kind or
character to which the Company is subject; (iv) require any governmental
consent, authorization, filing, approval, or exemption, except as may be
required by Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act"); or (v) violate any consent decree or requirement
to which the Company is subject.
(c) Existence and Good Standing. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the power to own its property and to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in the jurisdictions listed on Schedule 4(c),
-------------
which are the only jurisdictions in which the character or location of the
properties owned or leased by the Company or the nature of the business
conducted by the Company makes such qualification necessary, except where the
failure to qualify individually or in the aggregate will not have a material
adverse effect on the business of the Company.
(d) Capital Stock.
-------------
(i) A description of the authorized capital stock of the
Company, together with the number of shares of each class outstanding, the names
of each of the holders of such shares and the number of shares held by each
stockholder as of the Closing Date, is set forth on Schedule 4(d) hereto. All of
-------------
such shares of capital stock of the Company have been duly authorized, validly
issued, are fully paid and nonassessable and were issued in compliance with all
applicable federal and state securities laws. No securities directly or
indirectly convertible into or exchangeable for any of the capital stock of the
Company, and no options, warrants, rights, calls or commitments relating to such
shares or other such securities, are outstanding, except as reflected on
Schedule 4(d) hereto. Except as set forth in the Amended Registration Rights
- -------------
Agreement, Purchase Warrant Certificate, dated June 17, 1999 issued by the
Company to SLG Graybar Sublease, LLC or as set forth on Schedule 4(d), the
-------------
Company is not under any contractual obligation to register under the Securities
Act any of its presently outstanding securities or any securities which it may
hereafter issue.
(ii) As of the Closing, the Company shall not be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock and the Company shall not have any
outstanding warrants, options, or other rights to acquire its capital stock,
except as set forth on Schedule 4(d).
-------------
(iii) As of the Closing Date, sufficient shares of authorized
but unissued Common Stock will have been reserved by appropriate corporate
action in connection
6
<PAGE>
with the prospective conversion of the Series C Preferred Stock into Common
Stock. The issuance of the Common Stock upon conversion of the Series C
Preferred Stock into Common Stock, will not require any further corporate action
by the stockholders or directors of the Company, nor will it be subject to
preemptive rights of any present or future stockholders of the Company, nor will
it conflict with any provision of any agreement to which the Company is a party
or by which it or its assets are bound.
(e) Valid Issuance of Securities; No Personal Liability. When
---------------------------------------------------
delivered in accordance with the terms hereof for the consideration expressed
herein, the Series C Preferred Stock (and the shares of Common Stock issuable
upon conversion of the Series C Preferred Stock) will be duly and validly
issued, the Series C Preferred Stock (and the shares of Common Stock issuable
upon conversion of the Series C Preferred Stock) will be fully paid, non-
assessable and free of preemptive rights, and, when executed and delivered by
the Company, each of this Agreement, and the Series C Preferred Stock will
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or other law affecting
creditors' rights generally and of general principles of equity (regardless of
whether considered in a proceeding at law or in equity). Based in part upon the
representations of the Subscribers in this Agreement, the Series C Preferred
Stock will be issued in compliance with all applicable federal and state
securities laws and the offer, sale and issuance of the Series C Preferred Stock
will constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act. The Subscribers, upon purchase of the Series C
Preferred Stock will not be subject to personal liability by reason of being a
holder of the Series C Preferred Stock.
(f) Subsidiaries and Investments. The Company has no (and has never
----------------------------
had any) subsidiaries and does not own, directly or indirectly, any capital
stock or other equity or ownership or proprietary interest in any corporation,
partnership, association, trust, joint venture or other entity.
(g) Financial Statements and No Material Changes.
--------------------------------------------
(i) The Company has heretofore furnished the Subscriber with a
true, correct and complete unaudited balance sheet of the Company and the
related statements of income and retained earnings as of June 30, 1999 prepared
by the Company. (The balance sheet of the Company as at June 30, 1999 is
hereinafter referred to as the "Balance Sheet" and such date is hereinafter
referred to as the "Balance Sheet Date"). The Balance Sheet fairly presents in
all material respects the financial condition of the Company at the date thereof
and, except as indicated therein, reflects all known or asserted material claims
against and all material debts and liabilities of the Company, fixed or
contingent, as at the date thereof and the related statements of income and
retained earnings fairly present in all material respects the results of the
operations of the Company and the changes in its financial position for the
period indicated, except as specified therein.
7
<PAGE>
(ii) Except as specified in Schedule 4(g), since the Balance
-------------
Sheet Date there has been (i) no material adverse change in the assets or
liabilities, or in the business (present or anticipated) or condition, financial
or otherwise, or in the results of operations of the Company except in the
ordinary course of business; and to the best knowledge, information and belief
of the Company, no fact or condition (not of general knowledge) exists or is
contemplated or threatened which might cause such a change in the future.
(h) Title to Properties; Encumbrances. Except as set forth on
---------------------------------
Schedule 4(h) attached hereto and except for properties and assets reflected in
- -------------
the Balance Sheet or acquired since the Balance Sheet Date which have been sold
or otherwise disposed of in the ordinary course of business, the Company has,
and on the Closing Date, will have, good, valid and marketable title to (a) all
of its properties and assets (real and personal, tangible and intangible),
including, without limitation, all of the properties and assets reflected in the
Balance Sheet, except as indicated in the notes thereto or in a Schedule to this
Agreement, and (b) all of the properties and assets purchased by the Company
since the Balance Sheet Date; in each case subject to no encumbrance, lien,
charge or other restriction of any kind or character, except for (i) liens
reflected in the Balance Sheet or in a Schedule to this Agreement, (ii) liens
consisting of zoning or planning restrictions, easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto which do not materially detract from the value of, or impair the
use of, such property by the Company in the operation of its business, and (iii)
liens for current taxes, assessments or governmental charges or levies on
property not yet due and delinquent and liens of carriers, warehousemen, vendors
and materialmen incurred in the ordinary course of business securing sums not
yet due and payable (liens of the type described in clauses (i), (ii) and (iii)
above are hereinafter sometimes referred to as "Permitted Liens"). Such
properties and assets are sufficient to enable the Company to carry out its
business as presently conducted and as proposed to be conducted. The Company
has all franchises, permits, licenses, and any other similar authority necessary
for the conduct of its business as now being conducted or proposed to be
conducted, the lack of which could materially and adversely affect the business,
properties, prospects, or financial condition of the Company. The Company is
not in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
(i) Leases. Schedule 4(i) attached hereto contains an accurate and
------ -------------
complete list of all leases to which the Company is a party (as lessee or
lessor). Each lease set forth on Schedule 4(i) (or required to be set forth on
-------------
Schedule 4(i)) is in full force and effect; all rents and additional rents due
- -------------
to date on each such lease have been paid; in each case, the lessee has been in
possession since the commencement of the original term of such lease and, to its
knowledge, is not in material default thereunder; and there exists no event of
default or event, occurrence, condition or act (including the purchase of the
Series C Preferred Stock, or any of the conditions precedent hereunder) which,
with the giving of notice, the lapse of time or the happening of any further
event or condition, would become a material default under such lease. The
Company is not currently in default of any of the terms or conditions under any
such lease in any material respect, and, to the best knowledge, information and
belief of the Company, all of the covenants
8
<PAGE>
to be performed by any other party under any such lease have been fully
performed. The property leased by the Company is in a state of good maintenance
and repair.
(j) Material Contracts. Except as set forth on Schedule 4(j) attached
------------------ ---------
hereto, the Company is not bound by (a) any agreement, contract or commitment
relating to the employment of any person by the Company, or any bonus, deferred
compensation, pension, profit sharing, stock option, employee stock purchase,
retirement or other employee benefit plan, or arrangement or any collective
bargaining agreement or any other contract with any labor union or severance
agreements, programs, policies or arrangements, (b) any agreement, indenture or
other instrument which contains restrictions with respect to payment of
dividends or any other distribution in respect of its capital stock, (c) any
agreement, contract or commitment relating to capital expenditures not yet made,
which involves $50,000 or more and was not entered into the ordinary course of
business, (d) any loan or advance to, or investment in, any individual,
partnership, limited liability company, joint venture, corporation, trust,
unincorporated organization, government or other entity (each a "Person") or any
agreement, contract or commitment relating to the making of any such loan,
advance or investment which involves $50,000 or more, (e) any guarantee or other
contingent liability in respect of any indebtedness or obligation of any Person
(other than the endorsement of negotiable instruments for collection in the
ordinary course of business), (f) any employment agreement or other contract for
the employment of any officer or employee providing for annual compensation in
excess of $100,000 except for the Employment Agreement, dated as of August 16,
1999, between the Company and Richard E. Glassberg, or any management service,
consulting or any other similar type of contract, unless entered into or
incurred in the ordinary course of business and not involving compensation in
excess of $100,000, (g) any agreement, contract or commitment limiting the
freedom of the Company to engage in any line of business or to compete with any
Person, (h) any bank debt, loan, credit or other financing arrangement, (i)
except as otherwise disclosed in this Agreement or a Schedule or Exhibit annexed
hereto, any agreement, contract or commitment not entered into in the ordinary
course of business which involves $50,000 or more and is not cancelable without
penalty within 30 days, (j) any contract or group of related contracts with the
same party or group of affiliated parties the performance of which involves (or
is reasonably expected to involve) consideration in excess of $50,000 during any
twelve month period, (k) any assignment, license, indemnification or other
agreement with respect to the Proprietary Rights (as defined in Section 4(v)
below) or other intangible property, (l) any agreement under which the Company
has granted any Person any rights related to the registration of securities
under the Securities Act (including, without limitation, demand or piggyback
registration rights), (m) any sales, distribution or franchise agreement, or (n)
any other agreement which is material to its operation and business prospects.
Each contract or agreement set forth on Schedule 4(j) (or required to be set
-------------
forth on Schedule 4(j)) has been, or simultaneously upon the execution and
-------------
delivery hereof will be, executed and delivered and is (or will be) valid,
binding, and enforceable in accordance with its terms and is in full force and
effect; and there exists no material default or event of default or event,
occurrence, condition or act (including the purchase of the Series C Preferred
Stock or any of the conditions precedent hereunder) which, with the giving of
notice, the lapse of time or the happening of any further event or condition,
would become a material default or event of default thereunder. The Company is
not currently in
9
<PAGE>
default in any material respect of any of the terms or conditions of any
contract or agreement set forth on Schedule 4(j) (or required to be set forth
-------------
on Schedule 4(j)) in any respect, which would, in the aggregate, have a material
------------
adverse effect on such party.
(k) Restrictive Documents. Except as set forth on Schedule 4(k)
--------------------- -------------
attached hereto, the Company is not subject to, or a party to, any charter, by-
law, mortgage, lien, lease, license, permit, agreement, contract, instrument,
law, rule, ordinance, regulation, order, judgment or decree, or any other
restriction of any kind or character, which materially and adversely affects the
business (present or anticipated) or condition of the Company, financial or
otherwise, or any of its assets taken as a whole, or which would prevent
consummation of the transactions contemplated by this Agreement, compliance by
the Company with the terms, conditions and provisions hereof or the continued
operation of the Company's business after the date hereof or the Closing Date on
substantially the same basis as heretofore operated or which would restrict the
ability of the Company to acquire any property or conduct business in any area.
(l) Litigation. Except as set forth on Schedule 4(l) attached hereto,
---------- -------------
there is no action, suit, proceeding at law or in equity, arbitration or
administrative or other proceeding by or before or any investigation by any
governmental or other instrumentality or agency, pending, or, to the best
knowledge, information and belief of the Company, threatened, against or
affecting the Company, or any of its properties or rights; and the Company does
not know of any valid basis for any such action, proceeding or investigation.
The foregoing includes, without limitation, actions pending or threatened
involving the prior employment of any of the Company's officers, employees or
consultants, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
There are no actions, suits, proceedings or investigations by the Company
currently pending against any third party, at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suits, proceedings
or investigations with respect to the transactions contemplated by this
Agreement). The Company is not subject to any arbitration proceedings under
collective bargaining agreements or otherwise or any governmental investigations
or inquiries. Except as set forth on Schedule 4(l), the Company is not party or
-------------
subject to any judgment, order, writ, injunction, or decree entered in any
lawsuit or proceeding which may affect its operations, business practices,
present or anticipated, or ability to acquire any property or conduct business.
(m) Taxes. Except as set forth on Schedule 4(m):
----- -------------
(i) All taxes and assessments, including, without limitation,
income, property, sales, use, franchise, value added, employees' income
withholding and social security taxes and import duties, including interest and
penalties thereon, imposed by the United States or by any foreign country or by
any state, municipality, subdivision or instrumentality of the United States or
of any foreign country, or by any other taxing authority, for which the Company
may be liable in respect of all periods prior to the Closing Date (including
taxes in respect of tax periods ending on the Closing Date and taxes in respect
of tax periods ending after the Closing Date to
10
<PAGE>
the extent attributable to the portion of that period which ends on the Closing
Date), either have been paid when due or will be paid when due. All tax returns
required to be filed through the date hereof (and the Closing Date), including,
without limitation, information returns, have been (or will be) accurately
prepared and duly and timely filed and all deposits and payments required by law
to be made by the Company, including with respect to employees' withholding
taxes, have been duly made in accordance with all applicable laws to the best of
the Company's knowledge or belief.
(ii) There are no tax sharing agreements or arrangements or tax
indemnity agreements between the Company and any other person.
(iii) The Company has never been an includable corporation in any
affiliated group of corporations within the meaning of Section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any similar provision
of state or other tax law).
(iv) The Company has not filed a consent pursuant to the
collapsible corporation provisions of section 341(f) of the Code (or any similar
provision of state or other tax law) or agreed to have section 341(f)(2) of the
Code or any similar provision of state or other tax law) apply to any
disposition of any asset owned by the Company.
(v) All taxes arising from the transactions described in this
Agreement and payable by the Company, if any, will be paid by the Company.
(n) Liabilities. The Company does not have any outstanding material
-----------
obligations, claims, liabilities or indebtedness, contingent or otherwise,
except as set forth in the Balance Sheet or referred to in the footnotes
thereto, other than liabilities incurred subsequent to the Balance Sheet Date in
the ordinary course of business, and, except as set forth on Schedule 4(n), not
-------------
involving borrowings by the Company. The Company maintains a standard system of
accounting in accordance with GAAP. The Company's financial reserves reflected
in the Balance Sheet are adequate to cover claims already incurred and
reasonably expected to be incurred and the Company's provisions for taxes as set
forth in the Balance Sheet are adequate and accurate for taxes due and accrued.
Except as set forth on Schedule 4(n), the Company is not in default in respect
-------------
of the terms or conditions of any indebtedness.
(o) Compliance with Laws. Except as set forth on Schedule 4(o), the
-------------------- -------------
Company is in compliance in all material respects with all applicable laws,
regulations, orders, judgments and decrees. Neither the Company nor, to the
best of the Company's knowledge, has any employee of the Company has at any time
made any payments for improper or unlawful political contributions or made any
bribes, kickback payments or other illegal payments.
(p) Accounts Receivable. The amount of all accounts receivable,
-------------------
unbilled invoices and other debts due or recorded in the records and books of
account of the Company as being due to it at the Closing Date (less the amount
of any provision or reserve therefor made in the records and books of account of
the Company) constitute valid and enforceable claims that
11
<PAGE>
have arisen only from bona fide transactions in the ordinary course of business
and none of such accounts receivable or other debts is or will, to the best
knowledge of the Company, at the Closing Date be subject to any counterclaim or
set-off except to the extent of any such provision or reserve, and there are no
known, contingent or asserted claims, or refusals to pay against any such
receivables or debts. There has been no material adverse change since the
Balance Sheet Date in the amount of accounts receivable or other debts due the
Company or the allowances with respect thereto, or accounts payable of the
Company from that reflected in the Balance Sheet.
(q) Employees; Employee Benefit Plans. No employee or consultant of
---------------------------------
the Company has any agreement or contract, written or oral, except as described
on Schedule 4(q) regarding such person's employment or consultancy with the
-------------
Company. To the best of the Company's knowledge, no employee of the Company nor
any consultant with whom the Company has contracted is in violation of any term
of any employment contract, non-disclosure agreement or any other similar
contract or agreement relating to the relationship of such employee or
consultant with the Company, any former employer or any other party. No
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of employment
with the Company except as set out on Schedule 4(q) hereto. The Company is not
-------------
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any officer, key
employee or group of key employees. Set forth on Schedule 4(q) attached hereto
-------------
is an accurate and complete list of all employee benefit plans ("Employee
Benefit Plans") within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, and the rules and regulations
thereunder ("ERISA"), whether or not any such Employee Benefit Plans are
otherwise exempt from the provisions of ERISA, established, maintained or
contributed to by the Company. All such Employee Benefit Plans are fully funded
and are and at all times have been in compliance in all material respects with
applicable law, including the provisions of ERISA.
(r) No Changes Since Balance Sheet Date. Since the Balance Sheet
-----------------------------------
Date, except as expressly contemplated hereby or as disclosed in a Schedule or
Exhibit hereto, the Company has not (a) incurred any liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise), except in the
ordinary course of business, or paid any material obligation or liability, other
than current liabilities paid in the ordinary course of business, (b) permitted
any of its assets to be subjected to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge of any kind (other than Permitted
Liens), (c) sold, transferred or otherwise disposed of any assets, including
without limitation, any Proprietary Rights, except in the ordinary course of
business, (d) made any capital expenditure or commitment therefor, except in the
ordinary course of business, (e) declared or paid any dividend or made any
distribution, in cash or other property, on any shares of its capital stock, or
redeemed, purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares, (f) made
any bonus or profit sharing distribution or payment of any kind, (g) increased
its indebtedness for borrowed money or made any loan to any Person, (h) written
off as uncollectible any notes or accounts receivable, except write-offs in the
ordinary
12
<PAGE>
course of business charged to applicable reserves, none of which individually or
in the aggregate would have a material adverse effect to the Company or suffered
any damage, destruction or casualty loss exceeding $50,000 in the aggregate, (i)
granted any increase in the rate of wages, salaries, bonuses or other
remuneration of any executive employee or other employees, (j) cancelled or
waived any claims or rights of substantial value, (k) made any change in any
method of accounting or audit practice, (l) otherwise conducted its business or
entered into any transaction, except in the ordinary course of business, or (m)
agreed, whether or not in writing, to do any of the foregoing. Since the Balance
Sheet Date there has been no material adverse change in the financial condition,
operating results, assets, operations, business, prospects, employee relations
or customer or supplier relations of the Company.
(s) Disclosure. None of this Agreement, the financial statements
----------
referred to in Section 4(g) hereof (including the footnotes thereto), any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof or any document or statement in writing which has been supplied
by the Company or by any of its directors or officers in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact, or omits any statement of a material fact necessary in order to
make the statements contained herein or therein not misleading in light of the
circumstances under which made. There is no fact (presently understood as such
and not of general knowledge) known to the Company which materially and
adversely affects the business, present or anticipated, or financial condition
of the Company or its properties or assets which has not been set forth in this
Agreement, the financial statements referred to in Section 4(g) hereof
(including the footnotes thereto), any Schedule, Exhibit or certificate attached
hereto or delivered in accordance with the terms hereof or any document or
statement in writing which has been supplied by or on behalf of the Company or
by any of its directors or officers in connection with the transactions
contemplated by this Agreement.
(t) Broker's or Finder's Fees. No agent, broker, person or firm
-------------------------
acting on behalf of the Company is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement. Company agrees to indemnify and hold the Subscriber harmless with
respect to the foregoing.
(u) Environmental Matters. The Company has been and is in material
---------------------
compliance with all provisions of all pollution control laws; hazardous waste
generation, storage, disposal, transportation, handling and cleanup laws; other
environmental protection laws; occupational safety and health standards laws;
and all rules, standards, regulations, permits, license requirements and
authorizations required by or related to such laws (collectively "Environmental
and Safety Laws"), and has obtained all permits, licenses and other
authorizations required thereunder. No proceeding or investigation is pending
or, to its knowledge, threatened, alleging or to the effect that the Company has
violated or is in violation of or bears any liability pursuant to any such law,
rule, standard, regulation, permit, license or authorization or any related
common law theory. The Company is not, and has not been, subject
13
<PAGE>
to or bound by any order, decree or otherwise relating to any of the foregoing.
To its knowledge, no underground storage tanks, asbestos containing material, or
PCB-containing materials or equipment is present at any property owned or
occupied by the Company. Without limiting the generality of the foregoing, no
facts, events or conditions relating to the past or present properties or
operations of the Company will, to the Company's knowledge, prevent, hinder or
limit continued compliance with Environmental and Safety Laws or give rise to
any liabilities (contingent or otherwise) or corrective, investigatory or
remedial obligations pursuant to Environmental and Safety Laws, including,
without limitation, obligations or liabilities relating to onsite or offsite
hazardous substance releases, personal injury, property damage or natural
resources damage.
(v) Proprietary Rights. Schedule 4(v) contains a complete and
------------------ -------------
accurate list of all (a) pending patent applications and applications for
registrations of other intellectual property rights filed by or on behalf of the
Company, (b) material unregistered trade names and corporate names owned or used
by the Company and (c) material unregistered trademarks, service marks,
copyrights, mask works and computer software owned or used by the Company
(together the "Proprietary Rights"). Schedule 4(v) also contains a complete and
-------------
accurate list of all licenses and other rights granted by the Company to any
third party or by any third party to the Company with respect to any Proprietary
Rights. The Company exclusively owns, free and clear of liens or encumbrances,
all rights, title and interests to, or has sufficient rights to use pursuant to
a valid license, all Proprietary Rights listed on Schedule 4(v) without conflict
-------------
with or infringement of the rights of others. The Company believes that the
Proprietary Rights are all the rights necessary for the operation of the
businesses of the Company as presently conducted and as presently proposed to be
conducted. To the best of the Company's knowledge, there is no loss or
expiration of any Proprietary Right threatened, pending or reasonably
foreseeable. The Company has taken all reasonably necessary actions to maintain
and protect the Proprietary Rights which it owns and uses. Except as set forth
on Schedule 4(v), as of the date hereof,(i) there have been no claims made
-------------
against the Company asserting the invalidity, misuse or unenforceability of any
Proprietary Rights, and, to the best of the Company's knowledge, there are no
grounds for the same, (ii) the Company has not received a notice of conflict
with the asserted rights of others within the last five years, (iii) the conduct
of the Company's business has not misappropriated or infringed, to the Company's
knowledge, and does not misappropriate or infringe any Proprietary Rights of
other Persons, nor would any future conduct as presently contemplated infringe
any Proprietary Rights of other Persons and (iv) to the best of the Company's
knowledge, the Proprietary Rights owned by or licensed to the Company have not
been infringed or misappropriated by other Persons.
(w) Related-Party Transactions. No consultant, employee, officer,
--------------------------
director or stockholder of the Company or member of such person's immediate
family is indebted to the Company, nor is the Company indebted (or committed to
make loans or extend or guarantee credit) to any of them. None of such persons
has any direct or indirect ownership interest in any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that consultants, employees, officers, directors or stockholders of the Company
and members of their
14
<PAGE>
immediate families may own less than 5% of the outstanding stock in a publicly
traded company that may compete with the Company. No member of the immediate
family of any employee, officer, or director of the Company is directly or
indirectly interested in any material contract, commitment, undertaking or
transaction with the Company.
(x) Insurance. The Company has insurance policies in effect covering the
---------
risks associated with its businesses and properties which are of such character
and in such amounts as are customarily maintained by similarly situated entities
engaged in the same or similar businesses.
(y) Filing of 83(b) Elections. Each officer of the Company that has
-------------------------
received securities of the Company subject to the right of repurchase by the
Company in Section 5.1 of the Amended Securityholders' Agreement has duly and
timely filed an election pursuant to Section 83(b) of the Internal Revenue Code
with respect to such securities.
(z) Exemption from Registration. The Company represents and warrants
---------------------------
that the offer and sale of the Series C Preferred Stock to the Subscriber in
accordance with the terms and provisions of this Agreement is being effected in
accordance with the Act and applicable state securities laws pursuant to (i) a
private placement exemption to the registration provisions of the Act pursuant
to Section 4(2) of such Act, and (ii) a similar exemption to the registration
provisions of applicable state securities laws.
5. Conditions to Closing.
---------------------
(a) The obligations of the Company to consummate the transactions
contemplated by this Agreement on the Closing Date is conditioned upon
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
(i) On or prior to the Closing Date, the Subscribers and all
other parties to the Amended Securityholders' Agreement shall have properly and
validly executed the Amended Securityholders' Agreement and taken all actions
required to be taken by them thereunder, including authorizing an increase in
the number of authorized directors from five to six and appointing the Series C
Designee (as such term is defined in the Amended Securityholders' Agreement).
(ii) The Subscribers and all of the other parties shall have
properly and validly executed the Amended Registration Rights Agreement.
(iii) Receipt by the Company, and/or the Company's designee, by
certified official bank check or wire transfer the entire consideration
specified in Section 1 hereof.
(b) The obligations of the Subscribers to consummate the transactions
contemplated by this Agreement on the Closing Date is conditioned upon
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
15
<PAGE>
(i) The Company and all of the other parties thereto shall have
entered into the Amended Securityholders' Agreement.
(ii) The Company and all of the other parties thereto shall have
entered into the Amended Registration Rights Agreement.
(iii) The Company shall have delivered to each of the Subscribers
a certificate or certificates representing the Series C Preferred Stock in such
denominations as requested by the Subscriber.
(iv) The Company shall have filed with the Secretary of State of
the State of Delaware the Series C Certificate of Designations and shall have
delivered evidence of same to the Subscribers.
(v) The Company shall have reimbursed the Subscribers for their
actual documented, costs, including attorneys' fees actually incurred, in
connection with the negotiation, preparation and delivery of this Agreement, the
Amended Securityholders' Agreement, the Amended Registration Rights Agreement,
and the Series C Certificate of Designation up to Twenty Thousand ($20,000)
Dollars.
(vi) The Subscriber shall have received an opinion of Company's
counsel, Zukerman Gore & Brandeis, LLP, in the form annexed hereto as Exhibit
-------
5(vi).
- ------
(vii) The Company shall use the proceeds from the sale of the
Series C Preferred Stock in accordance with the provisions of Section 8(1)
below, and upon the application of such proceeds all agreements by and between
the Company, Richard Glassberg and The CKG media.com Stock Trust (the "Trust")
shall have been terminated.
(viii) The representations and warranties of the Company contained
in this Agreement or in any Exhibit or Schedule attached hereto shall be true,
complete and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date,
and the Company shall have delivered to the Subscribers a certificate, dated the
Closing Date, to such effect.
(ix) No action or proceeding shall have been instituted or, to
the best knowledge, information and belief of the Company, threatened before a
court or other government body or by any public authority to restrain or
prohibit any of the transactions contemplated hereby, and the Company shall have
delivered to the Subscribers a certificate, dated the Closing Date, to such
effect.
(x) All governmental and other consents, filings and approvals,
if any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
16
<PAGE>
(xi) The Preferred Stock to be issued and sold by the Company
and to be acquired by the Subscriber shall be (and the shares of Common Stock
issuable upon conversion of the Series C Preferred will be upon issuance by the
Company and acquisition by the Subscribers) duly authorized and validly issued
to the Subscribers, free and clear of all liens, encumbrances, restrictions and
claims of every kind. The Subscribers shall have each received properly
completed stock certificate(s) representing the shares of Preferred Stock being
purchased by the Investors on the Closing Date.
(xii) Good Standing and Other Certificates. The Company shall
------------------------------------
have delivered to the Subscribers (a) copies of the Company's Certificate of
Incorporation, including all amendments thereto, certified by the Secretary of
State of the State of Delaware, (b) certified copies of the Series C Certificate
of Designations, certified by the Secretary of State of the State of Delaware,
as having been filed on or before the Closing Date, (c) a certificate from the
Secretary of State of the State of Delaware to the effect that the Company is in
good standing or subsisting in such State and listing all charter documents of
the Company on file, (d) a certificate from the Secretary of State or other
appropriate official in each State in which the Company is qualified to do
business to the effect that the Company is in good standing in such State, (e) a
certificate as to the tax status of the Company from the appropriate official in
its jurisdiction of incorporation and each State in which the Company is
qualified to do business and (f) a copy of the By-laws and the Certificate of
Incorporation of the Company certified by the Secretary of the Company as being
true, complete and correct and in effect on the Closing Date, after giving
effect to the filing described in Section 5(b) (iv) hereof, and accompanied by a
copy of the adopting resolutions authorizing the Series C Certificate of
Designations and approving the stock issuance contemplated thereby.
(xiii) No Material Adverse Change. Prior to each of the Closing
--------------------------
Date, there shall be no material adverse change in the assets or liabilities,
the business (present or anticipated), or condition, financial or otherwise, or
in the results of operations, of the Company since the Balance Sheet Date and
the Company shall have delivered to the Investors a certificate, dated the
Closing Date, to such effect.
(xiv) Performance of Agreements. All of the agreements of the
-------------------------
Company to be performed on or before the Closing Date pursuant to the terms
hereof or the terms of any Exhibit hereto, shall have been duly performed, and
the Company shall have delivered to the Subscribers a certificate, dated as of
the Closing Date, to such effect.
(xv) All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Subscribers and
their counsel, and the Subscribers shall have received copies of all such
documents and other evidences as they or their counsel may reasonably request in
order to establish the consummation of such transactions and the taking of all
proceedings in connection therewith, including but not limited to documentation
relative to the equity ownership of the CKG Media.com Trust (the "Trust") in the
Company in the event that the Trust is an equity owner of the Company on the
Closing Date.
17
<PAGE>
6. Series C Preferred Stock Legends. The Subscriber represents and
--------------------------------
warrants that it has read, considered and understood the legend, referred to in
Section 7.1 of the Amended Securityholders' Agreement, shall be placed on all of
the certificates representing the Series C Preferred Stock and or all shares of
Common Stock issuable upon conversion of the Series C Preferred Stock.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold each Subscriber and each
of their respective partners, officers, directors, members, employees, counsel,
accountants, agents, successors and assigns (collectively, an "Indemnified
Party") harmless from damages, liabilities, losses, costs or expenses
(including, without limitation, reasonable counsel fees and expenses) suffered
or paid, directly or indirectly, as a result of or arising out of (i) the
failure of any respective representation or warranty made by the Company in this
Agreement or in any Schedule or Exhibit attached hereto to be true, complete and
correct in all material respects as of the date of this Agreement and as of the
Closing Date or (ii) a breach of the covenant set forth in Section 8(l ) below.
(b) If any action, suit, proceeding or investigation is commenced, as
to which an Indemnified Party proposes to demand indemnification, it shall
notify the Company with reasonable promptness; provided, however, that any
-------- -------
failure by an Indemnified Party to notify the Company shall not relieve the
Company from its obligations hereunder, except to the extent that the Company
shall have been materially prejudiced in its ability to defend the action, suit,
proceedings or investigation for which such indemnification is sought by reason
of such failure. Except as set forth below, an Indemnified Party shall not have
the right to retain counsel of its own choice, and the Company shall pay the
reasonable fees, reasonable expenses and reasonable disbursements of counsel
selected by the Company; and such counsel shall to the extent consistent with
its professional responsibilities cooperate with the Company and any counsel
designated by the Company.
In the event the Company does not assume or fails to conduct in a diligent
manner the defense of any claim or litigation resulting therefrom, (a) the
Indemnified Party may defend, using its own counsel, against such claim or
litigation, in such manner as it deems appropriate, including, but not limited
to, settling such claim or litigation, after giving notice of the same to the
Company, on such terms as the Indemnified Party may deem appropriate, and (b)
the Company shall be entitled to participate in (but not control) the defense of
such action, with its counsel and at its own expense. The Company shall pay the
reasonable fees, reasonable expenses and reasonable disbursements of counsel
selected by an Indemnified Party in the circumstances described in the previous
sentence. If the Company thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of any
such settlement, the Company shall have the burden to prove by a preponderance
of the evidence that the Indemnified Party did not defend or settle such third
party claim in a reasonably prudent manner.
18
<PAGE>
The Company shall be liable for any settlement of any claim against an
Indemnified Party made with the Company's written consent or made in connection
with the circumstances described in the first sentence of the previous
paragraph. The Company shall not, without prior written consent of an
Indemnified Party, which consent shall not be unreasonably withheld or delayed,
settle or compromise any claim, or permit a default or consent to the entry of
any judgment in respect thereof.
Each party agrees to cooperate fully with the other, such cooperation to
include, without limitation, attendance at depositions and the provision of
relevant documents as may be reasonably requested by the other parties, provided
that the Company will reimburse the Indemnified Party for all of its out-of-
pocket expenses incurred in connection with such cooperation by the Indemnified
Party.
(c) In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to these indemnification provisions is made
but it is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) that such indemnification may not be enforced in such
case, even though the express provisions hereof provide for indemnification in
such case, then the Company (as applicable), on the one hand, and an Indemnified
Party, on the other, shall contribute to the losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs and expenses to
which the indemnified persons may be subject in accordance with the relative
benefits received by the Company (as the case may be), on the one hand, and an
Indemnified Party, on the other hand, in connection with the statements, acts or
omissions which resulted in expenses and the relevant equitable considerations
shall also be considered. No person found liable for a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
also found liable for such fraudulent misrepresentation.
8. Miscellaneous.
-------------
(a) Preservation of Confidential Information. The Subscriber shall
----------------------------------------
keep confidential any and all non-public information obtained from the Company
concerning the Company's properties, operations and business (unless readily
ascertainable from public or published information or trade sources) until the
same ceases to be non-public (or becomes so ascertainable).
(b) Amendment; Waiver. This Agreement shall not be changed, modified
-----------------
or amended in any respect except by the mutual written agreement of the parties
hereto. Any provision of this Agreement may be waived in writing by the party
which is entitled to the benefits thereof. No waiver of any provision of this
Agreement shall be deemed to or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall any such waiver constitute a
continuing waiver.
(c) Binding Effect; Assignment. This Agreement may not be
--------------------------
transferred,
19
<PAGE>
assigned, pledged or hypothecated by and party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
(d) Governing Law; Venue, Jurisdiction and Litigation Costs. This
-------------------------------------------------------
Agreement and its validity, construction and performance shall be governed in
all respects by the internal laws of the State of New York without giving effect
to such State's conflicts of laws provisions. Each of the Company and the
Subscriber expressly irrevocably consent to the jurisdiction and venue of the
federal courts located in the State of New York, County of New York. The
prevailing party or parties in any such litigation shall be entitled to receive
from the losing party or parties all costs and expenses, including reasonable
counsel fees, incurred by the prevailing party or parties.
(e) Severability. Any term or provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
only, be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof affecting the validity or
enforceability of such provision in any other jurisdiction.
(f) Headings. The captions, headings and titles preceding the text of
--------
each or any Section, subsection or paragraph hereof are for convenience of
reference only and shall not effect the construction, meaning or interpretation
of this Agreement or any term or provisions hereof.
(g) Counterparts. This Agreement may be executed in one or more
------------
original or facsimile counterparts, each of which shall be deemed an original
and all of which shall be considered one and the same agreement, binding on all
of the parties hereto, notwithstanding that all parties are not signatories to
the same counterpart. Upon delivery of an executed counterpart by the
undersigned Subscriber to the Company, which in turn is executed and delivered
by the Company, this Agreement shall be binding as one original agreement
between the Subscriber and the Company.
(h) Transfer Taxes. Each party hereto shall pay all such sales,
--------------
transfer, use, gross receipts, registration and similar taxes arising out of or
in connection with the transactions contemplated by this Agreement
(collectively, the "Transfer Taxes") as are payable by such party under
applicable law, and the Company shall pay the cost of any documentary stock
transfer stamps, if any, to be affixed to the certificates representing the
Series C Preferred Stock.
(i) Entire Agreement. This Agreement, the Amended Registration Rights
----------------
Agreement and the Amended Securityholders' Agreement merges and supersedes any
and all prior agreements, understandings, discussions, assurances, promises,
representations or warranties among the parties with respect to the subject
matter hereof, and contains the entire agreement among the parties with respect
to the subject matter set forth herein.
(j) Authority; Enforceability. The undersigned Subscriber is duly
-------------------------
authorized
20
<PAGE>
to enter into this Subscription Agreement and to perform its obligations
hereunder. Upon the execution and delivery of this Agreement by the undersigned
Subscriber, this Agreement shall be enforceable against the undersigned
Subscriber in accordance with its terms.
(k) Notices. Except as otherwise specified herein to the contrary,
-------
all notices, requests, demands and other communications required or desired to
be given hereunder shall only be effective if given in writing by hand, by
certified or registered mail, return receipt requested, postage prepaid, or by
U.S. express mail service, or by private overnight mail service (e.g. Federal
Express), or by facsimile transmission. Any such notice shall be deemed to have
been given (a) on the business day actually received if given by hand or
facsimile transmission, (b) on the business day immediately subsequent to
mailing, if sent by U.S. express mail service or private overnight mail service,
or (c) three (3) business days following the mailing thereof, if mailed by
certified or registered mail, postage prepaid, return receipt requested, and all
such notices shall be sent to the following addresses (or to such other address
or addresses as a party may have advised the other in the manner provided in
this Section 8(k)):
If to the Company:
Mr. Richard Glassberg
CKG Media.com, Inc.
420 Lexington Avenue
New York, NY 10170
Facsimile no. (917) 368-7227
with copies simultaneously by like means to:
Andrew M. Chonoles, Esq.
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
Facsimile no. (212) 223-6433
If to the Subscribers, notice shall be given to all parties set forth
in Section 7.5 of the Amended Securityholders' Agreement.
(l) Use of Proceeds. The Company covenants and agrees that it shall
----------------
use the proceeds from the sale of the Series C Preferred Stock to the extent
necessary to effect the redemption of the remaining shares of Common Stock (the
"Redemption") held by the Trust not previously purchased by the Company in
accordance with the terms of the Agreement of Purchase and Sale of Stock dated
as of June 9, 1999, as amended through the date hereof, by and among the Company
and Richard Fisher, as trustee for the Trust. The Company further covenants and
agrees that it shall consummate the Redemption in accordance with all, and has
no liability under any, applicable laws, including, without limitation, the
Securities Act. To the extent that the Company uses less than all of the
proceeds from the sale of the Series C Preferred
21
<PAGE>
Stock hereunder to effect the Redemption of the Common Stock of the Trust, the
Company will use any such unused proceeds for general working capital purposes.
(m) No Third Party Beneficiaries. This Agreement and the rights,
----------------------------
benefits, privileges, interests, duties and obligations contained or referred to
herein shall be solely for the benefit of the parties hereto and no third party
shall have any rights or benefits hereunder as a third party beneficiary or
otherwise hereunder.
(n) Publicity. Except as otherwise required by law, none of the
---------
parties hereto shall issue any press release or make any other public statement,
in each case relating to, connected with or arising out of this Agreement or the
matters contained herein. Any statement so issued or made shall require the
reasonable prior approval of the other parties hereto as to the contents and the
manner of presentation and publication thereof.
(o) Several Representations, Warranties, Covenants, Agreements and
--------------------------------------------------------------
Obligations. The representations, warranties, covenants, agreements and
- -----------
obligations of the Company hereunder shall be several and not joint.
22
<PAGE>
IN WITNESS WHEREOF, the Company and each of the undersigned Subscribers
has each duly executed this Agreement as of this __ day of _____, 1999.
CKG MEDIA.com, INC.
By: /s/ Richard Glassberg
_____________________________
Name: Richard Glassberg
Title: Chairman/CEO
SUBSCRIBERS:
VECTOR CAPITAL II, L.P.
By: Vector Capital Partners, II, LLC as
General Partner
/s/ Alex Slusky
____________________________________
By: Alex Slusky
Title: Managing Member
<PAGE>
STV Partners II, L.L.C.
By: /s/ Jerome C. Silvey
---------------------------------
Jerome C. Silvey
General Manager
P2M, LLC
/s/ Mark Lotke
_________________________________
Mark Lotke
Managing Member
<PAGE>
EXHIBIT 10.13
SUBSCRIPTION AND PURCHASE AGREEMENT
FOR
13,079,933 SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.001 PER SHARE
OF
Phase2Media, Inc.
(a Delaware corporation)
SUBSCRIPTION AND PURCHASE AGREEMENT (the "Agreement") dated as of the
19/th/ day of January, 2000, by and between Phase2Media, Inc., (f/k/a CKG
Media.com, Inc. d/b/a Phase2Media) a Delaware corporation having offices at 420
Lexington Avenue, New York, New York 10170 (the "Company"), and the Investors
listed on Schedule I attached hereto, as same may be amended at any
"Supplemental Closing" (as that term is defined in Section 1 below)
(collectively, the "Investors" and each individual a "Investor").
W I T N E S S E T H:
-------------------
WHEREAS, the Investors and the Company have arranged for this Agreement
(the "Agreement") to provide for the subscription and, if such subscription as
set forth in this Agreement is accepted by the Company, the purchase by the
Investors, on the terms and subject to the conditions set forth in this
Agreement, of an aggregate of Thirteen Million Seventy Nine Thousand Nine
Hundred and Thirty Three (13,079,933) shares of the Company's newly authorized
Series D Convertible Preferred Stock, par value $.001 per share (the "Series D
Preferred Stock") of the Company;
WHEREAS, on the basis of the representations and warranties, and subject to
the terms and conditions set forth herein, the Investors desire to subscribe for
and purchase the Series D Preferred Stock and the Company desires to cause to be
sold to each Investor, the number of shares of Series D Preferred Stock set
forth opposite each such Investor's name on Schedule I annexed hereto;
WHEREAS, the Series D Preferred Stock sold in accordance with this
Agreement, upon the execution of this Agreement, shall not be registered
securities under federal or state securities laws or quoted or listed for
trading on any securities exchange, organized market or quotation system at the
time of acquisition hereunder; and
<PAGE>
WHEREAS, in reliance upon certain representations made by the Company and
the Investors herein, the transactions contemplated by this Agreement are such
that the offer and sale of Series D Preferred Stock hereunder will be exempt
from registration under applicable federal and state securities laws pursuant to
exemptions made available under such laws.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. Subscription for Purchase of Series D Preferred Stock. On the basis
-----------------------------------------------------
of the representations, warranties, covenants and agreements, and subject to the
terms and conditions set forth herein, upon the "Initial Closing" hereof (as
that term is defined in Section 2(a) below) the Company agrees to sell,
transfer, convey and deliver to the Investors, and each of the Investors agrees
to purchase, acquire and accept delivery of the number of shares of the Series D
Preferred Stock set forth opposite each such Investor's name on Schedule I
attached hereto. As full and total consideration for the purchase by the
Investors of an aggregate of up to Thirteen Million Seventy Nine Thousand Nine
Hundred and Thirty Three (13,079,933) shares of Series D Preferred Stock the
Investors shall pay to the Company an aggregate purchase price of up to Twenty
Million ($20,000,000) Dollars and no less than Sixteen Million ($16,000,000)
Dollars (the "Purchase Price"); provided, however, that up to Four Million
($4,000,000) Dollars worth of Series D Preferred Stock that otherwise would be
subscribed for and purchased by the Investors at the Initial Closing may be
subscribed for and purchased by the Investors at any time in one or more
closings within twenty (20) days subsequent to the Initial Closing (each a
"Supplemental Closing") in accordance with the provisions of Section 2(a) below.
2. Initial Closing and Supplemental Closings.
-----------------------------------------
(a) The initial closing of the purchase of the Series D Preferred
Stock contemplated by this Agreement shall occur on or about January 19, 2000,
at the offices Zukerman Gore & Brandeis, LLP, 900 Third Avenue, New York, New
York 10022 or at such other mutually convenient time or at such other mutually
convenient place as agreed upon by the parties (the "Initial Closing"). The
date on which the Initial Closing takes place is sometimes hereinafter referred
to as the "Initial Closing Date". Unless otherwise expressly set forth herein
to the contrary, the term "Closing" shall include the Initial Closing and any
Supplemental Closings, and the term "Closing Date" shall include the Initial
Closing Date and the date of any Supplemental Closing. At each Closing, the
Investors shall deliver the Purchase Price, or the applicable portion thereof,
to the Company, in certified funds or by wire transfer, and the Company shall
deliver to each Investor a certificate or certificates representing the
correspondingly appropriate number of shares of Series D Preferred Stock in such
amounts as set forth opposite each Investor's name on Schedule I annexed hereto
and in such denominations as requested by each Investor.
2
<PAGE>
(b) All certificates representing the Series D Preferred Stock shall
bear the restrictive legend referred to in Section 6 below.
3. Representations, Warranties and Covenants of the Investor. In
---------------------------------------------------------
connection with this Agreement, each of the undersigned Investors, as to itself
only, hereby represents, warrants and covenants to the Company, as of the date
on which such Investor actually participates in a Closing hereunder, as follows,
all of which representations, warranties and covenants shall be deemed to be of
the essence hereof:
(a) Investment Intent. The Investor represents and warrants that
-----------------
the Series D Preferred Stock being purchased is being purchased or acquired
solely for the Investor's own account, for investment purposes only and not with
a view towards the distribution to others. The Investor acknowledges,
understands and appreciates that the shares of Series D Preferred Stock have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act") by reason of a claimed exemption under the provisions of such Securities
Act which depends, in large part, upon the Investor's representations as to
investment intention, investor status and related and other matters set forth
herein. The Investor understands that, in the view of the United States
Securities and Exchange Commission (the "SEC"), among other things, a purchase
with a present intent to distribute would represent a purchase and acquisition
with an intent inconsistent with its representation to the Company, and the SEC
might regard such a transfer as a deferred sale for which the registration
exemption is not available. The Investor agrees and consents to the placement of
a legend on the certificate(s) representing the Series D Preferred Stock
purchased and acquired hereunder, stating that such shares of Series D Preferred
Stock have not been registered under the Securities Act or applicable state
securities laws. Such legend shall be removed promptly following such time as a
registration statement under the Securities Act covering any such shares of
Series D Preferred Stock is declared effective by the SEC.
(b) Certain Risks. That (i) the Series D Preferred Stock represents
-------------
equity securities in a private corporate entity that has an accumulated deficit,
(ii) no return on investment, whether through distributions, appreciation,
transferability or otherwise, and no performance by, through or of the Company,
has been promised, assured, represented or warranted by the Company, or by any
director, officer, employee, agent or representative thereof; (iii) neither the
shares of Series D Preferred Stock subscribed for under this Agreement, nor the
shares of the Company's common stock, par value $.001 per share (the "Common
Stock") and Class A common stock, par value $.001 per share (the "Class A Common
Stock") into which the Series D Preferred Stock is convertible (the Common Stock
and Class A Common Stock into which the Series D Preferred Stock is convertible,
collectively, the "Conversion Shares") (x) are registered under applicable
federal or state securities laws, and thus may not be sold, conveyed, assigned
or transferred unless registered under such laws or unless an exemption from
registration is available under such laws, as more fully described below, or (y)
are quoted, traded, listed for trading or quotation on any organized market or
quotation system, and there is therefore no present public or other market for
such shares of Series D Preferred Stock or Conversion
3
<PAGE>
Shares, and there have not been any representations made by the Company to the
Investor that the Series D Preferred Stock or the Conversion Shares ever will be
quoted, traded or listed for trading or quotation on any organized market or
quotation system or that there ever will be a public market for the Series D
Preferred Stock or the Common Stock or the Class A Common Stock; and (iv) that
the purchase of Series D Preferred Stock is a speculative investment, involving
a degree of risk, and is suitable only for a person or entity of adequate
financial means who has no need for liquidity in this investment in that, among
other things, (x) such person or entity may not be able to liquidate their
investment in the event of an emergency or otherwise, (y) transferability is
limited, and (z) in the event of a dissolution or otherwise, such person or
entity could sustain a complete loss of their entire investment.
(c) Sophisticated Investor. That (i) the Investor has adequate means
----------------------
of providing for the Investor's current financial needs and possible
contingencies and has no need for liquidity of the Investor's investment in the
Series D Preferred Stock; (ii) Investor is able to bear the economic risks
inherent in an investment in the Series D Preferred Stock and that an important
consideration bearing on Investor's ability to bear the economic risk of the
purchase of the Series D Preferred Stock is whether the Investor can afford a
complete loss of the Investor's investment in the Series D Preferred Stock and
the undersigned Investor represents and warrants that the Investor can afford
such a complete loss; and (iii) the Investor has such knowledge and experience
in business, financial, investment and banking matters (including, but not
limited to investments in restricted, non-listed and non-registered securities)
that the Investor is capable of evaluating the merits, risks and advisability of
an investment in the Series D Preferred Stock.
(d) Accredited Investor. That the Investor is an "accredited
-------------------
investor," as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
(e) Documents, Information and Access. That (i) the Investor's
---------------------------------
decision to purchase the Series D Preferred Stock is not based on any
promotional, marketing or sales materials, and (ii) Investor and its
representatives have been afforded, prior to purchase thereof, the opportunity
to ask questions of, and to receive answers from, the Company and its
management, and has had access to all documents and information which the
Investor deems material to an investment decision with respect to the purchase
of the Series D Preferred Stock hereunder.
(f) No Registration, Review or Approval. The Investor acknowledges
-----------------------------------
and understands that the limited private offering and sale of the Series D
Preferred Stock pursuant to this Agreement has not been reviewed or approved by
the SEC or by any state securities commission, authority or agency, and that the
limited private offering and sale of the Series D Preferred Stock is not
registered under the Securities Act or under the securities or "blue sky" laws,
rules or regulations of any state. The Investor acknowledges, understands and
agrees that the Series D Preferred Stock is being offered and sold hereunder
pursuant to (i) a private placement exemption to the registration provisions of
the Securities Act pursuant to Section 4(2)
4
<PAGE>
of such Securities Act, and (ii) a similar exemption to the registration
provisions of applicable state securities laws.
(g) Transfer Restrictions. That the Investor will not transfer any
---------------------
Series D Preferred Stock purchased under this Agreement unless such Series D
Preferred Stock is registered under the Securities Act and under any applicable
state securities or "blue sky" laws (collectively, the "Securities Laws"), or
unless an exemption is available under such Securities Laws, and that the
Company may, if it chooses, where an exemption from registration is claimed by
such Investor, condition any transfer of Series D Preferred Stock out of the
Investor's name on an opinion of the Company's counsel or of the Investor's
counsel that is reasonably acceptable to the Company, to the effect that the
proposed transfer is being effected in accordance with, and does not violate, an
applicable exemption from registration under the Securities Laws.
(h) Reliance. The Investor understands, acknowledges and appreciates
--------
that the Company is relying upon all of the representations, warranties,
covenants, understandings, acknowledgments and agreements contained in this
Agreement in determining whether to accept this subscription, sell and issue the
Series D Preferred Stock to the Investor.
(i) Accuracy of Representations and Warranties. That all of the
------------------------------------------
representations, warranties, understandings and acknowledgments that the
Investor has made herein are true and correct in all material respects as of the
date of execution hereof, and that the Investor will perform and comply fully in
all material respects with all covenants and agreements set forth herein, and
the Investor covenants and agrees that until the acceptance of this Agreement by
the Company, the Investor shall inform the Company immediately in writing of any
changes in any of the representations or warranties provided or contained
herein.
(j) Survival. Investor expressly acknowledges and agrees that all of
--------
its representations, warranties and covenants set forth in this Agreement shall
be of the essence hereof and shall survive the execution, delivery and Closing
of this Agreement, the sale and purchase of the Series D Preferred Stock.
4. Representations and Warranties of the Company. In order to induce
---------------------------------------------
each Investor to enter into this Agreement and to purchase the Series D
Preferred Stock, the Company hereby represents and warrants to each Investor, as
of the date each such Investor actually participates in a Closing hereunder, as
follows:
(a) Corporate Power and Authority. The stockholders of the Company
-----------------------------
are, prior to the sales and issuances contemplated hereby, the lawful,
beneficial and record owners of the shares of the Company's Common Stock, Class
A Common Stock, Series A redeemable preferred stock, Series B convertible
preferred stock and Series C convertible preferred stock, as set forth on
Schedule 4(d) annexed hereto, which represents all of the issued and outstanding
- -------------
shares of capital stock of the Company and such stockholders own such shares
free and clear of all liens, encumbrances, restrictions and claims of every
kind, except as set forth on Schedule
--------
5
<PAGE>
4(a). The Company has the full legal right, power and authority to enter into
- ----
this Agreement, the Second Amended and Restated Securityholders' Agreement dated
as of the date hereof by and among the Company, the Investors and certain of the
stockholders of the Company (the "Amended Securityholders' Agreement") and the
Second Amended and Restated Registration Rights Agreement dated as of the date
hereof by and among the Company, and the persons listed on Schedule 1, Schedule
2 and Schedule 3 thereto (the "Amended Registration Rights Agreement". The
Company further has the full right, power and authority to issue and sell the
shares of Series D Preferred Stock pursuant to this Agreement and to issue the
Conversion Shares issuable upon conversion of the Series D Preferred Stock in
accordance with the terms of the Certificate of Designations, Preferences and
Rights of the Series D Preferred Stock (the "Series D Certificate of
Designations") and the delivery to Investors of the Series D Preferred Stock
pursuant to the provisions of this Agreement will transfer to the Investors
valid title thereto, free and clear of all liens, encumbrances, restrictions and
claims of every kind except as set forth on Schedule 4(a). The Company also has
-------------
the full legal right, power and authority to increase the number of shares of
Common Stock reserved for issuance under its Long Term Equity Compensation Plan
(the "Plan") and to amend the Certificate of Designations, Preferences and
Rights of each of its Series B convertible preferred stock and Series C
convertible preferred stock. This Agreement and the Amended Securityholders'
Agreement, the Amended Registration Rights Agreement and the Series D
Certificate of Designations are collectively referred to herein as the
"Transaction Documents".
(b) Authorization and Noncontravention. Each Transaction Document has
----------------------------------
been duly and validly authorized, executed and delivered by the Company and
constitutes a valid and legally binding agreement of the Company, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles. Each of the
Series D Certificate of Designations and the action to increase the number of
shares of Common Stock reserved for issuance under the Plan has been duly and
validly authorized by all necessary corporate action and the Series D
Certificate of Designations has been duly filed with the Secretary of State of
the State of Delaware and is in full force and effect. The execution and
delivery by the Company of each Transaction Document and the other agreements
and instruments, to be executed and delivered by them in connection herewith do
not and the consummation of the transactions contemplated hereby and thereby
will not: (i) violate any provision of the Certificate of Incorporation or By-
Laws of the Company; (ii) except as set forth on Schedule 4(b), violate any
-------------
provision of, or result in the termination or acceleration of, or default under,
or entitle any party to accelerate (whether after the filing of notice or lapse
of time or both) any obligation under, or result in the creation or imposition
of any lien, charge, pledge, security interest or other encumbrance upon any of
the assets of the Company pursuant to any provision of any mortgage, lien,
lease, agreement, license, or instrument, or violate any law, regulation, order,
arbitration award, judgment or decree to which the Company is a party or by
which its property is bound; (iii) violate or conflict with, or create a default
under, any other material restriction of any kind or character to which the
Company is subject; (iv) require any governmental consent, authorization,
filing, approval, or exemption, except as may be required
6
<PAGE>
by Regulation D promulgated under the Securities Act; or (v) violate any consent
decree or requirement to which the Company is subject.
(c) Existence and Good Standing. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the power to own its property and to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in the jurisdictions listed on Schedule 4(c),
-------------
which are the only jurisdictions in which the character or location of the
properties owned or leased by the Company or the nature of the business
conducted by the Company makes such qualification necessary, except where the
failure to qualify individually or in the aggregate will not have a material
adverse effect on the business of the Company.
(d) Capital Stock.
-------------
(i) A description of the authorized capital stock of the
Company, together with the number of shares of each class outstanding, the names
of each of the holders of such shares and the number of shares held by each
stockholder as of the Closing Date, is set forth on Schedule 4(d) hereto. All of
-------------
such shares of capital stock of the Company have been duly authorized, validly
issued, are fully paid and nonassessable and were issued in compliance with all
applicable federal and state securities laws. No securities directly or
indirectly convertible into or exchangeable for any of the capital stock of the
Company, and no options, warrants, rights, calls or commitments relating to such
shares or other such securities, are outstanding, except as reflected on
Schedule 4(d) hereto. Except as set forth in the Amended Registration Rights
- -------------
Agreement, or as set forth on Schedule 4(d), the Company is not under any
-------------
contractual obligation to register under the Securities Act any of its presently
outstanding securities or any securities which it may hereafter issue.
(ii) As of the Closing, the Company shall not be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock and the Company shall not have any
outstanding warrants, options, or other rights to acquire its capital stock,
except as set forth on Schedule 4(d).
-------------
(iii) As of the Closing Date, the Company will have amended its
Certificate of Incorporation such that a sufficient number of shares of
authorized but unissued Common Stock, Class A Common Stock and Preferred Stock
will have been reserved by appropriate corporate action in connection with the
prospective conversion of the Series D Preferred Stock into Common Stock or
Class A Common Stock and in connection with the increased number of shares of
Common Stock reserved for issuance under the Plan. The issuance of the
Conversion Shares upon conversion of the Series D Preferred Stock will not
require any further corporate action by the stockholders or directors of the
Company, nor will it be subject to preemptive rights of any present or future
stockholders of the Company, nor will it conflict with
7
<PAGE>
any provision of any agreement to which the Company is a party or by which it or
its assets are bound.
(e) Valid Issuance of Securities; No Personal Liability. When
---------------------------------------------------
delivered in accordance with the terms hereof for the consideration expressed
herein, the Series D Preferred Stock (and the Conversion Shares issuable upon
conversion of the Series D Preferred Stock) will be duly and validly issued, the
Series D Preferred Stock (and the Conversion Shares issuable upon conversion of
the Series D Preferred Stock) will be fully paid, non-assessable and free of
preemptive rights, and, when executed and delivered by the Company, each of this
Agreement, and the Series D Preferred Stock will constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other law affecting creditors' rights
generally and of general principles of equity (regardless of whether considered
in a proceeding at law or in equity). Based in part upon the representations of
the Investors in this Agreement, the Series D Preferred Stock will be issued in
compliance with all applicable federal and state securities laws and the offer,
sale and issuance of the Series D Preferred Stock will constitute transactions
exempt from the registration requirements of Section 5 of the Securities Act.
The Investors, upon purchase of the Series D Preferred Stock will not be subject
to personal liability by reason of being a holder of the Series D Preferred
Stock.
(f) Subsidiaries and Investments. The Company has no (and has never
----------------------------
had any) subsidiaries and does not own, directly or indirectly, any capital
stock or other equity or ownership or proprietary interest in any corporation,
partnership, association, trust, joint venture or other entity.
(g) Financial Statements and No Material Changes.
--------------------------------------------
(i) The Company has heretofore furnished the Investors with a
true, correct and complete unaudited balance sheet of the Company and the
related statements of income and retained earnings as of November 30, 1999
prepared by the Company. (The balance sheet of the Company as at November 30,
1999 is hereinafter referred to as the "Balance Sheet" and such date is
hereinafter referred to as the "Balance Sheet Date"). The Balance Sheet fairly
presents in all material respects the financial condition of the Company at the
date thereof and, except as indicated therein, reflects all known or asserted
material claims against and all material debts and liabilities of the Company,
fixed or contingent, as at the date thereof, and, except as noted therein, was
prepared in conformity with GAAP consistently applied throughout the periods
involved and the related statements of income and retained earnings fairly
present in all material respects the results of the operations of the Company
and the changes in its financial position for the period indicated, except as
specified therein, and, except as noted therein, were prepared in conformity
with GAAP consistently applied throughout the periods involved.
(ii) Except as specified in Schedule 4(g), since the Balance
-------------
Sheet Date there has been (i) no material adverse change in the assets or
liabilities, or in the business
8
<PAGE>
(present or anticipated) or condition, financial or otherwise, or in the results
of operations of the Company; and to the best knowledge, information and belief
of the Company, no fact or condition (not of general knowledge) exists or is
contemplated or threatened which might cause such a change in the future.
(h) Title to Properties; Encumbrances. Except as set forth on
---------------------------------
Schedule 4(h) attached hereto and except for properties and assets reflected in
- -------------
the Balance Sheet or acquired since the Balance Sheet Date which have been sold
or otherwise disposed of in the ordinary course of business, the Company has,
and on the Closing Date, will have, good, valid and marketable title to (a) all
of its properties and assets (real and personal, tangible and intangible),
including, without limitation, all of the properties and assets reflected in the
Balance Sheet, except as indicated in the notes thereto or in a Schedule to this
Agreement, and (b) all of the properties and assets purchased by the Company
since the Balance Sheet Date; in each case subject to no encumbrance, lien,
charge or other restriction of any kind or character, except for (i) liens
reflected in the Balance Sheet or in a Schedule to this Agreement, (ii) liens
consisting of zoning or planning restrictions, easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto which do not materially detract from the value of, or impair the
use of, such property by the Company in the operation of its business, and (iii)
liens for current taxes, assessments or governmental charges or levies on
property not yet due and delinquent and liens of carriers, warehousemen, vendors
and materialmen incurred in the ordinary course of business securing sums not
yet due and payable (liens of the type described in clauses (i), (ii) and (iii)
above are hereinafter sometimes referred to as "Permitted Liens"). Such
properties and assets are sufficient to enable the Company to carry out its
business as presently conducted and as proposed to be conducted. The Company
has all franchises, permits, licenses, and any other similar authority necessary
for the conduct of its business as now being conducted or proposed to be
conducted, the lack of which could materially and adversely affect the business,
properties, prospects, or financial condition of the Company. The Company is
not in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
(i) Leases. Schedule 4(i) attached hereto contains an accurate and
------ -------------
complete list of all leases to which the Company is a party (as lessee or
lessor). Each lease set forth on Schedule 4(i) (or required to be set forth on
-------------
Schedule 4(i)) is in full force and effect; all rents and additional rents due
- -------------
to date on each such lease have been paid; in each case, the lessee has been in
possession since the commencement of the original term of such lease and, to its
knowledge, is not in material default thereunder; and there exists no event of
default or event, occurrence, condition or act (including the purchase of the
Series D Preferred Stock, or any of the conditions precedent hereunder) which,
with the giving of notice, the lapse of time or the happening of any further
event or condition, would become a material default under such lease. The
Company is not currently in default of any of the terms or conditions under any
such lease in any material respect, and, to the best knowledge, information and
belief of the Company, all of the covenants to be performed by any other party
under any such lease have been fully performed. The property leased by the
Company is in a state of good maintenance and repair.
9
<PAGE>
(j) Material Contracts. Except as set forth on Schedule 4(j) attached
------------------ ---------
hereto, the Company is not bound by (a) any agreement, contract or commitment
relating to the employment of any person by the Company, or any bonus, deferred
compensation, pension, profit sharing, stock option, employee stock purchase,
retirement or other employee benefit plan, or arrangement or any collective
bargaining agreement or any other contract with any labor union or severance
agreements, programs, policies or arrangements, (b) any agreement, indenture or
other instrument which contains restrictions with respect to payment of
dividends or any other distribution in respect of its capital stock, (c) any
agreement, contract or commitment relating to capital expenditures not yet made,
which involves $50,000 or more and was not entered into the ordinary course of
business, (d) any loan or advance to, or investment in, any individual,
partnership, limited liability company, joint venture, corporation, trust,
unincorporated organization, government or other entity (each a "Person") or any
agreement, contract or commitment relating to the making of any such loan,
advance or investment which involves $50,000 or more, (e) any guarantee or other
contingent liability in respect of any indebtedness or obligation of any Person
(other than the endorsement of negotiable instruments for collection in the
ordinary course of business), (f) any employment agreement or other contract for
the employment of any officer or employee providing for annual compensation in
excess of $100,000 except for the Employment Agreement, dated as of August 16,
1999, between the Company and Richard E. Glassberg, or any management service,
consulting or any other similar type of contract, unless entered into or
incurred in the ordinary course of business and not involving compensation in
excess of $100,000, (g) any agreement, contract or commitment limiting the
freedom of the Company to engage in any line of business or to compete with any
Person, (h) any bank debt, loan, credit or other financing arrangement, (i)
except as otherwise disclosed in this Agreement or a Schedule or Exhibit annexed
hereto, any agreement, contract or commitment not entered into in the ordinary
course of business which involves $50,000 or more and is not cancelable without
penalty within 30 days, (j) any contract or group of related contracts with the
same party or group of affiliated parties the performance of which involves (or
is reasonably expected to involve) consideration in excess of $50,000 during any
twelve month period, (k) any assignment, license, indemnification or other
agreement with respect to the Proprietary Rights (as defined in Section 4(v)
below) or other intangible property, (l) any agreement under which the Company
has granted any Person any rights related to the registration of securities
under the Securities Act (including, without limitation, demand or piggyback
registration rights), (m) any sales, distribution or franchise agreement, or (n)
any other agreement which is material to its operation and business prospects.
Each contract or agreement set forth on Schedule 4(j) (or required to be set
-------------
forth on Schedule 4(j)) has been, or simultaneously upon the execution and
-------------
delivery hereof will be, executed and delivered and is (or will be) valid,
binding, and enforceable in accordance with its terms and is in full force and
effect; and there exists no material default or event of default or event,
occurrence, condition or act (including the purchase of the Series D Preferred
Stock or any of the conditions precedent hereunder) which, with the giving of
notice, the lapse of time or the happening of any further event or condition,
would become a material default or event of default thereunder. The Company is
not currently in default of any of the terms or conditions of any contract or
agreement set forth on Schedule 4(j)
-------------
10
<PAGE>
(or required to be set forth on Schedule 4(j)) in any respect, which would, in
-------------
the aggregate, have a material adverse effect on such party.
(k) Restrictive Documents. Except as set forth on Schedule 4(k)
--------------------- -------------
attached hereto, the Company is not subject to, or a party to, any charter, by-
law, mortgage, lien, lease, license, permit, agreement, contract, instrument,
law, rule, ordinance, regulation, order, judgment or decree, or any other
restriction of any kind or character, which materially and adversely affects the
business (present or anticipated) or condition of the Company, financial or
otherwise, or any of its assets taken as a whole, or which would prevent
consummation of the transactions contemplated by this Agreement, compliance by
the Company with the terms, conditions and provisions hereof or the continued
operation of the Company's business after the date hereof or the Closing Date on
substantially the same basis as heretofore operated or which would restrict the
ability of the Company to acquire any property or conduct business in any area.
(l) Litigation. Except as set forth on Schedule 4(l) attached hereto,
---------- -------------
there is no action, suit, proceeding at law or in equity, arbitration or
administrative or other proceeding by or before or any investigation by any
governmental or other instrumentality or agency, pending, or, to the best
knowledge, information and belief of the Company, threatened, against or
affecting the Company, or any of its properties or rights; and the Company does
not know of any valid basis for any such action, proceeding or investigation.
The foregoing includes, without limitation, actions pending or threatened
involving the prior employment of any of the Company's officers, employees or
consultants, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
There are no actions, suits, proceedings or investigations by the Company
currently pending against any third party, at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suits, proceedings
or investigations with respect to the transactions contemplated by this
Agreement). The Company is not subject to any arbitration proceedings under
collective bargaining agreements or otherwise or any governmental investigations
or inquiries. Except as set forth on Schedule 4(l), the Company is not party or
-------------
subject to any judgment, order, writ, injunction, or decree entered in any
lawsuit or proceeding which may affect its operations, business practices,
present or anticipated, or ability to acquire any property or conduct business.
(m) Taxes. Except as set forth on Schedule 4(m):
----- -------------
(i) All taxes and assessments, including, without limitation,
income, property, sales, use, franchise, value added, employees' income
withholding and social security taxes and import duties, including interest and
penalties thereon, imposed by the United States or by any foreign country or by
any state, municipality, subdivision or instrumentality of the United States or
of any foreign country, or by any other taxing authority, for which the Company
may be liable in respect of all periods prior to the Closing Date (including
taxes in respect of tax periods ending on the Closing Date and taxes in respect
of tax periods ending after the Closing Date to
11
<PAGE>
the extent attributable to the portion of that period which ends on the Closing
Date), either have been paid when due or will be paid when due. All tax returns
required to be filed through the date hereof (and the Closing Date), including,
without limitation, information returns, have been (or will be), accurately
prepared in all material respects, and have also been duly and timely filed and
all deposits and payments required by law to be made by the Company, including
with respect to employees' withholding taxes, have been duly made in accordance
with all applicable laws.
(ii) There are no tax sharing agreements or arrangements or tax
indemnity agreements between the Company and any other person.
(iii) The Company has never been an includable corporation in any
affiliated group of corporations within the meaning of Section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any similar provision
of state or other tax law).
(iv) The Company has not filed a consent pursuant to the
collapsible corporation provisions of section 341(f) of the Code (or any similar
provision of state or other tax law) or agreed to have section 341(f)(2) of the
Code or any similar provision of state or other tax law) apply to any
disposition of any asset owned by the Company.
(v) All taxes arising from the transactions described in this
Agreement and payable by the Company, if any, will be paid by the Company.
(n) Liabilities. The Company does not have any outstanding material
-----------
obligations, claims, liabilities or indebtedness, contingent or otherwise,
except as set forth in the Balance Sheet or referred to in the footnotes
thereto, other than liabilities incurred subsequent to the Balance Sheet Date in
the ordinary course of business, and, except as set forth on Schedule 4(n), not
-------------
involving borrowings by the Company. The Company maintains a standard system of
accounting in accordance with GAAP. The Company's financial reserves reflected
in the Balance Sheet are adequate to cover claims already incurred and
reasonably expected to be incurred and the Company's provisions for taxes as set
forth in the Balance Sheet are adequate and accurate for taxes due and accrued.
Except as set forth on Schedule 4(n), the Company is not in default in respect
-------------
of the terms or conditions of any indebtedness.
(o) Compliance with Laws. Except as set forth on Schedule 4(o), the
-------------------- -------------
Company is in compliance in all material respects with all applicable laws,
regulations, orders, judgments and decrees. Neither the Company nor, to the
best of the Company's knowledge, has any employee of the Company has at any time
made any payments for improper or unlawful political contributions or made any
bribes, kickback payments or other illegal payments.
(p) Accounts Receivable. The amount of all accounts receivable,
-------------------
unbilled invoices and other debts due or recorded in the records and books of
account of the Company as being due to it at the Closing Date (less the amount
of any provision or reserve therefor made in
12
<PAGE>
the records and books of account of the Company) constitute valid and
enforceable claims that have arisen only from bona fide transactions in the
ordinary course of business and none of such accounts receivable or other debts
is or will, to the best knowledge of the Company, at the Closing Date be subject
to any counterclaim or set-off except to the extent of any such provision or
reserve, and there are no known, contingent or asserted claims, or refusals to
pay against any such receivables or debts. There has been no material adverse
change since the Balance Sheet Date in the amount of accounts receivable or
other debts due the Company or the allowances with respect thereto, or accounts
payable of the Company from that reflected in the Balance Sheet.
(q) Employees; Employee Benefit Plans. No employee or consultant of
---------------------------------
the Company has any agreement or contract, written or oral, except as described
on Schedule 4(q) regarding such person's employment or consultancy with the
-------------
Company. To the best of the Company's knowledge, no employee of the Company nor
any consultant with whom the Company has contracted is in violation of any term
of any employment contract, non-disclosure agreement or any other similar
contract or agreement relating to the relationship of such employee or
consultant with the Company, any former employer or any other party. No
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of employment
with the Company except as set out on Schedule 4(q) hereto. The Company is not
-------------
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any officer, key
employee or group of key employees. Set forth on Schedule 4(q) attached hereto
-------------
is an accurate and complete list of all employee benefit plans ("Employee
Benefit Plans") within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, and the rules and regulations
thereunder ("ERISA"), whether or not any such Employee Benefit Plans are
otherwise exempt from the provisions of ERISA, established, maintained or
contributed to by the Company. All such Employee Benefit Plans are fully funded
and are and at all times have been in compliance in all material respects with
applicable law, including the provisions of ERISA.
(r) No Changes Since Balance Sheet Date. Since the Balance Sheet
-----------------------------------
Date, except as expressly contemplated hereby or as disclosed in a Schedule or
Exhibit hereto, the Company has not (a) incurred any liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise), except in the
ordinary course of business, or paid any material obligation or liability, other
than current liabilities paid in the ordinary course of business, (b) permitted
any of its assets to be subjected to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge of any kind (other than Permitted
Liens), (c) sold, transferred or otherwise disposed of any assets, including
without limitation, any Proprietary Rights, except in the ordinary course of
business, (d) made any capital expenditure or commitment therefor, except in the
ordinary course of business, (e) declared or paid any dividend or made any
distribution, in cash or other property, on any shares of its capital stock, or
redeemed, purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares, (f) made
any bonus or profit sharing distribution or payment
13
<PAGE>
of any kind, (g) increased its indebtedness for borrowed money or made any loan
to any Person, (h) written off as uncollectible any notes or accounts
receivable, except write-offs in the ordinary course of business charged to
applicable reserves, none of which individually or in the aggregate would have a
material adverse effect to the Company or suffered any damage, destruction or
casualty loss exceeding $50,000 in the aggregate, (i) granted any increase in
the rate of wages, salaries, bonuses or other remuneration of any executive
employee or other employees, (j) cancelled or waived any claims or rights of
substantial value, (k) made any change in any method of accounting or audit
practice, (l) otherwise conducted its business or entered into any transaction,
except in the ordinary course of business, or (m) agreed, whether or not in
writing, to do any of the foregoing. Since the Balance Sheet Date there has been
no material adverse change in the financial condition, operating results,
assets, operations, business, prospects, employee relations or customer or
supplier relations of the Company.
(s) Disclosure. None of this Agreement, the financial statements
----------
referred to in Section 4(g) hereof (including the footnotes thereto), any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof or any document or statement in writing which has been supplied
by the Company or by any of its directors or officers in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact, or omits any statement of a material fact necessary in order to
make the statements contained herein or therein not misleading in light of the
circumstances under which made. There is no fact (presently understood as such
and not of general knowledge) known to the Company which materially and
adversely affects the business, present or anticipated, or financial condition
of the Company or its properties or assets which has not been set forth in this
Agreement, the financial statements referred to in Section 4(g) hereof
(including the footnotes thereto), any Schedule, Exhibit or certificate attached
hereto or delivered in accordance with the terms hereof or any document or
statement in writing which has been supplied by or on behalf of the Company or
by any of its directors or officers in connection with the transactions
contemplated by this Agreement.
(t) Broker's or Finder's Fees. No agent, broker, person or firm
-------------------------
acting on behalf of the Company is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement. Company agrees to indemnify and hold the Investors harmless with
respect to the foregoing.
(u) Environmental Matters. The Company has been and is in material
---------------------
compliance with all provisions of all pollution control laws; hazardous waste
generation, storage, disposal, transportation, handling and cleanup laws; other
environmental protection laws; occupational safety and health standards laws;
and all rules, standards, regulations, permits, license requirements and
authorizations required by or related to such laws (collectively "Environmental
and Safety Laws"), and has obtained all permits, licenses and other
authorizations required thereunder. No proceeding or investigation is pending
or, to its
14
<PAGE>
knowledge, threatened, alleging or to the effect that the Company has violated
or is in violation of or bears any liability pursuant to any such law, rule,
standard, regulation, permit, license or authorization or any related common law
theory. The Company is not, and has not been, subject to or bound by any order,
decree or otherwise relating to any of the foregoing. To its knowledge, no
underground storage tanks, asbestos containing material, or PCB-containing
materials or equipment is present at any property owned or occupied by the
Company. Without limiting the generality of the foregoing, no facts, events or
conditions relating to the past or present properties or operations of the
Company will, to the Company's knowledge, prevent, hinder or limit continued
compliance with Environmental and Safety Laws or give rise to any liabilities
(contingent or otherwise) or corrective, investigatory or remedial obligations
pursuant to Environmental and Safety Laws, including, without limitation,
obligations or liabilities relating to onsite or offsite hazardous substance
releases, personal injury, property damage or natural resources damage.
(v) Proprietary Rights. Schedule 4(v) contains a complete and
------------------ -------------
accurate list of all (a) pending patent applications and applications for
registrations of other intellectual property rights filed by or on behalf of the
Company, (b) material unregistered trade names and corporate names owned or used
by the Company and (c) material unregistered trademarks, service marks,
copyrights, mask works and computer software owned or used by the Company
(together the "Proprietary Rights"). Schedule 4(v) also contains a complete and
-------------
accurate list of all licenses and other rights granted by the Company to any
third party or by any third party to the Company with respect to any Proprietary
Rights. The Company exclusively owns, free and clear of liens or encumbrances,
all rights, title and interests to, or has sufficient rights to use pursuant to
a valid license, all Proprietary Rights listed on Schedule 4(v) without conflict
-------------
with or infringement of the rights of others. The Company believes that the
Proprietary Rights are all the rights necessary for the operation of the
businesses of the Company as presently conducted and as presently proposed to be
conducted. To the best of the Company's knowledge, there is no loss or
expiration of any Proprietary Right threatened, pending or reasonably
foreseeable. The Company has taken all reasonably necessary actions to maintain
and protect the Proprietary Rights which it owns and uses. Except as set forth
on Schedule 4(v), as of the date hereof,(i) there have been no claims made
-------------
against the Company asserting the invalidity, misuse or unenforceability of any
Proprietary Rights, and, to the best of the Company's knowledge, there are no
grounds for the same, (ii) the Company has not received a notice of conflict
with the asserted rights of others within the last five years, (iii) the conduct
of the Company's business has not misappropriated or infringed, to the Company's
knowledge, and does not misappropriate or infringe any Proprietary Rights of
other Persons, nor would any future conduct as presently contemplated infringe
any Proprietary Rights of other Persons and (iv) to the best of the Company's
knowledge, the Proprietary Rights owned by or licensed to the Company have not
been infringed or misappropriated by other Persons.
(w) Related-Party Transactions. No consultant, employee, officer,
--------------------------
director or stockholder of the Company or member of such person's immediate
family is indebted to the Company, nor is the Company indebted (or committed to
make loans or extend or guarantee
15
<PAGE>
credit) to any of them. None of such persons has any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except that consultants, employees,
officers, directors or stockholders of the Company and members of their
immediate families may own less than 5% of the outstanding stock in a publicly
traded company that may compete with the Company. No member of the immediate
family of any employee, officer, or director of the Company is directly or
indirectly interested in any material contract, commitment, undertaking or
transaction with the Company.
(x) Insurance. The Company has insurance policies in effect covering
---------
the risks associated with its businesses and properties which are of such
character and in such amounts as are customarily maintained by similarly
situated entities engaged in the same or similar businesses.
(y) Filing of 83(b) Elections. Each officer of the Company that has
-------------------------
received securities of the Company subject to the right of repurchase by the
Company in Section 5.1 of the Amended Securityholders' Agreement has duly and
timely filed an election pursuant to Section 83(b) of the Internal Revenue Code
with respect to such securities.
(z) Exemption from Registration. The Company represents and warrants
---------------------------
that, based in part upon the Investor's representations and warranties set forth
herein, the offer and sale of the Series D Preferred Stock to the Investors in
accordance with the terms and provisions of this Agreement is being effected in
accordance with the Securities Act and applicable state securities laws pursuant
to (i) a private placement exemption to the registration provisions of the
Securities Act pursuant to Section 4(2) of such Securities Act, and (ii) a
similar exemption to the registration provisions of applicable state securities
laws.
(aa) Year 2000 Compliance. (i) Each system comprised of software,
--------------------
hardware, databases or embedded control systems (microprocessor controlled or
controlled by any robotic or other device) (collectively, a "System") that
constitutes any material part of, or is used in connection with the use,
operation or enjoyment of, any material tangible or intangible asset or real
property of the Company (a "Material Company Operation") will not, to the best
of the Company's knowledge and belief, be materially adversely affected by the
advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the twenty-
first century ("Year 2000 Compliant"). The Company has no reason to believe
that it may incur material expenses arising from or relating to the failure of
any of its Systems with respect to a Material Company Operation as a result of
the advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the twenty-
first century. To the best of the Company's knowledge and belief, each System
of the Company relating to a Material Company Operation is able to accurately
process date data, including, but not limited to, calculating, comparing and
sequencing from, into and between the twentieth century (through year 1999), the
year 2000 and the twenty-first century, including leap year calculations.
16
<PAGE>
(i) The Company has no reason to believe that any vendor of the
Company whose products or services are material to the Company's operations will
not continue to furnish its products or services to the Company without
interruption or material delay, on and after January 1, 2000.
5. Conditions to Closing.
---------------------
(a) The obligations of the Company to consummate the transactions
contemplated by this Agreement on one or more Closing Dates is conditioned upon
satisfaction, on or prior to each Closing Date, of each of the following
conditions:
(i) The Investors and all other necessary parties to the
Amended Securityholders' Agreement shall have properly and validly executed the
Amended Securityholders' Agreement.
(ii) The Investors and all of the other parties to the Amended
Registration Rights Agreement shall have properly and validly executed the
Amended Registration Rights Agreement.
(iii) Receipt by the Company, by certified official bank check or
wire transfer, of the Purchase Price, or the appropriate portion thereof.
(iv) The Company shall have filed an amendment to the
Certificate of Designations, Preferences and Rights of each of its Series B
convertible preferred stock and Series C convertible preferred stock, in each
instance amending the voting provisions of each such Series of convertible
preferred stock to provide for the voting of such preferred securities on an as-
converted to Common Stock basis with respect to all matters that are subject to
the approval of the Company's common stockholders.
(b) The obligations of the Investors to consummate the transactions
contemplated by this Agreement on one or more Closing Dates is conditioned upon
satisfaction, on or prior to each Closing Date, of each of the following
conditions:
(i) The Company and all of the other necessary parties to the
Amended Securityholders' Agreement shall have entered into the Amended
Securityholders' Agreement and all actions required to be taken thereunder have
been taken, including but not limited to authorizing an increase in the number
of directors from seven (7) to eight (8) and appointing the Series D Designee
(as such term is defined in the Amended Securityholders' Agreement) to the
Board.
(ii) The Company and all of the other parties to the Amended
Registration Rights Agreement shall have entered into the Amended Registration
Rights Agreement.
17
<PAGE>
(iii) The Company shall have taken all necessary actions to
increase the size of its Plan to provide for the issuance of an additional One
Million Seven Hundred Fifty Nine Thousand Seven Hundred and Thirty Three
(1,759,733) shares of Common Stock thereunder.
(iv) The Company shall have amended its Certificate of
Incorporation to increase its authorized capital such that it shall have a
sufficient number of shares of authorized but unissued Common Stock, Class A
Common Stock and preferred stock, and the Company shall have delivered evidence
of same to the Investors.
(v) The Company shall have delivered to each of the Investors a
certificate or certificates representing the Series D Preferred Stock actually
purchased by each such Investor in such denominations as requested by the
Investor.
(vi) The Company shall have filed with the Secretary of State of
the State of Delaware the Series D Certificate of Designations and shall have
delivered evidence of same to the Investors.
(vii) The Company shall have reimbursed GE Capital Equity
Investments, Inc. for its actual documented costs, including attorneys' fees and
disbursements actually incurred, in connection with the negotiation, preparation
and delivery of the Transaction Documents in an amount not to exceed Forty
Thousand ($40,000) Dollars.
(viii) The Investor shall have received an opinion of Company's
counsel, Zukerman Gore & Brandeis, LLP, in the form annexed hereto as Exhibit
-------
5(viii).
- -------
(ix) The Company shall use the proceeds from the sale of the
Series D Preferred Stock in accordance with the provisions of Section 8(1)
below.
(x) The representations and warranties of the Company contained
in this Agreement or in any Exhibit or Schedule attached hereto shall be true,
complete and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date,
and the Company shall have delivered to the Investors a certificate, dated the
Closing Date, executed by the Company's Chief Executive Officer, to such effect.
(xi) No action or proceeding shall have been instituted or, to
the best knowledge, information and belief of the Company, threatened before a
court or other government body or by any public authority to restrain or
prohibit any of the transactions contemplated hereby, and the Company shall have
delivered to the Investors a certificate, dated the Closing Date, executed by
the Company's Chief Executive Officer, to such effect.
18
<PAGE>
(xii) All governmental and other consents, filings and approvals,
if any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
(xiii) The Series D Preferred Stock to be issued and sold by the
Company and to be acquired by the Investors shall be (and the Conversion Shares
issuable upon conversion of the Series D Preferred will be upon issuance by the
Company and acquisition by the Investors) duly authorized and validly issued to
the Investors, free and clear of all liens, encumbrances, restrictions and
claims of every kind. The Investors shall have each received properly completed
stock certificate(s) representing the shares of the Series D Preferred Stock
being purchased by the Investors on the Closing Date.
(xiv) The Company shall have delivered to the Investors (a)
copies of the Company's Certificate of Incorporation, including all amendments
thereto, certified by the Secretary of State of the State of Delaware, (b)
certified copies of the Series D Certificate of Designations, certified by the
Secretary of State of the State of Delaware, as having been filed on or before
the Closing Date, (c) a certificate from the Secretary of State of the State of
Delaware to the effect that the Company is in good standing or subsisting in
such State and listing all charter documents of the Company on file, (d) a
certificate from the Secretary of State or other appropriate official in each
State in which the Company is qualified to do business to the effect that the
Company is in good standing in such State, (e) a certificate as to the tax
status of the Company from the appropriate official in its jurisdiction of
incorporation and each State in which the Company is qualified to do business
and (f) a copy of the By-laws and the Certificate of Incorporation of the
Company certified by the Secretary of the Company as being true, complete and
correct and in effect on the Closing Date, after giving effect to the filing
described in Section 5(b) (iv) and 5(b)(vi) hereof, and accompanied by a copy of
the adopting resolutions authorizing the Series D Certificate of Designations
and approving the stock issuance contemplated thereby.
(xv) Prior to each of the Closing Dates, there shall be no
material adverse change in the assets or liabilities, the business (present or
anticipated), or condition, financial or otherwise, or in the results of
operations, of the Company since the Balance Sheet Date and the Company shall
have delivered to the Investors a certificate, dated the Closing Date, to such
effect.
(xvi) All of the agreements of the Company to be performed on or
before the Closing Date pursuant to the terms hereof or the terms of any Exhibit
hereto, shall have been duly performed, and the Company shall have delivered to
the Investors a certificate, dated as of the Closing Date, to such effect.
(xvii) All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Investors and
their counsel, and the Investors shall have received copies of all such
documents and other evidences as they or their counsel may
19
<PAGE>
reasonably request in order to establish the consummation of such transactions.
6. Series D Preferred Stock Legends. The Investor represents and
--------------------------------
warrants that it has read, considered and understood the legend, referred to in
Section 7.1 of the Amended Securityholders' Agreement, shall be placed on all of
the certificates representing the Series D Preferred Stock and on all Conversion
Shares issuable upon conversion of the Series D Preferred Stock.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold each Investor and each of
their respective partners, officers, directors, members, employees, counsel,
accountants, agents, successors and assigns (collectively, an "Indemnified
Party") harmless from damages, liabilities, losses, costs or expenses
(including, without limitation, reasonable counsel fees and expenses) suffered
or paid, directly or indirectly, as a result of or arising out of (i) the
failure of any respective representation or warranty made by the Company in this
Agreement or in any Schedule or Exhibit attached hereto to be true, complete and
correct in all material respects as of the date of this Agreement and as of the
Closing Date or (ii) a breach of the covenant set forth in Section 8(l) below.
Notwithstanding anything contained in this Agreement to the contrary, (i) the
indemnification provided to each Indemnified Party herein shall be limited to
the "Original Conversion Price" (as that term is defined in the Series D
Certificate of Designation) based on the Indemnified Party's cost basis in the
number of shares of Series D Preferred Stock held by such an Indemnified Party
on the date any such indemnification payments are due hereunder, less any
amounts received by such Indemnified Party as a result of either (x)
distributions on any securities of the Company held by the Indemnified Party,
and (y) any proceeds received by such Indemnified Party upon such Indemnified
Party's conversion and/or sale of any securities of the Company in excess of the
Indemnified Party's basis in any such securities converted and/or sold, and
(iii) the indemnification provided for in this Section 7 with respect to each
Indemnified Party shall expire three (3) years from the Closing Date of each
such Indemnified Party's purchase of its shares of Series D Preferred Stock
hereunder.
(b) If any action, suit, proceeding or investigation is commenced, as
to which an Indemnified Party proposes to demand indemnification, it shall
notify the Company with reasonable promptness; provided, however, that any
-------- -------
failure by an Indemnified Party to notify the Company shall not relieve the
Company from its obligations hereunder, except to the extent that the Company
shall have been materially prejudiced in its ability to defend the action, suit,
proceedings or investigation for which such indemnification is sought by reason
of such failure. Except as set forth below, an Indemnified Party shall not have
the right to retain counsel of its own choice, and the Company shall pay the
reasonable fees, reasonable expenses and reasonable disbursements of counsel
selected by the Company; and such counsel shall to the extent consistent with
its professional responsibilities cooperate with the Company and any counsel
designated by the Company.
20
<PAGE>
In the event the Company does not assume or fails to conduct in a diligent
manner the defense of any claim or litigation resulting therefrom, (a) the
Indemnified Party may defend, using its own counsel, against such claim or
litigation, in such manner as it deems appropriate, including, but not limited
to, settling such claim or litigation, after giving notice of the same to the
Company, on such terms as the Indemnified Party may deem appropriate, and (b)
the Company shall be entitled to participate in (but not control) the defense of
such action, with its counsel and at its own expense. The Company shall pay the
reasonable fees, reasonable expenses and reasonable disbursements of counsel
selected by an Indemnified Party in the circumstances described in the previous
sentence. If the Company thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of any
such settlement, the Company shall have the burden to prove by a preponderance
of the evidence that the Indemnified Party did not defend or settle such third
party claim in a reasonably prudent manner.
The Company shall be liable for any settlement of any claim against an
Indemnified Party made with the Company's written consent or made in connection
with the circumstances described in the first sentence of the previous
paragraph. The Company shall not, without prior written consent of an
Indemnified Party, which consent shall not be unreasonably withheld or delayed,
settle or compromise any claim, or permit a default or consent to the entry of
any judgment in respect thereof.
Each party agrees to cooperate fully with the other, such cooperation to
include, without limitation, attendance at depositions and the provision of
relevant documents as may be reasonably requested by the other parties, provided
that the Company will reimburse the Indemnified Party for all of its out-of-
pocket expenses incurred in connection with such cooperation by the Indemnified
Party.
(c) In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to these indemnification provisions is made
but it is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) that such indemnification may not be enforced in such
case, even though the express provisions hereof provide for indemnification in
such case, then the Company (as applicable), on the one hand, and an Indemnified
Party, on the other, shall contribute to the losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs and expenses to
which the indemnified persons may be subject in accordance with the relative
benefits received by the Company (as the case may be), on the one hand, and an
Indemnified Party, on the other hand, in connection with the statements, acts or
omissions which resulted in expenses and the relevant equitable considerations
shall also be considered. No person found liable for a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
also found liable for such fraudulent misrepresentation.
21
<PAGE>
8. Miscellaneous.
-------------
(a) Preservation of Confidential Information. Except as otherwise
----------------------------------------
required by law, the Investors shall keep confidential any and all non-public
information obtained from the Company concerning the Company's properties,
operations and business (unless readily ascertainable from public or published
information or trade sources) until the same ceases to be non-public (or becomes
so ascertainable).
(b) Amendment; Waiver. This Agreement shall not be changed, modified
-----------------
or amended in any respect except by the mutual written agreement of the parties
hereto. Any provision of this Agreement may be waived in writing by the party
which is entitled to the benefits thereof. No waiver of any provision of this
Agreement shall be deemed to or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall any such waiver constitute a
continuing waiver.
(c) Binding Effect; Assignment. This Agreement may not be
--------------------------
transferred, assigned, pledged or hypothecated by and party hereto, other than
by operation of law. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
(d) Governing Law; Venue, Jurisdiction and Litigation Costs. This
-------------------------------------------------------
Agreement and its validity, construction and performance shall be governed in
all respects by the internal laws of the State of New York without giving effect
to such State's conflicts of laws provisions. Each of the Company and each of
the Investors expressly irrevocably consent to the jurisdiction and venue of the
federal courts located in the State of New York, County of New York. The
prevailing party or parties in any such litigation shall be entitled to receive
from the losing party or parties all costs and expenses, including reasonable
counsel fees, incurred by the prevailing party or parties.
(e) Severability. Any term or provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
only, be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof affecting the validity or
enforceability of such provision in any other jurisdiction.
(f) Headings. The captions, headings and titles preceding the text of
--------
each or any Section, subsection or paragraph hereof are for convenience of
reference only and shall not effect the construction, meaning or interpretation
of this Agreement or any term or provisions hereof.
(g) Counterparts. This Agreement may be executed in one or more
------------
original or facsimile counterparts, each of which shall be deemed an original
and all of which shall be considered one and the same agreement, binding on all
of the parties hereto, notwithstanding that all parties are not signatories to
the same counterpart. Upon delivery of an executed counterpart
22
<PAGE>
by the undersigned Investors to the Company, which in turn is executed and
delivered by the Company, this Agreement shall be binding as one original
agreement between the Investor and the Company.
(h) Transfer Taxes. Each party hereto shall pay all such sales,
--------------
transfer, use, gross receipts, registration and similar taxes arising out of or
in connection with the transactions contemplated by this Agreement
(collectively, the "Transfer Taxes") as are payable by such party under
applicable law, and the Company shall pay the cost of any documentary stock
transfer stamps, if any, to be affixed to the certificates representing the
Series D Preferred Stock.
(i) Entire Agreement. The Transaction Documents merge and supersede
----------------
any and all prior agreements, understandings, discussions, assurances, promises,
representations or warranties among the parties with respect to the subject
matter thereof, and contains the entire agreement among the parties with respect
to the subject matter set forth therein.
(j) Authority; Enforceability. Each of the undersigned Investors is
-------------------------
duly authorized to enter into this Agreement and to perform its obligations
hereunder. Upon the execution and delivery of this Agreement by each of the
undersigned Investors, this Agreement shall be enforceable against each of the
undersigned Investors in accordance with its terms.
(k) Notices. Except as otherwise specified herein to the contrary,
-------
all notices, requests, demands and other communications required or desired to
be given hereunder shall only be effective if given in writing by hand, by
certified or registered mail, return receipt requested, postage prepaid, or by
U.S. express mail service, or by private overnight mail service (e.g. Federal
Express), or by facsimile transmission. Any such notice shall be deemed to have
been given (a) on the business day actually received if given by hand or
facsimile transmission, (b) on the business day immediately subsequent to
mailing, if sent by U.S. express mail service or private overnight mail service,
or (c) three (3) business days following the mailing thereof, if mailed by
certified or registered mail, postage prepaid, return receipt requested, and all
such notices shall be sent to the following addresses (or to such other address
or addresses as a party may have advised the other in the manner provided in
this Section 8(k)):
If to the Company:
Mr. Richard Glassberg
Phase2Media, Inc.
420 Lexington Avenue
New York, NY 10170
Facsimile no. (917) 368-7227
23
<PAGE>
with copies simultaneously by like means to:
Clifford A. Brandeis, Esq.
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
Facsimile no. (212) 223-6433
If to the Investors, notice shall be given to all parties set forth in
Section 7.5 of the Amended Securityholders' Agreement.
(l) Use of Proceeds. The Company covenants and agrees that it shall
----------------
use the proceeds from the sale of the Series D Preferred Stock for general
working capital purposes, including but not limited to expansion of its sales
force, and to pay the expenses in connection with the transaction contemplated
by the Transaction Documents, including but not limited to the fees set forth in
Section 5(vii) above.
(m) No Third Party Beneficiaries. This Agreement and the rights,
----------------------------
benefits, privileges, interests, duties and obligations contained or referred to
herein shall be solely for the benefit of the parties hereto and no third party
shall have any rights or benefits hereunder as a third party beneficiary or
otherwise hereunder.
(n) Publicity. Except as otherwise required by law, none of the
---------
parties hereto shall issue any press release or make any other public statement,
in each case relating to, connected with or arising out of this Agreement or the
matters contained herein. Any statement so issued or made shall require the
reasonable prior approval of the other parties hereto as to the contents and the
manner of presentation and publication thereof.
(o) Several Representations, Warranties, Covenants, Agreements and
--------------------------------------------------------------
Obligations. The representations, warranties, covenants, agreements and
- -----------
obligations of the Investor hereunder shall be several and not joint.
24
<PAGE>
(p) Waiver of Jury Trial. The parties hereto waive all right to trial
--------------------
by jury of any action, suit or proceeding brought to enforce or defend any
rights or remedies arising under or in connection with the Transaction Documents
or the transactions contemplated thereby whether grounded in tort, contract or
otherwise.
<PAGE>
IN WITNESS WHEREOF, the Company and each of the undersigned Investors has
each duly executed this Agreement as of this 19 day of January, 2000.
PHASE2MEDIA, INC.
By: /s/ Richard S. Nachmias
________________________________
Name: Richard S. Nachmias
Title: CFO
Investors:
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Steve Smith
________________________________
Name: Steve Smith
Title: Managing Director
VECTOR CAPITAL II, L.P.
By: Vector Capital Partners II, LLC, as
General Partner
/s/ Alex Slusky
___________________________________
By: Alex Slusky
Title: Managing Member
VECTOR MEMBER FUND II, LP
By: /s/ Alexander R. Slusky
________________________________
Name: Alexander R. Slusky
Title: Managing Member, Vector Capital
Partners II, L.L.C.
The General Partner of Vector
Member Fund II, L.P.
<PAGE>
HACHETTE FILIPACCHI INTERACTIONS S.A.
By: /s/ Herve Digne
___________________________
Name: Herve Digne
Title: President
/s/ Jeffrey D. Zukerman
______________________________
Jeffrey D. Zukerman
/s/ Nathaniel S. Gore
______________________________
Nathaniel S. Gore
/s/ Clifford A. Brandeis
______________________________
Clifford A. Brandeis
/s/ Andrew M. Chonoles
______________________________
Andrew M. Chonoles
/s/ Kent Baum
______________________________
Kent Baum
/s/ Herve Digne
______________________________
Herve Digne
/s/ Richard LeFurgy
______________________________
Richard LeFurgy
/s/ Steven Eskenazi
______________________________
Steven Eskenazi
/s/ Robert Petrocelli
______________________________
Robert Petrocelli
/s/ Louis LaTorre
______________________________
Louis LaTorre
<PAGE>
STV PARTNERS IX, LLC
By: /s/ Illegible
________________________________
Name: Illegible
Title: General Manager
P2M INVESTMENT PARTNERSHIP
By: /s/ Thomas C. Janson, Jr.
_______________________________
Thomas C. Janson, Jr.
General Partner
/s/ John W. Danner
_________________________________________
John W. Danner as Trustee for the John W.
Danner Separate Property Trust UDT 4/6/99
<PAGE>
IN WITNESS WHEREOF, the Company and each of the undersigned Investors has
each duly executed this Agreement as of this 8 day of February, 2000.
PHASE2MEDIA, INC.
By: /s/ Richard S. Nachmias
______________________________
Name: Richard S. Nachmias
Title: CFO
Investors:
BAYVIEW 2000 I, LP
By: Bayview 2000 GP, LLC
By: /s/ Dana Welch
______________________________
Name: Dana Welch
Title: CAO
BAYVIEW 2000 II, LP
By: Bayview 2000 GP, LLC
By: /s/ Dana Welch
______________________________
Name: Dana Welch
Title: CAO
P2M ACQUISITION LLC
By: /s/ Craig H. Solomon
______________________________
Craig H. Solomon
Authorized Signatory
/s/ Amnon M. Landan
_____________________________
Amnon M. Landan
/s/ Louis Ginsberg
_____________________________
Louis Ginsberg
/s/ Louis LaTorre
_____________________________
Louis LaTorre
29
<PAGE>
IN WITNESS WHEREOF, the Company and each of the undersigned Investors has
each duly executed this Agreement as of this 31 day of March, 2000.
PHASE2MEDIA, INC.
By: /s/ Richard S. Nachmias
________________________________
Name: Richard S. Nachmias
Title: CFO
Investors:
CRITICAL MASS VENTURES LLC
By: /s/ John T. Pierce
_______________________________
Name: John T. Pierce
Title: Chief Financial Officer
/s/ Anton Simunovic
_______________________________
Anton Simunovic
READE FAMILY 1999 TRUST
By: /s/ Stephen Reade
______________________________
Name: Stephen Reade
Title: Trustee
/s/ William Croasdale
______________________________
William Croasdale
/s/ Harvey Ganot
_______________________________
Harvey Ganot
30
<PAGE>
EXHIBIT 10.14
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") dated as of October 28,
1999, between SILICON VALLEY BANK, a California-chartered bank with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, Massachusetts 02481, doing business under the name
"Silicon Valley East" ("Bank") and CKG MEDIA.COM, INC., d/b/a Phase 2 Media,
("Borrower"), provides the terms on which Bank shall lend to Borrower and
Borrower shall repay Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
--------------------------
Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation" in this
or any Loan Document. Capitalized terms in this Agreement shall have the
meanings set forth in Section 13. This Agreement shall be construed to impart
upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Credit Extensions. Borrower shall pay Bank the unpaid principal
-----------------
amount of all Credit Extensions and interest on the unpaid principal amount of
the Credit Extensions as and when due in accordance with this Agreement.
2.1.1 Letter of Credit.
----------------
(a) Bank shall issue or have issued (by a banking institution
acceptable to Borrower) one (1) Letter of Credit for Borrower's account not
exceeding Two Million Five Hundred Thousand Dollars ($2,500,000.00) in
substantially the form of Exhibit 2.1.1(a) hereto. The Letter of Credit shall
expire no later than 180 days after the Maturity Date provided Borrower's Letter
of Credit reimbursement obligation is secured by (a) the Guaranty or (b) cash on
terms acceptable to Bank at any time after the Maturity Date if the term of this
Agreement is not extended by Bank. The Letter of Credit shall be subject to the
terms and conditions of Bank's form of standard Application and Letter of Credit
Agreement.
(b) The obligation of Borrower to immediately reimburse Bank for
any drawing made under the Letter of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letter of Credit and Letter of Credit Agreement, under
all circumstances whatsoever. Borrower shall indemnify, defend, protect, and
hold Bank harmless from any loss, cost, expense or liability, including, without
limitation, reasonable attorneys' fees, arising out of or in connection with
such Letter of Credit other than claims relating the Bank's wilful failure to
comply with its obligations under the Letter of Credit.
(c) Borrower may request that Bank issue the Letter of Credit
payable in a currency other than United States Dollars. If a demand for payment
is made under any such Letter of Credit, Bank shall treat such demand as an draw
of the equivalent of the amount thereof (plus cable charges) in United States
currency at the then prevailing rate of exchange in San Francisco, California,
for sales of that other currency for cable transfer to the country of which it
is the currency.
2.2 Fees. Borrower shall pay to Bank:
----
(a) Letter of Credit Fee. A fully earned, non-refundable letter of
credit fee of Twenty-Five Thousand Dollars ($25,000.00) due on the Closing Date;
and
(b) Bank Expenses. All Bank Expenses (including reasonable
attorneys' fees and expenses incurred through and after the Closing Date when
due.
<PAGE>
3 CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
------------------------------------------------
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement:
(b) a certificate of the Secretary of Borrower with respect to its
certificate of incorporation, bylaws, incumbency and resolutions
authorizing the execution and delivery of this Agreement;
(c) a certificate of Guarantor with respect to operating agreement,
certificate of formation, incumbency and authorization to execute and
deliver the Guaranty;
(d) an opinion of Borrower's counsel as to authority and
enforceability as to the Borrower;
(e) guaranty by the Guarantor;
(f) financing statements (Forms UCC-1);
(g) insurance certificate;
(h) payment of the fees and Bank Expenses then due specified in
Section 2.2 hereof;
(i) Certificates of Good Standing and Legal Existence for Borrower
and Guarantor;
(j) Certificates of Foreign Qualification (if applicable) for
Borrower and Guarantor; and
(k) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
4 CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest. Borrower grants Bank a continuing
--------------------------
security interest in all presently existing and later acquired Collateral to
secure all Obligations and performance of each of Borrower's duties under the
Loan Documents. Any security interest shall be a first priority security
interest in the Collateral. Bank may place a "hold" on any deposit account
pledged as Collateral. If the Agreement is terminated, Bank's lien and security
interest in the Collateral shall continue until Borrower fully satisfies its
Obligations.
5 REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization. Borrower and each Subsidiary is
----------------------------------
duly existing and in good standing in its state of formation and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be
qualified except where the failure to do so could not reasonably be expected to
cause a Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's organizational documents,
nor constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which or by
which it is bound in which the default could reasonably be expected to cause a
Material Adverse Change.
2
<PAGE>
5.2 Collateral. Borrower has good title to the Collateral, free of Liens
----------
except Permitted Liens. All Inventory is in all material respects of good and
marketable quality, free from material defects.
5.3 Litigation. Except as shown in the Schedule, there are no actions or
----------
proceedings pending or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary in which an adverse decision could reasonably be
expected to cause a Material Adverse Change.
5.4 No Material Adverse Change in Financial Statements. All consolidated
--------------------------------------------------
financial statements for Borrower and any Subsidiary delivered to Bank fairly
present in all material respects Borrower's consolidated financial condition and
Borrower's consolidated results of operations. There has not been any material
deterioration in Borrower's consolidated financial condition since the date of
the most recent financial statements submitted to Bank.
5.5 Solvency. Borrower is able to pay its debts (including trade debts)
--------
as they mature.
5.6 Regulatory Compliance. Borrower is not an "investment company" or a
---------------------
company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board
of Governors). Borrower has complied in all material respects with the Federal
Fair Labor Standards Act. Borrower has not violated any laws, ordinances or
rules, the violation of which could reasonably be expected to cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all material taxes, except those being contested in good faith with
adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted except where the failure to make
such declarations, notices or filings would not reasonably be expected to result
in a Material Adverse Change.
5.7 Subsidiaries. Borrower does not own any stock, partnership interest
------------
or other equity securities except for Permitted Investments.
5.8 Full Disclosure. No representation, warranty or other statement of
---------------
Borrower in any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading.
6 AFFIRMATIVE COVENANTS
---------------------
Borrower shall do all of the following:
6.1 Government Compliance. Borrower shall maintain its and all
---------------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a material adverse effect on Borrower's
business or operations. Borrower shall comply, and have each Subsidiary comply,
with all laws, ordinances and regulations to which it is subject, noncompliance
with which could have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates. Borrower shall deliver
to Bank: (i) as soon as available, but no later than thirty (30) days after the
last day of each month, a company prepared consolidated balance sheet and income
statement covering Borrower's consolidated operations during the period, in a
form acceptable to Bank and certified by a Responsible Officer of Borrower; (ii)
as soon as available, but no later than forty-five (45) days after the last day
of each quarter, a company prepared consolidated balance sheet and income
statement covering Guarantor's consolidated operations during the period, in a
form acceptable to Bank and certified by a Responsible Officer of Guarantor;
(iii) as soon as available, but no later than one hundred fifty (150) days after
the end of Borrower's fiscal year, audited, consolidated financial statements
prepared under GAAP, consistently applied, together with an unqualified opinion
on the financial statements from an independent certified public accounting firm
acceptable to Bank; (iv) within
3
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five (5) days of filing, copies of all statements, reports and notices made
available to Borrower's security holders or to any holders of Subordinated Debt
and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission; (v) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
($100,000.00) or more; and (vi) budgets, sales projections, operating plans or
other financial information Bank reasonably requests.
6.3 Inventory; Returns. Borrower shall keep all Inventory in good and
------------------
marketable condition, free from material defects. Returns and allowances between
Borrower and its account debtors shall follow Borrower's customary practices as
they exist at the Closing Date. Borrower must promptly notify Bank of all
returns, recoveries, disputes and claims that involve more than Fifty Thousand
Dollars ($50,000.00).
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, timely
-----
payment of all material federal, state, and local taxes or assessments unless
Borrower and/or its Subsidiary legally contests any of same, owing by Borrower
and shall deliver to Bank, on demand, appropriate certificates attesting to such
payments or contest thereof.
6.5 Insurance. Borrower shall keep its business and the Collateral insured
---------
for risks and in amounts, as Bank reasonably requests. Insurance policies shall
be in a form, with companies, and in amounts that are reasonably satisfactory to
Bank. All property policies shall have a lender's loss payable endorsement
showing Bank as an additional loss payee and all liability policies shall show
the Bank as an additional insured and all policies shall provide that the
insurer must give Bank at least twenty (20) days notice before canceling its
policy. At Bank's request, Borrower shall deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy shall,
be payable to Borrower unless an Event of Default has occurred and is
continuing, in which event, proceeds will be then payable to the Bank on account
of the Obligations. So long as no Event of Default has occurred and is
continuing, Borrower shall have the option of applying the proceeds of any
casualty policy up to Fifty Thousand ($50,000.00) toward the replacement or
repair of destroyed or damaged property; provided that (i) any such replaced or
repaired property (a) shall be of equal or like value as the replaced or
repaired Collateral and (b) shall be deemed Collateral in which Bank has been
granted a first priority security interest and (ii) after the occurrence and
during the continuation of an Event of Default all proceeds payable under such
casualty policy shall, at the option of the Bank, be payable to Bank on account
of the Obligations.
6.6 Further Assurances. Borrower shall execute any further instruments and
------------------
take further action as Bank requests to perfect or continue Bank's security
interest in the Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
------------------
Borrower shall not do any of the following without the Bank's written
consent, which shall not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
------------
(collectively a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any material part of its business or property, other than a Transfer (i) of
Inventory in the ordinary course of business; (ii) of exclusive or non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; (iii) of worn-out, damaged or
obsolete Equipment; (iv) of subleased leased space to the extent necessary; or
(v) a Transfer by Borrower to a Subsidiary or vice versa provided such
Subsidiary becomes a borrower hereunder and complies with all the
representations and warranties of Borrower hereunder.
7.2 Changes in Business, Ownership, Management or Business Locations.
----------------------------------------------------------------
Engage in or permit any of its Subsidiaries to engage in any business
substantially different from the businesses currently engaged in by Borrower.
Borrower shall not, without at least thirty (30) days prior written notice to
Bank, relocate its principal executive office or add any new offices or business
locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
-----------------------
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person (each a "Business Acquisition");
provided, however, the foregoing shall not
4
<PAGE>
prohibit (i) a merger, consolidation or other combination, provided that the
surviving entity has a net worth not less than an amount equal to Borrower's net
worth on the date hereof; or (ii) any Business Acquisition by Borrower or any of
its Subsidiaries so long as (x) no Event of Default shall have occurred and be
continuing, (y) the purchase price for such Business Acquisition (if in cash or
debt), when aggregated with all other Business Acquisitions which were acquired
by cash or by debt, does not exceed Two Hundred Fifty Thousand Dollars
($250,000.00); and (z) the assets acquired shall become Collateral hereunder.
7.4 Indebtedness. Create, incur, assume, or be liable for any
------------
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.
7.5 Encumbrance. Create, incur, or allow any Lien on any of its property,
-----------
or assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to Bank's first priority
security interest in the Collateral subject only to Permitted Liens.
7.6 Investments; Distributions. Directly or indirectly acquire or own any
--------------------------
Person, or make any Investment in any Person, other than Permitted Investments,
or permit any of its Subsidiaries to do so.
7.7 Transactions with Affiliates. Directly or indirectly enter or permit
----------------------------
any material transaction with any Affiliate, except transactions that are in the
ordinary course of Borrower's business, on terms no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-affiliated
Person.
7.8 Compliance. Undertake as one of its important activities extending
----------
credit to purchase or carry margin stock, or use the proceeds of any Advance for
that purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower's business or operations or cause a Material Adverse
Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
-----------------
Any one of the following is an Event of Default:
8.1 Payment Default. Borrower fails to pay any of the Obligations and
---------------
does not cure the same within three (3) days after their due date. During the
additional period the failure to cure the default is not an Event of Default
(but no Credit Extensions shall be made during the cure period);
8.2 Covenant Default. Borrower does not perform any obligation in Section
----------------
6 or violates any covenant in Section 7 or does not perform or observe any other
material term, condition or covenant in this Agreement, any Loan Documents, or
in any agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within ten
(10) days after it occurs, or if the default cannot be cured within ten (10)
days or cannot be cured after Borrower's attempts in the ten (10) day period,
and the default may be cured within a reasonable time, then Borrower shall have
additional time, (of not more than thirty (30) days) to attempt to cure the
default. During the additional period the failure to cure the default is not an
Event of Default (but no Credit Extensions shall be made during the cure
period);
8.3 Material Adverse Change. A Material Adverse Change occurs;
-----------------------
8.4 Attachment. (i) Any material portion of Borrower's assets is
----------
attached, seized, levied on, or comes into possession of a trustee or receiver
and the attachment, seizure or levy is not removed in thirty (30) days; (ii)
Borrower is enjoined, restrained, or prevented by court order from conducting a
material part of its business; (iii) a judgment or other claim becomes a Lien on
a material portion of Borrower's assets; or (iv) a notice of lien, levy, or
assessment is filed against any of Borrower's assets by any government agency
and not paid within ten (10) days after
5
<PAGE>
Borrower receives notice. These are not Events of Default if stayed, paid, or if
a bond is posted pending contest by Borrower (but no Credit Extensions shall be
made during the cure period);
8.5 Insolvency. (i) Borrower becomes insolvent; (ii) Borrower begins an
----------
Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against
Borrower and not dismissed or stayed within forty-five (45) days (but no Credit
Extensions shall be make before any Insolvency Proceeding is dismissed);
8.6 Other Agreements. If there is a default in any agreement to which
----------------
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness (which Indebtedness is equal to or exceeds Two Hundred Fifth
Thousand ($250,000.00)) is likely to cause a Material Adverse Change;
8.7 Judgments. If a judgment or judgments not covered by insurance
---------
(exclusive of the deductible) for the payment of money in an amount,
individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars
($250,000.00) shall be rendered against Borrower and shall remain unsatisfied
and unstayed for a period of thirty (30) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);
8.8 Misrepresentations. If Borrower or any Person acting for Borrower
------------------
makes any material misrepresentation or material misstatement now or later in
any warranty or representation in this Agreement or in any communication
delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document.
8.9 Guaranty. Any guaranty of any Obligations ceases for any reason to be
--------
in full force or any Guarantor does not perform any obligation under any
guaranty of the Obligations, or any material misrepresentation or material
misstatement exists now or later in any warranty or representation in any
guaranty of the Obligations or in any certificate delivered to Bank in
connection with the guaranty, or any circumstance described in Section (S).4,
8.5 occurs to any guarantor (except that with respect to Section 8.7, the amount
shall be modified to One Million Dollars ($1,000,000.00)).
9 BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. When an Event of Default occurs and continues
-------------------
Bank may, without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, on terms and in any order that Bank considers
advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower
shall assemble the Collateral if Bank requests and make it available as
Bank designates. Bank may enter premises where the Collateral is located,
take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or
superior to its security interest and pay all expenses incurred. Borrower
grants Bank a license to enter and occupy any of its premises, without
charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the
Credit or the account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
6
<PAGE>
(g) Dispose of the Collateral according to the Code.
Notwithstanding anything to the contrary, so long as the Guaranty is in
full force and effect and no violation of the covenants has occurred thereunder,
the existence of any Event of Default prior to the earlier of a draw under the
Letter of Credit or the expiration of the Letter of Credit, shall not result,
except where the Borrower fails to comply with the financial reporting covenants
contained in Section 6.2 hereof, in the exercising of any rights or the
enforcement of any of Bank's remedies hereunder; provided further than in the
event of any such draw, the Obligations may only be accelerated in an amount
equal to the amount of such draw plus Bank's reasonable expenses incurred in
connection with the collection of said amount.
9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its
-----------------
lawful attorney-in-fact, to be effective upon the occurrence and during the
continuance of an Event of Default, to: (i) endorse Borrower's name on any
checks or other forms of payment or security; (ii) sign Borrower's name on any
invoice or bill of lading for any Account or drafts against account debtors;
(iii) settle and adjust disputes and claims about the Accounts directly with
account debtors, for amounts and on terms Bank determines reasonable; (iv) make,
settle, and adjust all claims under Borrower's insurance policies; and (v)
transfer the Collateral into the name of Bank or a third party as the Code
permits. Borrower hereby appoints Bank its power of attorney to sign Borrower's
name on any documents necessary to perfect or continue the perfection of any
security interest regardless of whether an Event of Default has occurred until
all Obligations have been satisfied in full and Bank is under no further
obligation to make Credit Extensions hereunder. Bank's foregoing appointment as
Borrower's attorney in fact, and all of Bank's rights and powers, coupled with
an interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank's obligation to provide Credit Extensions terminates.
9.3 Accounts Collection. When an Event of Default occurs and continues,
-------------------
Bank may notify any Person owing Borrower money of Bank's security interest in
the funds and verify the amount of the Account. Borrower must collect all
payments in trust for Bank and, if requested by Bank, immediately deliver the
payments to Bank in the form received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to obtain insurance as required
-------------
under Section 6.5 or to pay any amount or furnish any required proof of payment
to third persons and the Bank, Bank may make all or part of the payment or
obtain such insurance policies required in Section 6.5, and take any action
under the policies Bank deems prudent. Any amounts paid by Bank as provided
herein are Bank Expenses and are immediately due and payable, bearing interest
at the then applicable rate and secured by the Collateral. No payments by Bank
are deemed an agreement to make similar payments in the future or Bank's waiver
of any Event of Default.
9.5 Bank's Liability for Collateral. So long as the Bank complies with
-------------------------------
reasonable banking practices regarding the safekeeping of collateral, the Bank
shall not be liable or responsible for: (a) the safekeeping of the Collateral;
(b) any loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other person. Borrower bears all risk of loss, damage or destruction of the
Collateral.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
-------------------
the Loan Documents, and all other agreements are cumulative. Bank has all rights
and remedies provided under the Code, by law, or in equity. Bank's exercise of
one right or remedy is not an election, and Bank's waiver of any Event of
Default is not a continuing waiver. Bank's delay is not a waiver, election, or
acquiescence. No waiver is effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it was given.
9.7 Demand Waiver. Except for the cure periods provided in Sections 8.1
-------------
and 8.2 hereof, Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guaranties held by Bank on which Borrower is
liable.
7
<PAGE>
10 NOTICES
-------
All notices or demands by any party to this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile at the addresses listed at the beginning of this Agreement.
Notices shall be deemed given when received or refused. Either Bank or Borrower
may change its notice address by giving the other written notice.
If to Borrower: CKG Media.com, Inc. d/b/a Phase 2 Media
420 Lexington Avenue
New York, New York 10170
Attn: Mr. Robert Chmiel
FAX: (917) 368-7207
with a copy to: Zukerman, Gore & Brandeis, LLP
Attorneys at Law
900 Third Avenue
New York, New York 10022
Attn: Andrew M. Chonoles, Esq.
FAX: (212) 223-6433
If to Bank: Silicon Valley Bank
40 William Street
Wellesley, Massachusetts 02481
Attn: Douglas W. Marshall, Vice President
FAX: (781) 431-9906
with a copy to: Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
FAX: (617) 880-3456
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
------------------------------------------
Massachusetts law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Suffolk County, Massachusetts; provided,
however, that if for any reason Bank cannot avail itself of such courts in the
Commonwealth of Massachusetts, Borrower accepts jurisdictions of the courts and
venue in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement binds and is for the benefit
----------------------
of the successors and permitted assigns of each party. Borrower may not assign
this Agreement or any rights or Obligations under it without Bank's prior
written consent which may be granted or withheld in Bank's discretion unless
such assignment is pursuant to a merger or consolidation permitted under Section
7.3 hereof. Bank has the right, without the consent of or prior notice to
Borrower, but with reasonable subsequent notice to Borrower, to sell, transfer,
negotiate, or grant participation in all
8
<PAGE>
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement, the Loan Documents or any related agreement.
12.2 Indemnification. Borrower hereby indemnifies, defends and holds the
---------------
Bank and its officers, employees and agents harmless against: (a) all
obligations, demands, claims, and liabilities asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and (b) all
losses or Bank Expenses incurred, or paid by Bank from or following transactions
between Bank and Borrower (including reasonable attorneys' fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
---------------
Obligations in this Agreement.
12.4 Severability of Provision. Each provision of this Agreement is
-------------------------
severable from every other provision in determining the enforceability of any
provision.
12.5 Amendments in Writing, Integration. All amendments to this Agreement
----------------------------------
must be in writing signed by both Bank and Borrower. This Agreement and the Loan
Documents represent the entire agreement about this subject matter, and
supersedes prior or contemporaneous negotiations or agreements. All prior or
contemporaneous agreements, understandings, representations, warranties, and
negotiations between the parties about the subject matter of this Agreement and
the Loan Documents merge into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, are an original, and all taken together, are one
Agreement.
12.7 Survival. All covenants, representations and warranties made in this
--------
Agreement continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank shall survive until
all statutes of limitations for actions that may be brought against Bank have
run.
12.8 Confidentiality. In handling any confidential information, Bank shall
---------------
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Bank's
subsidiaries or affiliates in connection with their present or prospective
business relations with Borrower; (ii) to prospective transferees or purchasers
of any interest in the Loans; (iii) as required by law, regulation, subpoena, or
other order, (iv) as required in connection with Bank's examination or audit;
and (v) as Bank considers appropriate in exercising remedies under this
Agreement. Confidential information does not include information that either:
(a) is in the public domain or in Bank's possession when disclosed to Bank, or
becomes part of the public domain after disclosure to Bank; or (b) is disclosed
to Bank by a third party, if Bank does not know that the third party is
prohibited from disclosing the information.
12.9 Attorneys' Fees, Costs and Expenses. In any action or proceeding
-----------------------------------
between Borrower and Bank arising out of the Loan Documents, the prevailing
party shall be entitled to recover its reasonable attorneys' fees and other
costs and expenses incurred, in addition to any other relief to which it may be
entitled, whether or not a lawsuit is filed.
13 DEFINITIONS
-----------
13.1 Definitions.
-----------
"Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
9
<PAGE>
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all expenses and reasonable costs or expenses
(including reasonable attorneys' fees and expenses) for preparing, negotiating,
administering, defending and enforcing the Loan Documents (including appeals or
Insolvency Proceedings) and audit fees incurred after the occurrence of an Event
of Default.
"Borrower's Books" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"Business Acquisition" is defined in Section 7.3.
"Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"Closing Date" is the date of this Agreement.
"Code" is the Massachusetts Uniform Commercial Code.
"Collateral" is the property described on Exhibit A.
---------
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Credit Extension" is the Letter of Credit or any other extension of credit
by Bank for Borrower's benefit.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"Guarantor" is any present or future guarantor of the Obligations,
including Vector Capital II, L.P.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" is any proceeding by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
10
<PAGE>
"Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, or Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"Letter of Credit" means a letter of credit or similar undertaking issued
by Bank pursuant to Section 2.1.1.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"Material Adverse Change" is: a material impairment in the perfection or
priority of Bank's security interest in a material portion of the Collateral or
in the value of such Collateral other than normal depreciation which is not
covered by adequate insurance occurs.
"Maturity Date" is one day prior to the one-year anniversary of the Closing
Date.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit, if any,
and including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Bank.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or the Loan
Documents;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and
(e) Indebtedness secured by Permitted Liens;
(f) Indebtedness to Vector Capital II, L.P. relating to the
Guaranty;
(g) Indebtedness to any Affiliate;
(h) rental obligations for leases and subleases of real property;
(i) Contingent Obligations arising out of endorsements of checks and
other negotiable instruments for deposit or collection in the ordinary
course of business;
(j) Indebtedness incurred in connection with a permitted Business
Acquisition;
(k) Indebtedness not otherwise included in paragraphs (a)-(j) which
does not at any time exceed the sum of Two Hundred Fifty Thousand Dollars
($250,000.00).
11
<PAGE>
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
(b) (i) deposit accounts maintained by Borrower; (ii) investments
(including debt and equity) received in connection with the bankruptcy or
reorganization of suppliers and customers in settlement of delinquent
obligations;
(c) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) certificates of
deposit issued by a nationally recognized bank maturing no more than 1 year
after issue;
(d) Business Acquisitions permitted hereunder and other acquisitions of
another entity's capital stock or assets to the extent not otherwise expressly
prohibited herein; and
(e) advances and loans to employees and officers in the ordinary course
of business.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's secured interests or if additional Collateral acceptable to Bank
has been granted to Bank;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
--
property and improvements and the proceeds of the equipment, including insurance
proceeds on a casualty thereof;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business (wherein Borrower is the lessor,
sublessor or licensor, as the case may be), if the leases, subleases, licenses
--
and sublicenses do not prohibit Borrower from granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not violate the
Permitted Indebtedness covenant;
(f) pledges or deposits in connection with the Worker's Compensation,
unemployment insurance and other Social Security legislation;
(g) easements, rights of ways, restrictions and covenants, provided some
do not materially impair value or use of asset;
(h) Liens in connection with judgment, subject to the cap otherwise
provided herein;
(i) landlord's lien's; and
12
<PAGE>
(j) mechanics and materialsmen liens, provided same are legally
contested and Borrower sets aside adequate reserves.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"Responsible Officer" is each of the Chairman, Chief Executive Officer,
President, Chief Financial Officer and Controller.
"Schedule" is any attached schedule of exceptions.
"Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (pursuant to a subordination agreement entered into between the
Bank, the Borrower and the subordinated creditor).
"Subsidiary" is for any Person, joint venture, or any other business entity
of which more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a scaled instrument under the laws of the Commonwealth of
Massachusetts as of the date first above written.
BORROWER:
- --------
CKG MEDIA.COM, INC.
d/b/a PHASE 2 MEDIA
By /s/ Robert E. [illegible]
----------------------------
Name: Robert E. [illegible]
-------------------------
Title: President & CEO
------------------------
BANK:
- ----
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By /s/ Douglas W. Marshall
----------------------------
Name: Douglas W. Marshall
-------------------------
Title: Vice President
------------------------
13
<PAGE>
SILICON VALLEY BANK
By /s/ Heidi Fetty
------------------------------
Name: Heidi Fetty
----------------------------
Title: Assistant Vice President
---------------------------
(Signed in Santa Clara County, California)
14
<PAGE>
EXHIBIT A
The Collateral consists of all right, title and interest of Borrower in and
to the following:
All goods, equipment, inventory, contract rights (to the extent a security
interest may be obtained), general intangibles, accounts, documents,
instruments, chattel paper, cash, deposit accounts, fixtures, letters of credit,
investment property, and financial assets, whether now owned or hereafter
acquired, wherever located; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
The Collateral does not include:
Any copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or
unpublished, now owned or later acquired; any patents, trademarks, service marks
and applications therefor; any trade secret rights, including any rights to
unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; or any
claims for damages by way of any past, present and future infringement of any of
the foregoing.
15
<PAGE>
Schedule of Permitted Liens
Lien relating to lease of copier from Canon Financial Services, Inc.
Lien taken by Vector Capital II, L.P. as Collateral Agent
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated March 31,
2000, except for Note 11, as to which the date is May 10, 2000, in the
Registration Statement (Form S-1) and related Prospectus of Phase2Media, Inc.
for the registration of shares of its common stock.
/s/ Ernst & Young LLP
New York, New York
May 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 MAR-31-2000
<PERIOD-START> MAR-30-1999 JAN-01-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 4,903,000 12,966,000
<SECURITIES> 0 4,727,000
<RECEIVABLES> 8,094,000 15,325,000
<ALLOWANCES> 190,000 553,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,870,000 32,915,000
<PP&E> 801,000 1,734,000
<DEPRECIATION> 79,000 161,000
<TOTAL-ASSETS> 13,688,000 35,324,000
<CURRENT-LIABILITIES> 8,447,000 14,449,000
<BONDS> 0 0
1,731,000 2,090,000
12,472,000 29,847,000
<COMMON> 16,000 5,000
<OTHER-SE> (9,077,000) (10,140,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,668,000 35,324,000
<SALES> 4,452,000 5,253,000
<TOTAL-REVENUES> 4,452,000 5,253,000
<CGS> 2,108,000 1,909,000
<TOTAL-COSTS> 2,108,000 1,909,000
<OTHER-EXPENSES> 868,000 949,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 22,000 0
<INCOME-PRETAX> (5,834,000) (3,317,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,834,000) (3,317,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,834,000) (3,317,000)
<EPS-BASIC> (0.58) (0.54)
<EPS-DILUTED> (0.58) (0.54)
</TABLE>
