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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB
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GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g) OF THE
SECURITIES ACT OF 1934
OZ.COM
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C>
CALIFORNIA 95-4560875
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
SNORRABROUT 54, REYKJAVIK, ICELAND IS-105
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
011 (354) 535-0000
(ISSUER'S TELEPHONE NUMBER)
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
(TITLE OF CLASS)
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NOTE ON FORWARD-LOOKING STATEMENTS
This Registration Statement on Form 10-SB ("Registration Statement")
contains various forward-looking statements with respect to our financial
condition, results of operations and business. The words "believe," "expect,"
"anticipate," "intend," "may," "will," "should," "could," "potential,"
"continue," "estimate," "predict," and "plan" and similar expressions or the
negative of such expressions, identify forward-looking statements. These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties and a number of factors could cause actual results to differ
materially from those projected or implied in such forward-looking statements.
These factors include, but are not limited to, the risk factors disclosed in
this Registration Statement.
Further, certain forward-looking statements are based upon assumptions of
future events which may not prove to be accurate. Due to such uncertainties and
risks, you should not place undue reliance on such forward-looking statements
which speak only as of the date of this Registration Statement. We do not
undertake to publicly update, review or revise any forward-looking statements to
reflect any change in our expectations with regard thereto or to reflect events
or circumstances occurring after the date hereof.
We use market data and industry forecasts and projections throughout this
Registration Statement that were obtained from internal surveys, market
research, publicly available information and industry publications. Industry
publications generally state that the information they provide has been obtained
from sources believed to be reliable, but that the accuracy and completeness of
such information is not guaranteed. The forecasts and projections are based on
industry surveys and the preparers' experience in the industry, and there is no
assurance that any of the projected amounts will be achieved. Similarly, we
believe that the surveys and market research it or others have performed are
reliable, but we have not independently verified this information. We do not
represent that any such information is accurate.
EXPLANATORY NOTE
Our Board of Directors and shareholders have recently approved amendments
to our Amended and Restated Articles of Incorporation ("Articles") which would,
among other things, increase the authorized number of shares of our Common Stock
from 75,000,000 to 275,000,000 and effect a 2-for-1 stock split of our
outstanding shares of Common Stock. The amendments are expected to take effect
on or about May 26, 2000. The share and per share information set forth in this
Registration Statement reflects this 2-for-1 stock split.
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PART I
ITEM 1. BUSINESS
RISK FACTORS
See also "Note on Forward-Looking Statements" regarding the uncertainties
and risks inherent in our forward-looking statements presented under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" and elsewhere herein.
RISK FACTORS RELATING TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY; HISTORY OF NET LOSSES AND NO ASSURANCE OF
FUTURE PROFITABILITY
We were incorporated in California in 1995. Although communications and the
Internet were central to our operations since our incorporation, we did not
begin developing our core products until 1996. In February 2000, we announced
the commercial availability of mPresence(TM). The first commercial sale of
iPulse(TM) was made by Ericsson Telecom AB and/or its affiliates ("Ericsson") in
November 1999. Accordingly, we have only a limited operating history upon which
you can base an evaluation of our business. We have incurred significant net
losses since inception, including losses of $4,852,943, $1,811,387, $2,242,815
and $1,294,260, for the fiscal years 1997, 1998 and 1999, and the three months
ended March 31, 2000, respectively and have received no revenue from our core
products to date. We intend to increase expenditures in order to fund the
continued expansion of our operations in North America and Europe and to
initiate operations in Asia through an increased sales and marketing force and a
higher number of technically skilled professional staff. To the extent such
expenditures are incurred and revenues do not correspondingly increase, our
operating results would be materially and adversely affected. In addition,
future operating results will depend on many other factors, including the growth
of the market for wireless Internet-based services, competition, and our success
in expanding our direct sales and marketing organizations and in attracting and
retaining additional skilled professional staff, as well as general economic
conditions and other factors. Accordingly, we cannot be sure that we will be
profitable in future periods. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Overview."
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL NEEDED CAPITAL.
We have experienced negative cash flow from operations since our inception
and we expect to continue to experience significant negative cash flow from
operations for the foreseeable future. We believe that our existing capital
resources will be sufficient to meet our presently anticipated cash requirements
for the next two years. In addition, we expect that it will be necessary to
obtain additional capital to meet adequately management's growth objectives and
to implement fully our business plan. We may seek additional debt or equity
financing through public or private placements of our securities or through
banks, financial institutions or companies. We cannot be sure that any such
financing will be obtained or, if obtained, will be adequate to meet our needs.
If we are not able to obtain additional financing on satisfactory terms when
needed, our business, operating results and financial condition may be
materially and adversely affected.
WE HAVE A CONCENTRATION OF REVENUES FROM A SINGLE CUSTOMER AND MAY BE DEPENDENT
ON A LIMITED NUMBER OF CUSTOMERS
We derive a significant portion of our revenues from a single customer.
During 1999, Ericsson accounted for approximately 88% of our total revenues. In
addition, we believe that a major part of our revenues in the foreseeable future
will be derived from a limited number of customers. The termination of business
relations with Ericsson or any future agreement with a significant customer
could have a material adverse effect on our business, operating results and
financial condition. Furthermore, a decision by any large customer not to
proceed with a project to the stage we anticipate could have a material adverse
effect on our business, operating results and financial condition.
WE RELY ON A STRATEGIC RELATIONSHIP
We have established a strategic relationship with a business partner,
Ericsson, that we believe is important to the development of our business and
may establish more strategic business relationships with
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other business partners in the future. We signed a General Co-Operation and
Development Agreement with Ericsson in February 1999. Between June and October
1999 Ericsson acquired 10,052,431 shares of our Series A Preferred stock, which
upon conversion would equal approximately a 20% ownership interest (assuming
conversion by all holders of Series A Preferred stock). At the same time, we
entered into an agreement with Ericsson to jointly develop the iPulse(TM)
product based on our server technology. The iPulse(TM) application is a part of
Ericsson's product offering to telecommunications operators. The iPulse(TM)
product and the iPulse(TM) trademark are wholly owned by Ericsson. We receive a
net amount of 11.81% royalties of gross worldwide iPulse(TM) sales as a result
of the Specific Co-Operation and Development Agreement entered into with
Ericsson in February 1999 and, pursuant to a value-added reseller agreement
entered into with Ericsson on February 25, 2000, we may offer iPulse(TM) to our
customers as an integral part of the mPresence(TM) solution and other
value-added services in exchange for royalties payable to Ericsson. Pursuant to
the General Co-Operation and Development Agreement we can also directly offer an
OZ.COM branded version of iPulse(TM) if we so choose. The General Co-Operation
and Development Agreement and the Specific Co-Operation and Development
Agreement terminate on December 31, 2001, but will be automatically renewed on a
yearly basis unless terminated by written notice of either party. The value
added reseller agreement terminates in February 2002 but will be automatically
renewed on a yearly basis unless terminated by written notice of either party.
We believe that our strategic relationship with Ericsson represents an
advantage to our business and has been a significant factor in our success to
date. The failure to maintain our existing strategic relationship or the
inability to develop new relationships, particularly in the new markets we are
seeking to enter, could have a material adverse effect on our business,
operating results and financial condition.
Although regarded by us as an advantage, the current ties with Ericsson
may, at the same time, deter certain potential customers or categories of
customers, in particular current and future competitors of Ericsson, from
entering into or extending business relations with us. Under the terms of the
General Co-operation and Development Agreement, as long as Ericsson owns shares
representing 5% or more of our capital stock we must inform Ericsson of any
proposal to license or sell any of the technology covered in the agreement or to
enter into any transaction with any principal competitor of Ericsson. Ericsson
may opt to enter into the proposed transaction on the same terms and conditions.
OUR REVENUES AND OPERATING RESULTS ARE EXPECTED TO VARY FROM QUARTER TO QUARTER
Our revenues and operating results are expected to vary, sometimes
substantially, from quarter to quarter. These fluctuations may result in
volatility in the price at which shares of our stock may trade. Quarterly
revenues and operating results may fluctuate as a result of a variety of
factors, including:
- the timing of large transactions;
- our estimated initial sales cycle of three to six months;
- the proportion of revenues attributable to revenue-sharing or fixed per
end-user fees versus revenues from software sales;
- changes in the level of operating expenses;
- the utilization rate of our professional services employees;
- demand for our products and services;
- the introduction of new products and product enhancements by us or our
competitors;
- changes in customer budgets;
- competitive conditions in the industry; and
- general economic conditions.
Further, the purchase of our products and services often involves a
significant commitment of capital by our customers with the attendant delays
frequently associated with large capital expenditures and authoriza-
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tion procedures within an organization. Accordingly, we expect that the sales
cycles for our products and services will be lengthy, with an estimated initial
sales cycle of three to six months, and subject to a number of significant risks
over which we have little or no control, including customers' budgetary
constraints and internal authorization reviews.
In addition, our quarterly operating results are also subject to certain
seasonal fluctuations. Like many information technology companies with large
average customer arrangements, our revenues and operating results are typically
lower in the first fiscal quarter than the remainder of the year. In addition,
our third fiscal quarter includes the months of July and August, when billable
service activity by professional staff, as well as engagement decisions by
customers, are reduced due to summer vacation schedules.
WE MAY NOT BE ABLE TO MANAGE GROWTH
We are currently experiencing a period of rapid growth that is expected to
continue to place a strain on our administrative, financial and operational
resources. We intend to continue to expand on a selected basis in North America
and Europe, to initiate operations in Asia and to continue to increase the
number of our professional staff significantly in the fiscal years 2000 to 2002.
Such expansion, if achieved, would place a further strain on our resources and
increase operating costs. Our ability to manage our growth effectively will
require us to continue to improve our operations, financial and management
controls, reporting systems and procedures, and to train, motivate and manage
our employees and consultants and, as required, to install new management
information and control systems. We cannot be certain that we will be able to
implement improvements to our management information and control systems in an
efficient and timely manner or that, if implemented, these improvements will be
adequate or sufficient to support our operations. Any inability to manage
successfully future expansion could have a material adverse effect on our
business, operating results or financial condition. We cannot be certain that
our contemplated growth rate will be achieved, or if achieved, be maintained or
that we will be successful in managing our growth.
OUR FUTURE GROWTH DEPENDS, IN PART, ON ACQUISITIONS
We believe that our future growth depends, in part, on continuing to
identify and acquire complementary information technology service businesses. We
cannot be certain that we will be successful in identifying, acquiring and
profitably managing complementary information technology service businesses
without substantial delays, expenses or other operational or financial problems.
Expansion will require the commitment of significant capital, managerial and
other resources. Acquisitions may also expose us to particular risks, including
diversion of management's attention, failure to retain key acquired personnel,
assumption of legal liabilities, and amortization of goodwill and other acquired
intangible assets, some or all of which could have a material adverse effect on
our business, operating results and financial condition. Moreover, customer
dissatisfaction with, or problems caused by, the performance of any such
acquired business could have a material adverse impact on our reputation as a
whole. In addition, we cannot be certain that the acquired businesses, if any,
will achieve anticipated revenues and earnings. Depending on the value and
nature of the consideration to be paid by us for future acquisitions, such
acquisitions may have a dilutive effect on our earnings per share or an adverse
effect on our financial condition. Failure to implement our acquisition strategy
successfully could have a material adverse effect on our business, operating
results and financial condition.
WE MAY NOT SUCCESSFULLY INTEGRATE ACQUIRED COMPANIES AND MAY INCUR INCREASED
COSTS AND OPERATING INEFFICIENCIES
Given our acquisition strategy, management may be challenged to manage the
integration of acquired employees to eliminate redundancy and achieve operating
efficiencies. Workforce reductions must be made in compliance with all
applicable laws and resulting severance and retraining costs can be significant.
Frequently, the acquired company's management information systems, accounting
systems and operational systems are different from those of the acquiring
company, and the efficient integration of such systems may impose severe strains
on our own accounting, operational and control systems. Also, the acquisition of
a new company often requires that operations be consolidated, excess office
space subleased or existing leases renegotiated. We
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cannot be certain that the failure to integrate effectively the operations of an
acquired business in the future will not adversely affect our business,
operating results or financial condition.
POSSIBLE FUTURE ACQUISITIONS COULD CREATE CHARGES TO EARNINGS THAT COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
Any future acquisitions could result in amortization expense related to
goodwill and other intangible assets. If this should occur, our results of
operations would be adversely affected.
WE ARE EXPOSED TO THE RISKS ASSOCIATED WITH MULTINATIONAL OPERATIONS
We intend to expand our business in North America and Europe and to
initiate operations in Asia. The expansion of our business to different
geographical areas is subject to risks inherent in traditional multinational
business activities, including, in particular, foreign currency exchange rate
fluctuations, overlap of different tax structures, management of an organization
spread over various countries, different regulatory regimens and unexpected
changes in regulatory requirements, compliance with a variety of foreign laws
and regulations, including employment law and practices, and longer accounts
receivables payment cycles in certain countries. Any of the foregoing as well as
other risks inherent in traditional multinational business activities could have
a material adverse effect on our business, operating results and financial
condition.
OUR SUCCESS DEPENDS IN PART ON OUR ABILITY TO ATTRACT AND RETAIN TECHNICALLY
SKILLED PROFESSIONAL STAFF WHO ARE IN GREAT DEMAND
Our business involves the development of highly technical products and
services and relies on the ability to respond to rapid technological changes.
Accordingly, our success and future growth depend in part upon our ability to
attract, develop, motivate, integrate and retain highly skilled professional
staff, such as engineers, technical support persons, and sales and human
resources staff. We intend to expand significantly our sales and marketing force
and the number of our technically skilled professional staff to support our
expansion. Although we believe that these expenditures will benefit our business
in the long term, we expect that such expenditures could materially and
adversely affect our operating results in the short term.
Technically qualified professional staff are in great demand in Europe and
North America and are likely to remain a limited resource for the foreseeable
future. Competition for qualified personnel in the wireless software industry is
particularly fierce and competitors may in the future seek to recruit our
employees. We cannot be certain that we will be able to attract and retain
sufficient numbers of highly skilled professional staff in the future. The
inability to expand our organization and increase the size of our professional
staff at reasonable costs on a timely basis or the loss of highly skilled
professional staff could have a material adverse effect on our business,
operating results and financial condition.
OUR SUCCESS DEPENDS ON OUR KEY EXECUTIVES
Our success is highly dependent upon the efforts and abilities of our
executive officers, in particular: Messrs. Skuli Mogensen, co-founder and Chief
Executive Officer; Guojon Mar Guojonsson, co-founder and Chief Visionary; Skuli
Valberg Olafsson, Chief Operating Officer; and Robert Quinn, Chief Financial
Officer. Although these executives have entered into employment agreements,
these contracts may not be enforceable in their entirety, and in any event do
not guarantee that these individuals will continue their employment with us. We
do not maintain "key man" insurance with respect to any of our executive
officers. The loss of the services of any of these key executives, for any
reason, could have a material adverse effect upon our business, operating
results and financial condition.
WE MAY BE ADVERSELY AFFECTED BY POTENTIAL SOFTWARE DEFECTS OR ERRORS
Our software is complex and must meet the stringent technical requirements
of our customers. We must develop our products quickly to keep pace with the
rapidly changing industry in which we operate. Software products that are as
complex as those that we produce generally contain undetected errors or defects,
particularly when first introduced or when new versions are released. In
addition, our software may not
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properly operate when integrated with the systems of our customers, or when used
to deliver services to a large number of a customer's subscribers.
While we continually test our products for errors and work with our
customers through our customer support services to identify and correct bugs,
errors in our products may be found in the future. Testing for errors is
complicated in part because it is difficult to simulate or anticipate the
computing environments in which our customers use our products. Our software may
not be free from errors or defects even after it has been tested, which could
result in the rejection of our products and damage to our reputation, as well as
lost revenue, diverted development resources, and increased support costs.
WE MAY INCUR RISK OF PRODUCT LIABILITY CLAIMS
We may be subject to claims for damages related to any errors in our
software products. A major product liability claim could have a material adverse
effect on our business because of the costs of defending against these types of
lawsuits, diversion of key employees' time and attention from the business and
potential damage to our reputation. In the past, we have negotiated provisions
in our license agreements with our customers that were designed to limit
exposure to certain potential product liability claims. However, there is no
assurance that similar provisions will be included in any future agreements.
Furthermore, limitation of liability provisions contained in our license
agreements may not be effective under the laws of some jurisdictions if local
laws treat them as unenforceable. As a result, we could be required to pay
substantial amounts of damages in settlement or otherwise upon resolution of any
of these types of claims.
ENCRYPTION TECHNOLOGY RESTRICTIONS
The United States government generally limits the export of encryption
technology that originates from the United States, and a variety of
cryptographic products generally require export approvals from certain United
States government agencies. Currently, our products and solutions do not
incorporate encryption technology that is subject to United States export
restrictions nor do we require export approvals from United States agencies. We
may in the future, however, incorporate technology requiring export approval
into our products and solutions. If any export approval that is required is
refused, if our software is unlawfully exported or if the United States adopts
new legislation or regulations restricting exports of software and encryption
technology, we may not be able to distribute our solutions to potential
customers, which will cause a decline in our sales. We may need to incur
significant costs and divert resources to develop replacement technologies or
may need to adopt inferior substitute technologies to satisfy these export
restrictions. These replacement or substitute technologies may not be the
preferred security technologies of customers. This could lead to a lack of
growth for our business. In addition, we may suffer similar consequences if the
laws of any other country limit the ability of third parties to sell encryption
technologies to us.
WE MAY NOT BE ABLE TO OBTAIN THIRD-PARTY SOFTWARE, TECHNOLOGY AND CONTENT
We license or otherwise obtain access to the intellectual property of third
parties. We have also entered into two license agreements with third-party
content providers and intend to enter into more such agreements. In addition, we
use and will use in the future, certain third-party software that may not be
available to us in the future on commercially reasonable terms or at all. The
loss of, or inability to maintain or obtain, any required intellectual property
could require us to use substitute technology, which could be more expensive or
of lower quality or performance, or force us to cease offering our products.
Moreover, we expect that some of our license agreements in the future may be
non-exclusive and, therefore, competitors may have access to the same
technology.
OUR SUCCESS DEPENDS ON INTELLECTUAL PROPERTY RIGHTS
Our success depends upon the use of certain patents, trademarks and other
proprietary intellectual property rights. Although we have applied for trademark
registration of certain of our marks and for patents on certain of our
technologies, no trademark registrations or patents have yet been issued.
Further, we cannot be certain that any such trademark registrations or patents
will be issued or if issued will not be challenged or invalidated. We rely upon
a combination of nondisclosure and other contractual arrangements together with
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trade secret, copyright and trademark laws to protect our proprietary rights and
the propriety rights of third parties from whom we license intellectual
property. We enter into confidentiality agreements with our employees and limit
distribution of proprietary information. We cannot be certain that the steps
taken by us in this regard will be adequate to deter misappropriation of
proprietary information or that we will be able to detect unauthorized use and
take appropriate steps to enforce our intellectual property rights or that our
competitors will not independently develop superior technologies. In addition,
the laws of certain countries do not protect our proprietary rights to the same
extent as do the laws of the United States or the Scandinavian countries.
Although we believe that our services do not infringe on the intellectual
property rights of others and that we will have all rights necessary to utilize
the intellectual property employed in our business, we are subject to the risk
of litigation alleging infringement of third-party intellectual property rights.
Any such claim could require us to spend significant sums in litigation, pay
damages, develop non-infringing intellectual property or acquire licenses to the
intellectual property that is the subject of asserted infringement.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET AND MAY NOT COMPETE SUCCESSFULLY
The wireless Internet software and application service market includes a
large number of participants, is subject to rapid changes and is highly
competitive. Although no competitor offers exactly the same type of wireless
Internet solution as we do, our competitors currently offer or have the
potential to offer either a total end-user solution to operators and service
providers or to compete with various components of our mPresence(TM) solution.
Our major competitors are, among others, Phone.com and America Online ("AOL").
Many of our competitors have substantially greater financial, technical and
marketing resources than we have. Several of these competitors also have greater
name recognition and more established relationships with the same companies that
we are targeting. Our competitors may be able to respond more quickly than we
can to new or emerging technologies and changes in customers' requirements or
devote greater resources than we can to the development, promotion and sale of
new service offerings. We cannot be certain that we will be able to compete
successfully with these competitors or that competition may not have a material
adverse effect on our business, operating results and financial condition.
We also expect to face additional competition as other established and
emerging companies enter the wireless Internet software and application service
markets and new service offerings and technologies are introduced. Our current
and potential competitors include:
- infrastructure service providers, such as Phone.com and i3mobile;
- telecommunications operators, such as Sonera Zed and Vodafone;
- wireless service providers, such as InfoSpace.com, Wireless Knowledge and
@mobile;
- wireless equipment manufacturers, such as Nokia;
- instant messaging providers, such as AOL and Microsoft MSN;
- Internet portals, such as Yahoo! and Excite@Home;
- systems integrators, such as CMGI; and
- software providers, such as Oracle Corporation.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their service offerings to address the needs
of our current and prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Increased competition could result in
lower utilization rates, billing rate reductions, fewer customer engagements,
reduced gross margins and loss of market share, any one of which could
materially and adversely affect our business, operating results and financial
condition. We cannot be certain that we will be able to compete successfully
with existing or new competitors and competition could have a material adverse
effect on our business, operating results and financial condition.
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WE MAY NOT RESPOND TO RAPID TECHNOLOGICAL CHANGE
The wireless Internet software and application service market is rapidly
evolving and is characterized by an increasing number of market entrants that
have introduced or developed, or are in the process of introducing or
developing, products and services that facilitate the delivery of Internet-based
services through wireless devices. As a result, the life cycle of our products
is difficult to estimate. We may not be able to develop and introduce new
products, services and enhancements that respond to technological changes or
evolving industry standards on a timely basis, which could have a material
adverse effect on our business operating results and financial condition.
OUR SUCCESS DEPENDS ON CONTINUED GROWTH OF INTERNET USE
Our future success depends to a large extent on the continued growth in the
use of the Internet. We believe that a significant portion of our future
revenues will derive from sales of the mPresence(TM) solution, the iPulse(TM)
platform and related services to Internet communities. Our business may be
adversely affected if the number of Internet users does not increase or if
business over the Internet, particularly Internet-based business transactions
and applications involving business conducted through a mobile communications
device ("m-business") including Internet-based commerce conducted through a
mobile communications device ("m-commerce"), does not become more accepted and
widespread. In particular, we will be adversely affected if the number of
Internet communities or the number of members of existing Internet communities
does not increase. Rapid growth in the use of and interest in the Internet has
occurred only recently. As a result, acceptance and use of the Internet may not
continue to develop at historical rates and a sufficiently broad base of
consumers may not adopt, and continue to use, the Internet and other online
sources. The use and acceptance of the Internet, and Internet communities in
particular, may not increase for a number of reasons, including the cost and
availability of Internet access.
OUR SUCCESS DEPENDS ON THE SUCCESS OF WIRELESS NETWORK OPERATORS AND INTERNET
BUSINESSES
We believe that a major part of our future revenues will derive from sales
of the mPresence(TM) solution, the iPulse(TM) service platform and related
services to existing and new wireless network operators and Internet businesses.
Therefore, our future success depends on the acceptance by wireless network
operators and Internet businesses of these new products and services which we
may not be able to achieve. This dependence is compounded by the relatively
small number of wireless network operators and Internet businesses worldwide. To
date, we currently have only one wireless network operator customer that has
agreed to implement the mPresence(TM) solution. We cannot be certain that
wireless network operators or Internet businesses will widely use our products.
In addition, wireless network operators have historically been relatively slow
in implementing new complex services such as Internet-based services, and
Internet businesses may be slow in implementing the use of wireless services as
a means of expanding Internet-based services. We have limited or no control over
the pace at which wireless network operators or Internet businesses implement
these new services. The failure of wireless network operators and Internet
businesses to introduce and support services utilizing our products on a timely
and effective manner could have a material adverse effect on our business,
operating results and financial condition.
In addition, once implemented by wireless network operators and Internet
businesses, the success of our products will depend in significant part on our
continuing ability to develop and introduce new and improved versions of
existing products and service offerings. There can be no assurance that we will
be successful in developing, introducing on a timely basis and marketing such
products and service offerings. In addition, there can be no assurance that
wireless network operators and Internet businesses will not cease to buy our
products and to subscribe to our services, on account of technologies or service
offerings developed by others or the wireless network operators or Internet
businesses themselves that render our products and services uncompetitive or
obsolete. The failure of wireless network operators or Internet businesses to
continue to purchase our products and subscribe to our services could have a
material adverse effect on our business, operating results and financial
condition.
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Our pricing model for mPresence(TM) will in many cases be based on a
revenue sharing model in which we take a certain percentage of revenues
resulting from each end-user who uses the services or is exposed to
advertisements. Our future revenues are therefore largely dependent on the
number of subscribers to the wireless network operators or the number of
Internet businesses members that utilize our products and services. In addition,
no estimates can be made as to the rate of adoption by the subscribers of the
particular services offered through our products. It is therefore difficult to
predict the size of our future revenues, and such future revenues will be
largely dependent on the number of subscribers to the wireless network operators
or Internet businesses members, in general, and the subscription to the services
offered through our products, in particular. In addition, the price that
subscribers will be willing to pay for these services is difficult to estimate.
As a result, it is difficult to estimate the pricing of these services and
consequently the future size of our revenues.
OUR SUCCESS DEPENDS ON MARKET ACCEPTANCE OF WIRELESS TELEPHONES FOR WIRELESS
DELIVERY OF INTERNET-BASED SERVICES
We have focused our efforts on wireless Internet-related communication. Our
technological solutions, in particular mPresence(TM), are not necessarily
dependent on wireless devices for the conveyance of the communication. However,
we believe that the success of mPresence(TM) is interlinked with the acceptance
by the market of wireless devices as a viable means for Internet-based services
giving more wireless network operators and Internet businesses incentive to
adopt technological solutions supporting such services. We cannot be sure of
such market acceptance. In any event, acceptance may be delayed for a number of
reasons. These reasons could include:
- inadequate supply of the required hardware and software;
- limitations to the performance and functionality of wireless devices;
- conflicting technical standards and lack of interoperability;
- lack of adequate Internet-based applications and content for such
Internet-based services;
- costs; and
- inadequate security arrangements.
The lack of or delay in market acceptance for wireless devices as means for
wireless delivery of Internet-based services could have a material adverse
effect on our business, operating results and financial condition.
RISKS RELATING TO OUR SECURITIES
THERE IS NO PUBLIC MARKET FOR OUR COMMON STOCK IN THE UNITED STATES
Currently, there is no public trading market for our Common Stock in the
United States, and we cannot be certain that an active trading market will ever
develop or be sustained. Even if a market should develop there can be no
assurance that all market making activity may not cease at any time. If a market
for our Common Stock does develop, the market price of the Common Stock may be
highly volatile. Any securities broker-dealer that makes a market in our
securities may have significant influence over the market, and if any market
develops, the price and liquidity of the Common Stock may be affected by the
degree of participation of any person in the market. Therefore, purchasers of
our Common Stock may be unable to liquidate their investment readily or at all.
THE STOCK PRICE FOR OUR SHARES MAY BE VOLATILE
Should a market for our Common Stock develop, it will be affected by a
number of factors, including:
- the announcement of new products or service offerings by us or our
competitors;
- quarterly variations in our results of operations or the results of
operations of our competitors or companies in related industries;
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- changes in earnings or revenue estimates or recommendations by securities
analysts;
- developments in our industry;
- general market conditions;
- future sales of substantial amounts of shares by our shareholders; and
- other factors, including factors unrelated to our operating performance
or the performance of our competitors.
In addition, stock prices for many companies in the technology field have
experienced, and continue to experience, wide fluctuations that have often been
unrelated to the operating performance of such companies. Such factors and
fluctuations, as well as general economic, political and market conditions in
markets where we conduct business, such as recessions, may materially and
adversely affect the market price of our securities.
OUR OUTSTANDING OBLIGATIONS TO ISSUE ADDITIONAL SHARES OF COMMON STOCK MAY
ADVERSELY AFFECT OUR ABILITY TO OBTAIN ADDITIONAL EQUITY CAPITAL
We are obligated to issue 31,148,528 shares of Common Stock upon the
conversion of the shares of our Series A Preferred stock outstanding as of March
31, 2000. As of March 31, 2000, 3,114,250 shares of Common Stock were available
for issuance pursuant to options which may be granted under our 1995 Stock
Option Plan and 842,076 shares of Common Stock were available for issuance
pursuant to grants under our 1998 Incentive Stock Option Plan. As of the same
date, options to purchase a total of 5,944,266 shares of Common Stock were
outstanding under the 1995 Stock Option Plan. Our Board of Directors, with
shareholder approval, has reserved an additional 5,000,000 shares of Common
Stock for issuance upon exercise of options which may be granted under our 1995
Stock Option Plan and 5,000,000 shares of Common Stock for issuance pursuant to
our 2000 Employee Stock Purchase Plan. Warrants to purchase an aggregate of
428,000 shares of Common Stock are also outstanding. To the extent that options,
warrants or other obligations for the issuance of Common Stock are granted or
exercised, dilution to the interests of the existing holders of Common Stock may
occur. Moreover, the terms upon which we will be able to obtain additional
equity capital may be adversely affected because holders of outstanding options,
warrants or other obligations can be expected to exercise them at a time when we
in all likelihood will be able to obtain any needed capital on terms more
favorable to us than those provided by such outstanding obligations.
WE MAY ISSUE ADDITIONAL STOCK AND THIS MAY HAVE A DILUTIVE EFFECT
We are currently authorized to issue two classes of stock, which are
designated "Common Stock" and "Preferred Stock." The authorized number of shares
of Preferred Stock is presently 25,000,000 shares. 20,000,000 shares of the
Preferred Stock are currently designated as "Series A Preferred." Our Board of
Directors and shareholders have approved an amendment to our Articles to
increase the authorized number of shares of Common Stock from 75,000,000 to
275,000,00 and to effect a 2-for-1 stock split of our Common Stock. The
amendment is expected to take effect on or about May 26, 2000. The effect of the
stock split has already been incorporated into the share and per share
information in this Registration Statement. Accordingly, we may in the future
authorize without further shareholder approval the issuance of additional shares
of Common Stock or Preferred Stock. Any such future issuance of our capital
stock could have a dilutive effect on the holders of our stock.
CURRENT DIRECTORS AND OFFICERS MAY EFFECTIVELY CONTROL THE COMPANY
Our directors and officers as a group beneficially own approximately 77% of
our Common Stock (prior to any conversion of the Series A Preferred stock). As a
result, these shareholders, if acting together, would be able to control
effectively matters requiring approval by our shareholders, including election
of at least a majority of our Board of Directors and approval of significant
corporate transactions, except for certain matters as to which the holders of
the Series A Preferred stock vote as a separate class.
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OVERVIEW OF BUSINESS
We are a developer and vendor of software and services that enable the
delivery of certain Internet-based services over wireless telecommunications
networks. We were incorporated in California on December 14, 1995. As wireless
network operators and Internet businesses vie for market leadership in the new
mobile economy created by the convergence of the Internet and wireless
telecommunications, we offer mPresence(TM) and iPulse(TM) to help them compete
in a rapidly evolving landscape.
MPRESENCE
mPresence(TM) is designed to quickly establish our customers' presence in
the mobile economy. It is a service and application that allows wireless network
operators and Internet businesses to claim a presence in the mobile Internet
market with a minimum investment of capital, time and resources.
mPresence(TM) is based on two essential functions:
- Presence management. Centralizing dynamic status information about
end-user customers on different communication networks and devices,
especially the wireless and Internet Protocol ("IP") network and allowing
these users to manage this dynamic information.
- Services. Making intelligent use of this presence information to deliver
value-added services to these users over the same networks.
We intend to aggregate and integrate specific value-added services into
mPresence(TM) that will allow our customers to generate additional revenues from
their users. These services include solutions in the area of personal
information management, lifestyle applications and communication. In addition,
we offer our customers the option to host the mPresence(TM) service on a network
that we will operate for them.
IPULSE
The mPresence(TM) solution is built upon the iPulse(TM) platform, a
carrier-class services platform that we developed jointly with Ericsson.
iPulse(TM), which is a product and a trademark owned by Ericsson, provides a
communications and intelligent routing environment that effectively bridges the
worlds of telephony and the Internet, offering end-users a simple and secure way
to establish communication sessions and access value-added services. These
services can be accessed either over IP networks or other networks, such as the
PSTN ("Public Switched Telephone Network") or wireless networks. iPulse(TM)
instantly and easily connects end-users to each other by computer, phone, pager,
mobile phone or other communication device through a simple point-and-click
contact menu.
The iPulse(TM) platform consists of a back-end server system and client
applications, which reside on each user's computers, phones and other
communications devices. End-users may customize their communications by setting
up individual profiles that indicate when, by whom and how they want to be
reached. A special routing mechanism residing on the back-end server can then
forward incoming messages or data transfers to a device selected by the user.
INDUSTRY BACKGROUND
GROWTH OF INTERNET BUSINESSES
The increased use of the Internet, intranets and extranets has fostered the
growth of a variety of Internet businesses, such as Internet service providers,
Internet content providers, portals and search engines and Internet communities.
In addition, a growing number of businesses, including retailers, auction houses
and financial institutions are creating or exploring the possibilities of
establishing a presence on the Internet as a means of attracting and retaining
customers and generating new revenue streams.
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GROWTH OF WIRELESS COMMUNICATIONS
Worldwide use of wireless communications has grown rapidly as cellular and
other emerging wireless communications services have become more widely
available and affordable for businesses and consumers. Advances in technology,
changes in telecommunications regulations and the allocation and licensing of
additional radio spectrum have contributed to this growth. As a result, the
competitive environment among wireless network operators in major markets
worldwide has intensified.
CONVERGENCE OF THE INTERNET AND WIRELESS COMMUNICATIONS
We believe that wireless Internet-access devices have become increasingly
popular tools as a result of the accelerating use of e-mail services, remote
access to corporate intranets and other Internet-based services. The convergence
of wireless communications with the Internet and the launch of General Packet
Radio Service ("GPRS") in markets that currently use the Global System for
Mobile communications ("GSM") are expected by some industry analysts to be the
main drivers behind an anticipated surge in the growth of wireless Internet
access in 2001 and in subsequent years.
GROWTH OF WIRELESS DATA SERVICES AND APPLICATIONS
We believe that the growth of the Internet, coupled with the proliferation
of wireless Internet-access devices has in turn fueled the demand for wireless
data services. We believe that this demand may grow with increasingly
inexpensive wireless communications, increased bandwidth and increased security.
Wireless data services not only include simple functions like e-mail and
messaging, but also enable "anytime, anywhere" m-commerce transactions, gaming,
information updates, online trading, and location-based services, such as
electronic maps and directions and personalized service delivery.
MARKET OPPORTUNITY
Wireless network operators now face potential competition from Internet
portals and media companies such as AOL and Yahoo! that have announced
strategies to bring their brands to all devices "anytime, anywhere." Wireless
network operators risk seeing their brands subsumed under their content
partner's or portal partner's superior consumer brand, which we believe might
force the wireless network operator lower in the value chain. We believe that
the emerging wireless data services market represents a new competitive arena
for wireless network operators, for whom wireless data is a rapid and
cost-effective way to provide their services to subscribers. We believe that
wireless network operators are seeking to deliver Internet-based services to
their mobile subscribers in order to generate revenues from new sources,
differentiate their service offerings and reduce subscriber turnover and
operating costs. We believe that to accomplish this, wireless network operators
require an innovative, high-quality software and services solution to deliver
Internet-based services and content to their mobile subscribers.
Internet businesses are also tailoring their strategies to enter the
wireless data market, which is viewed by some industry analysts as the next
Internet frontier. We believe that Internet businesses are seeking to retain and
increase customers, and generate brand awareness and loyalty by providing
selected services to customers by means of wireless access in addition to
traditional PC-based access. Also, we believe that the convergence of the
Internet with wireless telecommunications provides Internet businesses with new
opportunities to obtain additional revenues from m-commerce transactions and
advertising. As a result, we believe that Internet businesses require a software
and services solution that links them to the wireless telecommunications
networks.
OUR PRODUCTS AND SERVICES
MPRESENCE 1.0
mPresence(TM) is designed to give wireless network operators the
opportunity to generate new revenue streams and increase customer loyalty by
providing their customers with an innovative suite of services and by charging
for the increased data and voice airtime that these applications encourage. The
revenue streams that
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might become available include access revenues, increased SMS ("Short Message
Service") usage with intelligent instant messaging, advertising, m-commerce
revenues, value-added services, and fixed end-user fees for advanced
functionality. Internet businesses can increase customer loyalty and brand
awareness with fully branded Internet services that would extend their brand
names into the mobile Internet. The first version of mPresence(TM) is intended
to lay the foundation for full mPresence(TM) service, by providing a secure
framework and core communication services. mPresence(TM) is built on top of the
iPulse(TM) framework, which provides the scalability and security of the system,
as well as uniform access to various devices on different networks. It also
provides basic user management functions and a communication model for these
users across different networks.
The following services are available to end-users as part of mPresence(TM)
1.0:
- Mobile/IP instant messaging. Using SMS in the GSM system, instant
messages can both be received on a PC connected to the Internet or on a
GSM handset. This has the potential to increase SMS traffic for the
carrier, which we believe can increase carrier revenues.
- Intelligent routing. Users can specify how and who is able to reach them,
depending on devices and user activity. This works for text, voice and
arbitrary data communications. Allowing users to personalize their
preferences is likely to make them more loyal to the service provider and
increase the use of services offered by the provider.
- Routing of voice to wireless phones. Internet-based (Voice over IP) calls
can be routed to a user's mobile phone if the carrier has enabled this
service. We believe that increased call completion can lead to increased
voice revenues for network operators.
For wireless network operators and Internet businesses, the following
mPresence(TM) features are of interest:
- Integration with billing. All user-related events or actions are
registered and can be exported to a service provider's billing system.
This allows service providers to charge for use of their services.
- Branding. All the mPresence(TM) services can be branded with the service
provider's brand names.
- Advertising. When a user connects to the mPresence(TM) service, a direct
channel is created between the user and the service provider. Functions
are provided to allow service providers to take advantage of this channel
as a targeted advertising channel.
- Other integration services. The mPresence(TM) solution is flexible, and
we believe that it can readily be adapted to specific customer needs.
This integration would be done on a case-by-case basis, and might involve
the creation of specific communication/application plug-ins.
The mPresence(TM) solution and iPulse(TM) platform are designed to
facilitate the addition of new services with no inherent architectural limits to
the types of services that can eventually be added. mPresence(TM) already
supports and is currently being demonstrated on GPRS and Wideband Code Division
Multiple Access ("WCDMA") networks. mPresence(TM) permits our customers to
provide their end-users with a secure, unified access to a wide range of
innovative Wireless Application Protocol ("WAP"), SMS and other wireless and
fixed-line Internet services, which our customers can overlay onto their own
services.
HOSTING SERVICES
We offer mPresence(TM) to wireless network operators and Internet
businesses as a software solution that they can operate themselves or as a
hosted solution that we will operate for them. As a hosted solution,
mPresence(TM) is provided as a fully branded solution running on top of our
network. We believe that the key advantage of our hosting service is that the
operator is relieved from investing time and resources in bringing these
services to their end-users, thus reducing time to market. In some cases,
integration with the operator's infrastructure, such as their billing system or
switches, might be necessary.
We believe that further advantages of the hosting offering are that we will
continue to work at integrating new revenue generating services into the
mPresence(TM) solution, and these services will thus become immediately
available to the service providers.
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Our network infrastructure enables scalability and can be adapted to high
subscriber growth. Servers will be hosted with third-party infrastructure
providers. We have already acquired the services of established infrastructure
companies in Scandinavia and North America and we intend to expand our network
of infrastructure providers worldwide. The following services are offered as
part of the hosting:
- Full-scale hosting. We offer plug-and-play hosting of the mPresence(TM)
service that enables wireless network operators and Internet businesses
to readily deploy value-added services to their end-users without
constructing their own infrastructure.
- Initial hosting. Wireless network operators may use the mPresence(TM)
hosting service on a temporary basis while they work on establishing
their own infrastructure.
- Administration and monitoring. Wireless network operators and Internet
businesses may obtain real-time monitoring of a full range of network
statistics and have access to all basic user administration functionality
and billing information.
We are developing additional services that we hope to add to the
mPresence(TM) solution. See "-- Research and Product Development -- New Services
and Products under Development."
IPULSE
The mPresence(TM) suite of services is built upon the iPulse(TM) platform,
a carrier-class services platform that we jointly developed with Ericsson.
iPulse(TM) was developed on top of our proprietary technology, which we have
licensed to Ericsson. The iPulse(TM) product and the iPulse trademark are wholly
owned by Ericsson. iPulse(TM) is a communications and intelligent routing
environment that effectively bridges the worlds of telephony and the Internet,
providing end-users with a simple and secure way to establish communications
sessions and access value-added services running either over IP networks or
other networks, such as the PSTN. iPulse(TM) instantly and easily connects
end-users to each other by computer, phone, pager, mobile phone or other
communication device through a simple point-and-click contact menu. We receive
11.81% royalties of gross worldwide iPulse(TM) sales by Ericsson as a result of
the Specific Co-Operation and Development Agreement ("SCDA") we entered into
with Ericsson in February 1999. In addition, pursuant to a value added reseller
agreement concluded with Ericsson in February 2000, we have the right to offer
iPulse(TM) to our customers as an integral part of the mPresence(TM) solution
and other value-added services.
We believe that iPulse(TM) allows wireless network operators to leverage
their existing communications networks while tapping into the power of the
Internet and new forms of voice and data communications. Internet businesses can
leverage their existing Internet expertise and infrastructure while extending
their reach to wireless devices and telecommunications networks. iPulse(TM)
offers a secure connection to a host of communications services that provide
greater convenience for end-users and increased revenues for wireless network
operators and Internet businesses. The iPulse(TM) framework essentially acts as
a broker that allocates communication services between two or more people, as
well as brokering access to value-added services, whether communications-based
or otherwise. End-users may customize their communications by setting up
individual profiles that indicate when, by whom and how they want to be reached.
OUR STRATEGY
Our objective is to be a leading developer and vendor of software and
services that enable wireless network operators and Internet businesses to
deliver the familiar benefits of the Internet to the wireless world. We intend
to accomplish this by capitalizing on our experience, expertise and strategic
relationships, our mPresence(TM) solution, the iPulse(TM) platform and its other
resources. The key elements of our strategy include expansion of our platform,
leveraging our strategic relationship with Ericsson, building additional
strategic partnerships, strengthening our mPresence(TM) brand through enhanced
sales and marketing efforts, and strategic acquisitions and global expansion.
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EXPANSION OF PLATFORM
mPresence(TM) is designed to be extensible in order to offer additional
on-line services across a variety of protocols, applications, operating systems,
networks and devices that have developed rapidly in recent years as a result of
the convergence of wireless communications with the Internet. mPresence(TM)
already supports SMS, WAP services and WCDMA. We expect to further expand our
reach by supporting additional devices and broadening our functionality by
introducing new services, such as increased m-commerce capability and
location-based services. We believe that the convergence of the Internet and
wireless telecommunications will ultimately result in the "disappearance of the
Internet," by which we mean that the term "Internet" will no longer be used to
categorize services that now are Internet-based. We expect that the Internet as
a communications platform will ultimately be taken for granted, much as
electricity is today. We believe that a rapidly increasing number of devices and
consumer electronics equipment will have Internet or IP addresses and will be
integrated seamlessly to each other over wireless and fixed networks. We intend
to capitalize on this growing trend in order to be a frontrunner in the new
integrated mobile economy.
LEVERAGING OF STRATEGIC RELATIONSHIP WITH ERICSSON
In February 1999, we entered into a General Co-Operation and Development
Agreement with Ericsson ("GCDA"). Pursuant to this agreement, the companies
agreed to cooperate in the area of Internet-based technologies, applications and
services, including, but not limited to, development, testing, integration,
marketing, sales, distribution, support and maintenance of solutions based on
the technologies and services of each company. The parties' cooperation pursuant
to the GCDA is non-exclusive and each party's participation is based on its
individual evaluation of the commercial viability and expected benefits of the
relationship. The initial term of the agreement expires on December 31, 2001,
but will be automatically renewed on a yearly basis unless terminated by written
notice of either party.
Pursuant to the SCDA entered into in February 1999, we and Ericsson formed
a "virtual" company for the purpose of creating an organized structure in which
to conduct our development activities. Both companies contribute personnel to
the joint venture, both at the management and board level and in the day-to-day
development work. However, we perform the development work on assignment from
Ericsson and Ericsson's decisions prevail in cases of differences of opinion.
Currently, approximately 40 of our employees are dedicated to the virtual
company. Pursuant to the SCDA, Ericsson is responsible for 95% of the expenses
relating to sales and marketing and general and administrative costs, as well as
66% of customer support expenses, whereas we are responsible for 5% of any
expenses relating to sales and marketing and general and administrative costs
and 34% of customer support expenses. In addition, we are responsible for 100%
of any expenses relating to the development of the application platform. Under
the agreement, Ericsson and we share 85% and 15% of revenues from sales,
respectively. The net effect of this agreement is that we receive 11.81%
royalties of gross worldwide iPulse sales by Ericsson. The SCDA is effective
until December 31, 2001. The agreement will then be automatically renewed for
additional one year periods, unless terminated by either party.
Pursuant to a value-added reseller agreement also concluded with Ericsson
in February 2000, we have obtained a nonexclusive license to market, sublicense
and distribute the iPulse(TM) software code to our customers, to use the code to
develop further our products, and to provide services to our customers. We have
agreed to pay royalties based on a pricing model to be established by the two
companies. The agreement has a two-year term and will be automatically renewed
for additional one year periods, unless either party gives notice of
non-renewal.
Pursuant to a stock purchase agreement entered into in February 1999,
Ericsson acquired 10,052,431 shares of Series A Preferred stock. Under the terms
of the GCDA, as long as Ericsson owns shares representing 5% or more of our
capital stock we must inform Ericsson of any proposal to license or sell any of
the technology covered in the agreement or to enter into any transaction with
any principal competitor of Ericsson. Ericsson may opt to enter into the
proposed transaction on the same terms and conditions.
Joint marketing efforts for iPulse(TM) have been initiated and we intend to
maintain these efforts in the future. We believe that our active participation
in the distribution of iPulse(TM) will enable us to build up the
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base of end-users more rapidly. We intend to be recognized as the co-developers
of iPulse(TM) and to ensure that our brand is strongly associated with Ericsson
in the marketplace.
BUILDING ADDITIONAL STRATEGIC PARTNERSHIPS
We are currently seeking to enter into strategic relationships with large
participants in the Internet and wireless telecommunications markets, as well as
with smaller, emerging participants and third-party developers. We intend to
concentrate on the communications and commerce technology components of
mPresence(TM) and to use strategic relationships or licensing arrangements to
access the best of end-user solutions from leading Internet software developers.
STRENGTHENING THE MPRESENCE BRAND THROUGH ENHANCED SALES AND MARKETING EFFORTS
We intend to target emerging wireless network operators and Internet
businesses, and intend to increase our sales and marketing expenditures
significantly to promote the mPresence(TM) brand. Our enhanced sales and
marketing efforts will include advertising, public relations, tradeshows,
participation in major conferences, and online marketing. We will also target
enterprise customers indirectly through partnerships with application service
providers and other service providers. See "Sales and Marketing." Our branding
program focuses on ensuring integrity and recognition for our vision of
mobilizing customers, partners and technology contemporaries to "walk on the
wireless side," a slogan largely associated with our name and logo.
STRATEGIC ACQUISITIONS AND GLOBAL EXPANSION
Through acquisitions, we aim to reduce time-to-market when either
introducing new services or entering a new market. Our strategy is to leverage
our experience to identify companies that have complementary technology,
resources, products or service offerings. We cannot be certain, however, that we
will be able to acquire these companies or to integrate them successfully into
our business. When evaluating new technologies and services to build into our
own products and services offering, we plan not only to license third-party
technology, but also to pursue opportunities for strategic investments. We also
intend to expand globally by opening additional sales offices in strategic
geographic areas in North America, Europe and Asia. We have increased our sales
staff in recent years and we intend to continue to increase the number of our
sales and technical personnel significantly during the next twelve months.
SALES AND MARKETING
As of April 30, 2000, we had 2 persons in sales and 1 person in marketing
based in the United States, and 10 persons in sales and 6 persons in marketing
based in Europe. We intend to expand this group significantly over the next
twelve months. In addition, we have a joint marketing and distribution
relationship with Ericsson.
SALES
We have adopted a global sales strategy and intend to open international
offices according to customer location. Each sales office will be responsible
for mPresence(TM) sales in certain geographic areas and will work alongside
Ericsson in selling iPulse(TM) when applicable. We presently have established
sales offices in Boston, Stockholm and Reykjavik.
We believe that our success depends in large part on our ability to
increase sales of our products and services through value-added resellers and
other indirect distribution channels. We will approach potential customers as
partners, introducing them to a business concept with new revenue streams,
increased customer loyalty and increased brand recognition.
We offer the mPresence(TM) suite of services to our customers primarily on
a revenue-sharing basis. The revenue-sharing structure includes a fixed
component along with a certain percentage of the revenues derived from various
end-user services, such as increased SMS and airtime usage and advertising.
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MARKETING
Our corporate marketing objectives will initially span both European and
North American markets, with plans for Asia and Latin America to follow. Our
future success in marketing requires that certain objectives be prioritized in
corporate communication, including achieving industry and market recognition for
our company as a leading expert and pioneer of m-business, making mPresence(TM)
a highly regarded mobile Internet service offering among wireless network
operators and Internet businesses, ensuring that we are recognized as a co-
developer for the iPulse(TM) platform, supporting our ability to attract and
retain highly skilled and experienced professionals, and expressing our dynamic
and culturally diverse character.
Our branding program focuses on ensuring integrity and recognition for our
vision of mobilizing customers, consumers, partners and technology
contemporaries to "walk on the wireless side." Public relations and advertising
form the key components of our marketing strategy to build awareness and
recognition as a leading m-business enabler and expert in the wireless Internet
marketplace. We also intend to participate in co-marketing efforts with our
customers to promote mPresence(TM) services in the marketplace.
We participate in selected industry and technology related events and
conferences in order to increase our visibility and our technology, addressing
topics such as wireless Internet, WAP, intelligence of IP networks and security.
Branding OZ.COM and mPresence(TM) on the Internet is also part of our overall
marketing strategy.
CUSTOMERS
Our primary target customers are emerging wireless network operators and
Internet businesses. Our services can be sold either to pure wireless network
operators or to integrated wireless and fixed-line operators that may also have
their own internet service provider ("ISP"). In addition, we plan to target
Internet businesses, including Internet communities and ISPs that operate as
"virtual" operators that either lease capacity from an operator or provide
competitive services as a wireless ISP or mobile portal. These new market
entrants require an instant competitive advantage and we believe that they may
be eager to move quickly in order to gain a foothold in the marketplace.
A secondary target market for our services are enterprise customers that
wish to offer their employees a unified and instant messaging suite with strong
integration of wireless data and applications. We intend to target this market
indirectly through strategic sales partnerships and other indirect sales
channels in order to maintain our focus on the core wireless network operators
and Internet business markets.
As part of our strategy to increase our customer base, we have tailored our
solutions to meet the needs of the fastest-growing segments of wireless and
Internet business end-users, including business professionals, university
students and teenagers.
The first commercial customer release of iPulse was in November 1999. We
announced the commercial availability of mPresence(TM) in February 2000.
COMPETITION
The market for our products and services includes a large number of
participants, is subject to rapid changes and is highly competitive. Although no
competitor offers exactly the same type of wireless Internet solution as ours,
our competitors currently offer or have the potential to offer either a total
end-user solution to wireless network operators and Internet businesses or
compete with various components of the mPresence(TM) solution. In addition, our
clients and strategic partners may eventually offer products or services that
directly compete with those we offer. We expect to compete primarily on the
basis of time-to-market, functionality, quality, price and breadth of product
and service offerings. Our current and potential competitors include the
following:
- Infrastructure and service providers. Companies that provide browsers
for digital mobile phones and the infrastructure to link devices to
network service providers and the Internet, such as Phone.com and
i3Mobile, are positioning themselves for the growth of wireless data
services.
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- Instant messaging providers and Internet portals. Instant messaging
providers such as AOL offer a total solution for messaging and
information services with its ICQ and AOL Instant Messenger Services.
Microsoft's Mobile Explorer platform is expected to offer an integrated
mobile MSN messenger in the future and Yahoo! and Exite@Home also intend
to offer their users total solutions for mobile instant messaging and
information services.
- Wireless service providers. Companies offering wireless data services
such as e-mail, calendar access, aggregation of content and a mobile
e-commerce platform include InfoSpace.com and Wireless Knowledge (a joint
venture between Qualcomm and Microsoft) and @mobile. With its acquisition
of Saraide, InfoSpace.com is able to offer a range of wireless Internet
services.
- Telecommunications operators. Companies such as Sonera, through its
affiliate Sonera Zed, and Vodafone are developing mobile portal solutions
with functionality that, in part, resembles that of mPresence(TM).
- Mobile equipment manufacturers. Ericsson, Nokia and others are
developing and marketing server, browser and application software
products that may compete with our product and service offering. These
companies already sell billions of dollars worth of mobile handsets and
other telecommunications products to wireless service providers, which
are our existing and potential customers.
- Systems integrators and software companies. Companies such as CMGI and
Oracle Corporation are developing and marketing solutions and server
software that is compliant with the specifications promulgated by the WAP
Forum.
In contrast to the services offered by many of our competitors,
mPresence(TM) services are fully owned and branded by the wireless network
operators and Internet businesses, which gives them total control over their
subscriber base and customers. Many of our competitors, however, claim end-user
ownership to various extents. We believe that this distinguishes us from these
competitors.
RESEARCH AND DEVELOPMENT
Our future success depends on a number of factors, including our ability to
identify and respond to emerging technological trends in the target markets, to
develop and maintain competitive products, to enhance existing products by
adding features and functionality that differentiate them from those of our
competitors, and to bring products to market on a timely basis and at
competitive prices. As a result, we intend to continue to invest significantly
in research and product development. We are actively recruiting additional
skilled engineers for research and product development.
PRODUCT DEVELOPMENT
Following the strategic approval of research projects concerning software
development, and appropriate preparations by product marketing and product
management, projects are finalized by the engineering unit. The engineering unit
undertakes system management, configuration management and testing. System
management is responsible for keeping total system design both sound and
complete. Configuration management is responsible for identification of software
items, controlling changes to them throughout the software life cycle and
managing releases of the items. Configuration management is also responsible for
defining and implementing company-wide configuration processes according to
international standards and best practices. Testing is performed in our
extensive test lab. The testing group verifies all requirements against the
deliverable product.
Project teams are formed for each software development project, with a team
leader responsible for resource allocation, deadlines and the overall progress
of each project. We make an effort to outsource well-defined projects to
qualified and pre-approved partners. In such cases, we also appoint a dedicated
team leader responsible for relations to the partner and project progress. The
delivery of finished products involves systems integration that consists of
customer-oriented project teams performing the consulting and custom software
development required by individual customers deploying our solutions. As such,
each project is typically
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<PAGE> 20
shorter than a core technology development and makes use of our rapid
development processes. Systems operations concern the administration of the
hosted services, installations and customer support.
NEW SERVICES AND PRODUCTS UNDER DEVELOPMENT
mPresence aims to provide to wireless network operators and Internet
businesses attractive revenue generating services for their end-users on a
revenue-sharing basis. We have identified two market segments that we believe
are the most interesting in the current wireless/Internet convergence market:
the lifestyle and entertainment segment, which is primarily made up of teens,
and the mobile professional segment. The choice of services to be integrated or
developed for the further enrichment of mPresence(TM) is thus heavily influenced
by these two segments. We divide the types of services in three categories:
personal information management, lifestyle applications and communication. We
are currently developing or integrating the following services:
COMMUNICATION
- Advanced SMS functionality. These features are intended to extend the
current SMS functionality to cover more types of communications between
users.
- Integration with Unified Messaging. This would allow users to access
voice mail and faxes through the mPresence(TM) service.
- Video and audio conferencing. This would allow multiple users to
communicate simultaneously using voice and video.
PERSONAL INFORMATION MANAGEMENT
- E-mail integration. This would allow users to access their web-based
e-mail on their wireless device.
- Calendar integration. This would allow users to manage their web-based
calendar in a centralized manner, and receive notifications on their
wireless device.
- Wireless banking. This would allow users to manage their bank accounts
and perform transactions, either through the Internet or on their
wireless device.
LIFESTYLE APPLICATIONS
- Social calendar. This would allow friends to manage common trivial
decisions and keep in constant touch, both on the Internet and on their
wireless devices.
- Wireless games. These would include multi-user strategy games that
require communication among players, which could be played on the
Internet or on wireless devices.
- People matching. This application would group users with common
interests into communities and allow them to communicate with each other.
We cannot be certain that any of the foregoing services will be successfully
developed or integrated or that these services will achieve market acceptance.
RECRUITING AND RETENTION
As of April 1, 2000, we had approximately 97 full time employees, of whom
10 were located in the United States, 79 were located in Iceland and 8 were
located in Sweden. Twelve of the employees located in Iceland are members of
trade unions, including the Iceland Commerce Union, the Union of Electricians,
the Graphic Designer Union and the Iceland Naturalists Union. The number of
employees grew by 20 in the first quarter of 2000. An additional 15 employees
are scheduled to commence work in the second quarter of 2000.
Our success will largely depend on our ability to attract, identify,
recruit, hire, professionally develop and retain highly qualified employees.
Competition for such personnel is intense, and we may not be able to retain
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<PAGE> 21
our senior management or other key personnel in the future. Consequently, we
dedicate significant resources to our recruiting efforts.
We work to ensure that recruiting efforts do not negatively impact the
nurturing of current employees and their working environment. The Chief
Operating Officer is responsible for developing recruitment strategies and
retention programs, while departmental directors are responsible for filling
open positions in their local departments. Local administration directors are
responsible for surveying job satisfaction levels, employee development and
employee-related services in each office.
Since March 2000 we have offered our employees a "finder's fee" for
suggesting or initiating the hiring of new employees. This incentive program
encourages current employees to identify potential new employees and generates a
sense of solidarity by involving employees in our growth. We also employ the
services of a number of recruiting agencies in the United States, Scandinavia
and Iceland. In addition, we have established various relationships with
universities in order to attract graduates. In 1999, we awarded six students
grants and provided facilities for each to complete their thesis. We intend to
implement this grant program internationally on an annual basis. Student groups,
especially those with computer science and engineering training, are frequent
guests in our development center in Reykjavik, and interns are regularly hired
for specific projects.
We have established a stock option program and a competitive compensation
program to attract new personnel. See "Management -- Employee Stock Option Plan
and Stock-based Compensation."
INTELLECTUAL PROPERTY RIGHTS
Our success depends significantly upon our proprietary technology. To
protect our proprietary rights, we rely on a combination of copyright and
trademark laws, patents, trade secrets, confidentiality agreements with
employees and third parties and protective contractual provisions. All of our
employees are subject, either by contract or statute, to confidentiality and
non-use restrictions that transfer certain rights they may have in copyrightable
works or patentable technologies to us. In addition, prior to entering into
discussions with potential affiliates regarding our business and technologies,
we generally require that such parties enter into a nondisclosure agreement with
us. If these discussions result in a license or other business relationship, we
also generally require that a written agreement be made setting forth the
parties' respective rights and obligations include provisions for the protection
of our intellectual property rights.
We own the technology underlying iPulse(TM), while the iPulse trademark and
the rights to the iPulse(TM) solution are the property of Ericsson. We have
applied for registration of the mPresence trademark as well as various other
trademarks in the United States and Europe and we own several domain name
registrations including the Company name and related products. Suites of mobile
concepts relating to mPresence(TM), such as m-commerce and m-business, are the
subjects of pending trademark registration. We will seek to register additional
service marks and trademarks, as appropriate. However, we may not be successful
in obtaining the service marks and trademarks for which we have applied.
We have filed several patent applications that are pending and relate to
innovative solutions including server, audio and agent technology relating to
the Internet and multi-user technologies. Additional patent applications are in
preparation on other features of our technology. We have instituted an employee
incentive program for patent filing and anticipate increased patent application
activity in the future. However, patents with respect to our technology may not
be granted, and, if granted, patents may be challenged or invalidated. In
addition, issued patents may not provide us with any competitive advantages and
may be challenged by third parties.
Despite our efforts to protect our proprietary rights, unauthorized parties
may copy aspects of our products or services or obtain and use information that
we regard as proprietary. The laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States.
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<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the Company's financial condition and results
of operations in respect of the years ended December 31, 1997, 1998 and 1999 and
the three months ended March 31, 2000 should be read in conjunction with the
Audited Consolidated Financial Statements and the Unaudited Consolidated Interim
Financial Statements.
OVERVIEW
Since beginning operations in December 1995, we have devoted substantially
all of our resources to developing our multi-user communications platform, first
in the context of three-dimensional ("3D") online environments, and since 1997,
primarily in the context of wireless telecommunications networks. From inception
through December 31, 1999 we raised total equity capital of $27.9 million and
had an accumulated deficit of $12.3 million. We began to receive revenues from
sales of services in September 1996 and are continuing to operate at a deficit.
We expect the operating deficit to continue and to increase over at least the
next twelve months as we incur increasing levels of expense to support growth.
We believe that our historical operating results are not indicative of future
performance for the following reasons, among others:
- Our historical revenues have come from development contracts for 3D
environments in earlier years and more recently for the development of
iPulse(TM) under an agreement with Ericsson, but this will change as we
begin selling iPulse(TM) and mPresence(TM) services directly to
customers; and
- We have recently emerged from the development stage and anticipate
substantial increases in the number and size of customer orders and
revenues from operations.
Although we expect substantial growth in both revenues and expenses, we
anticipate that increases in expenses will occur more rapidly than corresponding
increases in revenues. Also, while we are committed, at least in the short term,
to substantial increases in expenses, we cannot be certain that revenues will
increase correspondingly. Like many companies attempting to build an
Internet-based business, we expect over at least the next year and for an
indeterminate period of time thereafter to follow a strategy of establishing
market share by making expenditures for marketing and infrastructure development
that exceed current revenues.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated income statement data,
expressed as a percentage of revenues, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------- -------------------
1998 1999 1999 2000
----- ----- -------- -------
(% OF REVENUES)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................................... 100.0 100.0 100.0 100.0
Operating expenses:
Cost of sales.................................... 50.0 64.0 82.4 55.8
Sales and marketing expenses..................... 30.0 37.2 28.8 37.0
General and administrative expenses.............. 50.1 43.6 77.6 68.6
Research and development......................... 10.8 9.4 8.8 13.3
Total operating expenses........................... 141.0 154.2 197.6 174.6
Operating loss..................................... (41.0) (54.2) (97.6) (74.6)
Loss before income taxes........................... (44.0) (43.3) (103.3) (74.1)
Net loss........................................... (44.0) (43.3) (103.3) (74.1)
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Our revenues increased 25.6% to $5,174,398 in 1999 from
$4,119,815 in 1998. The increase is primarily the result of an increase in
development revenues from Ericsson. Revenues from Ericsson increased 27.6% to
$4,565,693 in 1999 from $3,577,348 in 1998.
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<PAGE> 23
COST OF SALES. Our cost of sales increased 60.7% to $3,309,870 in 1999 from
$2,059,389 in 1998. The increase is the result of an increase in costs related
to development work for Ericsson. Costs related to development work for Ericsson
increased primarily as a result of additional resources employed in the
development work.
COST OF RESEARCH AND DEVELOPMENT. Our cost of research and development
increased 9.2% from $446,212 in 1998 to $487,388 in 1999. The increase is
primarily the result of research and development expenses related to the
Ericsson development work as well as research and development in the area of
on-line training, that led to the establishment of the subsidiary SmartVR Inc.
in November 1999.
SALES AND MARKETING EXPENSES. Our sales and marketing expenses increased
55.7% to $1,924,807 in 1999 from $1,236,314 in 1998. The increase is primarily
the result of the establishment of sales offices in Boston, Massachusetts and
Stockholm, Sweden, the hiring of additional sales people in all offices, and the
initiation of a focused sales and marketing campaign in connection with
iPulse(TM). Expenses related to sales and marketing for iPulse were $278,467 in
1999. No sales and marketing expense for iPulse(TM) was recognized in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses increased 9.2% to $2,256,542 in 1999 from $2,065,788 in 1998. The
increase is primarily the result of the relocation of our United States
headquarters from San Francisco to Boston.
OPERATING LOSS. Our operating loss increased 66.1% to $2,804,209 in 1999
from $1,687,888 in 1998. The increase is primarily the result of an increase in
all operating expense categories, which were not offset by a proportional
increase in revenues. This increase in operating expenses is primarily the
result of our strategy to simultaneously accelerate research and development of
the mPresence(TM) product and the build up of sales and marketing resources in
anticipation of the launch of mPresence(TM).
INTEREST INCOME (EXPENSE), NET. Our interest income, net was $430,573 in
1999 compared to net expense of $134,637 in 1998. The increase is primarily the
result of an increase in cash holdings as a result of capital investments by
Ericsson during 1999 in the aggregate amount of $13,068,160.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Our revenues increased 92.7% to $1,745,902 in the three months
ended March 31, 2000 from $906,028 in the three months ended March 31, 1999. The
increase is primarily the result of an increase in development revenues from
Ericsson. Revenues from Ericsson increased 124.5% to $1,718,388 in the three
months ended March 31, 2000 from $799,172 in the three months ended March 31,
1999.
COST OF SALES. Our cost of sales increased 30.5% to $973,367 in the three
months ended March 31, 2000 from $746,148 in the three months ended March 31,
1999. The increase is primarily the result of an increase in development work
for Ericsson.
SALES AND MARKETING EXPENSES. Our sales and marketing expenses increased
147.4% to $646,157 in the three months ended March 31, 2000 from $261,151 in the
three months ended March 31, 1999. The increase is primarily the result of the
establishment of sales offices in Boston, Massachusetts and Stockholm, Sweden,
the hiring of additional sales people in all offices, and the initiation of a
focused sales and marketing campaign in connection with both the iPulse(TM) and
mPresence(TM) products.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses increased 70.3% to $1,197,543 in the three months ended March 31, 2000
from $703,228 in the three months ended March 31, 1999. The increase is
primarily the result of the establishment of new offices in Boston,
Massachusetts and Stockholm, Sweden, the hiring of management in all offices,
and added costs associated with preparing for a public offering of our shares.
RESEARCH AND DEVELOPMENT. Our research and development cost increased
191.3% to $231,859 in the three months ended March 31, 2000 from $79,597 in the
three months ended March 31, 1999. The increase is primarily the result of
research and development expenses related to mPresence(TM) as well as research
and
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<PAGE> 24
development in the area of online training (related to the subsidiary SmartVR)
and music awareness solutions, which led to the establishment of the subsidiary
Ozmo.com in February 2000.
OPERATING LOSS. Our operating loss increased 47.4% to $1,303,024 in the
three months ended March 31, 2000 from $884,096 in the three months ended March
31, 1999. The increase is primarily the result of an increase in all operating
expense categories, which were only partially offset by a proportional increase
in revenues. This increase in operating expenses is primarily the result of our
strategy to simultaneously accelerate research and development of the
mPresence(TM) product and the build up of sales and marketing resources in
anticipation of the launch of mPresence(TM).
INTEREST INCOME (EXPENSE), NET. Our interest income, net was $97,814 in the
three months ended March 31, 2000 compared to net expense of $15,768 in the
three months ended March 31, 1999. The increase is primarily the result of an
increase in cash holdings as a result of capital investments by Ericsson during
the second and fourth quarters of 1999 in the aggregate amount of $13,068,160.
OTHER INCOME (EXPENSE), NET. Our other expense, net was $89,050 in the
three months ended March 31, 2000 compared to net expense of $36,376 in the
three months ended March 31, 1999. The increase is primarily the result of
changes in US dollar currency exchange rates in comparison with European
currencies.
LIQUIDITY AND CAPITAL RESOURCES
From December 31, 1998 to December 31, 1999, our total assets increased
from $3,170,424 to $17,634,137, total liabilities decreased from $4,248,859 to
$1,570,176 and total shareholders' equity increased from ($1,078,435) to
$16,063,961. The increases in total assets and total shareholders' equity, and
the decrease in total liabilities resulted from the Ericsson financing, a
private equity financing in Iceland and the conversion of the convertible bonds
issued in 1998 into shares of Common Stock.
Our primary liquidity needs are for working capital, capital expenditures,
acquisitions and investments, and, to a lesser extent, debt service. Our primary
sources of liquidity are cash flows from operations and issuances of stock.
Net cash used in operating activities was $763,839 for the three months
ended March 31, 2000, compared to $159,824 for the same period in 1999. The
increase in net cash used in operating activities in 2000 was due primarily to
increased working capital needs related to our growth.
Our working capital at March 31, 2000 was $13,093,187 compared to
$14,531,285 at December 31, 1999. Working capital as of March 31, 2000 was
comprised of $12,622,995 million in cash, $1,705,719 in accounts receivable, and
$317,159 in other current assets, net of $1,552,686 in current liabilities. As
of December 31, 1999, our working capital was comprised of $13,603,592 million
in cash, $1,414,272 in accounts receivable, and $406,232 in other current
assets, net of $892,811 in current liabilities.
During the quarter ended March 31, 2000, we invested $401,326 primarily in
computer systems for employees and an iPulse(TM) network system (we call this an
"iPulse cluster") in Boston to support revenue growth. This first iPulse(TM)
cluster will be used to in the delivery of our mPresence(TM) services in North
America. We expect to continue to spend significant amounts on computer systems
for both new employees and new iPulse(TM) clusters as we continue to grow
aggressively.
Through our Icelandic subsidiary, OZ hf., we have outstanding long-term
notes payable to Buna(LOGO)arbanki Islands, an Icelandic bank, and to the seller
of our building at Snorrabraut 54 in Reykjavik, Iceland. We have pledged our
building as collateral for these loans. The amount due on these loans at
December 31, 1999, is approximately $530,000. The loans accrue interest at rates
between 6.0% and 7.35% per annum. We currently have no working capital line of
credit or similar credit facility.
In February 1999, we entered into a Stock and Warrant Purchase Agreement
with Ericsson Inc. under the terms of which Ericsson Inc. had the right to
purchase up to 10,052,431 shares of Series A Preferred stock at $1.30 per share.
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<PAGE> 25
In March and April of 1999, we sold and issued 2,000,000 shares of Common
Stock for cash at $1.90 per share.
In June 1998 we sold and issued a series of convertible bonds in
consideration for an aggregate of $2,500,000. The convertible bonds could be
converted at the election of the bondholder any time prior to June 1, 1999 for
that number of shares equal to the face value of the bond, divided by $0.65.
Prior to June 1999, all of the holders of the convertible bonds converted their
bonds into an aggregate of 3,846,150 shares of Common Stock at a value of $0.65
per share.
In June 1999, Ericsson exercised a portion of its warrant by purchasing
4,769,231 shares of our Series A Preferred Stock for total cash consideration of
$6,200,000.
In October 1999, Ericsson exercised the balance of its purchase rights by
purchasing 5,283,200 shares of our Series A Preferred Stock for total cash
consideration of $6,868,160.
We may seek additional debt or equity financing through public or private
placements of our securities. We cannot be sure that any such financing will be
obtained or, if obtained, will be adequate to meet our needs.
We currently plan to expand aggressively by hiring additional people in all
segments of our operations, particularly in research and development, sales and
corporate development, by acquiring capital assets and inventory for use in our
business and by opening new offices in strategic locations. We believe that our
operating requirements for the next 12 months will be funded from cash from
operations and cash reserves. We may revise our plans in response to future
changes in the mobile communications industry in general and the demand for our
services in particular, our results of operations, our other capital
requirements and other relevant factors. We also intend to expand by making
strategic acquisitions of businesses or assets and we are currently in
discussions that may result in our acquiring one or more businesses. We believe
that we will likely fund any such acquisition through the issuance of debt or
additional equity securities.
MARKET RISK DISCLOSURE
The lack of or delay in market acceptance for wireless devices as a means
for wireless delivery of Internet-based services could have a material adverse
effect on our business, operating results and financial condition. We have
focused our efforts on wireless Internet-related communication. Our
technological solutions, in particular mPresence(TM), are not necessarily
dependent on wireless devices for the conveyance of the communication. However,
we believe that the success of mPresence(TM) is interlinked with the acceptance
by the market of wireless devices as a viable means for Internet-based services,
giving increasingly more wireless network operators and Internet businesses
incentive to adopt technological solutions supporting such services. This
acceptance may not occur or may be delayed for a number of reasons. These
reasons could include an inadequate supply of the required hardware and
software, limitations to the performance and functionality of wireless devices,
conflicting technical standards and lack of interoperability, lack of adequate
Internet-based applications and content for such Internet-based services, costs,
and inadequate security arrangements.
The failure of wireless network operators and Internet businesses to
introduce and support services utilizing our products in a timely and effective
manner could have a material adverse effect on our business, operating results
and financial condition. We believe that a major part of our future revenues
will derive from sales of the mPresence(TM) solution, the iPulse(TM) service
platform and related services to existing and new wireless service providers and
Internet communities. Therefore, our future success depends on the acceptance by
wireless network operators and Internet businesses of these new products and
services that we may not be able to achieve. The relatively small numbers of
wireless network operators and Internet businesses worldwide compounds this
dependence. To date, we have only one wireless network operator customer who has
signed an agreement to implement our mPresence(TM) solution. We cannot be
certain that wireless network operators or Internet businesses will widely use
our products. In addition, wireless network operators have historically been
relatively slow to implement new complex services such as Internet-based
services, and Internet businesses may be slow to implement the use of wireless
services as a means of expanding Internet-based services. We
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<PAGE> 26
have limited or no control over the pace at which wireless network operators or
Internet businesses implement these new services.
INCOME TAXES
At December 31, 1999 we had net operating loss carryforwards of
approximately $11,800,000, $5,600,000, and $100,000 for federal, state and
Icelandic income tax purposes, respectively. Unless we utilize these beforehand
to offset future taxable income, if any, these carryforwards will expire from
year 2001 through 2013.
IMPACT OF PRICING, INFLATION AND SEASONALITY
The pricing of our products and services is primarily a function of the
perceived need for our products and services, the availability of competitive
products or services, the presence of competition for end-users within a
particular market and the degree of acceptance of the mobile phone as an
entertainment and commercial transaction device. Our pricing model for
mPresence(TM) will in many cases be based on a revenue sharing model in which we
will take a certain percentage of revenues resulting from each end-user using
the various services or being exposed to advertisements. Our future revenues are
therefore largely dependent on the number of subscribers to the wireless network
operators or Internet businesses that utilize our products and services. We are
not able to make reliable estimates as to the rate of adoption by the
subscribers of the particular services offered through our products. It is
therefore difficult to predict the size of our future revenues and these future
revenues will be largely dependent on the number of subscribers to the wireless
network operators or Internet businesses, in general, and the subscription to
the services offered through our products, in particular. The price that
subscribers will be willing to pay for these services is also difficult to
estimate.
We believe that inflationary trends had no material impact on the results
of our operations during the year ended December 31, 1999.
Our revenues and operating results are expected to vary, sometimes
substantially, from quarter to quarter. Quarterly revenues and operating results
may fluctuate as a result of a variety of factors, including:
- the timing of large transactions,
- an estimated initial sales cycle of three to six months,
- the proportion of revenues attributable to revenue-sharing or fixed per
end-user fees versus revenues from software sales,
- changes in the level of operating expenses,
- the utilization rate of our development services employees,
- demand for our products and services,
- the introduction of new products and product enhancements by us or our
competitors,
- changes in customer budgets,
- competitive conditions in the industry, and
- general economic conditions.
Further, the purchase of our products and services often involves a
significant commitment of capital by our customers with the attendant delays
frequently associated with large capital expenditures and authorization
procedures within an organization. Accordingly, the sales cycles for our
products and services are typically lengthy, with an estimated initial sales
cycle of three to six months, and subject to a number of significant risks over
which we have little or no control, including our customers' budgetary
constraints and internal authorization reviews.
In addition, we expect our quarterly operating results to be subject to
certain seasonal fluctuations. Our revenues and operating results are typically
lower in its first fiscal quarter than the remainder of the year. In addition,
our third fiscal quarter includes the months of July and August, when billable
service activity by professional staff, as well as purchase decisions by
customers, are reduced due to summer vacation schedules.
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ITEM 3. DESCRIPTION OF PROPERTY
We maintain offices at (1) Snorrabraut 54 and Snorrabraut 56, IS-105,
Reykjavik, Iceland, (2) Drottninggatan 82, Stockholm, Sweden, and (3) 77 South
Bedford Street, Suite 420, Burlington, Massachusetts. We own the space at
Snorrabraut 54, Iceland and rent all the other offices from unaffiliated
parties.
The rent for the Snorrabraut 56, Iceland office, which consists of 451.7
square meters, is $4,517 per month, subject to monthly adjustment in accordance
with the price-index for housing in Iceland. The lease terminates on November 1,
2004.
The rent for the Sweden office, which consists of 486 square meters, is
$18,500 per month. The term of the lease is from April 1, 2000 to September 30,
2003.
The rent for the United States office, which consists of 7,622 square feet,
is $795 for each occupant of the space. Currently, there are seven occupants,
and the rent is $5,565. The term of the lease is six months with an option to
extend the lease every three months.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the number of shares and percent of our
outstanding Common Stock and Series A Preferred stock beneficially owned as of
March 24, 2000, by each person known to our Board of Directors to be the
beneficial owner of 5% or more of the outstanding shares of our Common Stock
and/or Series A Preferred stock, each Director, each Named Officer, and all
Directors and Executive Officers as a group.
COMMON STOCK
<TABLE>
<CAPTION>
AS OF MARCH 24, 2000
-----------------------------------------
SHARES PERCENTAGE
SHARES ACQUIRABLE OF ALL
BENEFICIALLY WITHIN 60 COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED DAYS(1)(2) STOCK(3)
------------------------------------ ------------ ---------- ----------
<S> <C> <C> <C>
Skuli Mogensen(4)...................................... 18,597,000 0 26.65%
Guojon Mar Guojonsson(4)............................... 34,597,000 100,000 49.50%
Ericsson, Inc.(5)...................................... 0 20,104,862 22.37%
Lars Boman(6).......................................... 0 0 0%
Stig-Arne Larsson(7)................................... 0 0 0%
Jeff Pulver(8)......................................... 0 0 0%
Robert G. Quinn(9)..................................... 0 200,000 0.29%
Kjartan Pierre Emilsson(4)............................. 266,626 260,000 0.75%
Skuli Valberg Olafsson(4).............................. 0(10) 100,000 0.14%
Gunnar Thoroddsen(4)................................... 34,708 0 0.05%
Jon L. Arnason(4)...................................... 71,412 0 0.10%
Fredrik Torstensson(11)................................ 0 0 0%
All executive officers and directors as a group (11
persons)............................................. 53,566,746 660,000 76.98%
</TABLE>
- ---------------
(1) Includes 260,000 shares that could be purchased by Kjartan Pierre Emilsson,
200,000 shares that could be purchased by Robert G. Quinn and 100,000
shares that could be purchased by Skuli Valberg Olafsson by exercise of
options available on March 24, 2000 or within 60 days thereafter.
(2) Includes 50,000 and 10,052,431 shares of Series A Preferred stock of which
each share could be converted into two shares of Common Stock by
Gujon Mar Guojonsson and Ericsson Inc., respectively, as of
March 24, 2000.
(3) Options that are currently exercisable or exercisable within sixty days
and/or shares of Series A Preferred stock are deemed to be shares of Common
Stock, outstanding and beneficially owned by the person holding such
options and/or Series A Preferred stock, for the purpose of computing the
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<PAGE> 28
percentage ownership of such person, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
(4) Shareholder is at the following address: Snorrabraut 54, IS-105, Reykjavik,
Iceland.
(5) Shareholder is at the following address: 1010 East Arapaho Road,
Richardson, Texas 75083.
(6) Shareholder is at the following address: Hornsgatan 63 11849 Stockholm.
(7) Shareholder is at the following address: Lonnv 31B, 13552, TYRESO, Sweden.
(8) Shareholder is at the following address: P.O. Box 1432, Melville, New York
11747.
(9) Shareholder is at the following address: 18665 Via Torino, Irvine,
California 92612.
(10) Does not include 5,390 shares owned by Mr. Olafsson's family of which Mr.
Olafsson disclaims beneficial ownership.
(11) Shareholder is at the following address: 834 Brook Arbor Drive,
Morrisville, North Carolina 27560.
SERIES A PREFERRED STOCK
<TABLE>
<CAPTION>
AS OF MARCH 24, 2000
---------------------------------------------------
SHARES SHARES
BENEFICIALLY ACQUIRABLE PERCENTAGE OF ALL
NAME OF BENEFICIAL OWNER OWNED WITHIN 60 DAYS PREFERRED STOCK
------------------------ ------------ -------------- -----------------
<S> <C> <C> <C>
Skuli Mogensen.................................... 0 0 0%
Guojon Mar Guojonsson............................. 50,000 0 0.32%
Ericsson Inc...................................... 10,052,431 0 64.63%
Lars Boman........................................ 0 0 0%
Stig-Arne Larsson................................. 0 0 0%
Jeff Pulver....................................... 0 0 0%
Robert G. Quinn................................... 0 0 0%
Kjartan Pierre Emilsson........................... 0 0 0%
Skuli Valberg Olafsson............................ 0 0 0%
Gunnar Thoroddsen................................. 0 0 0%
Jon L. Arnason.................................... 0 0 0%
Fredrik Torstensson............................... 0 0 0%
All executive officers and directors as a group
(11 persons).................................... 50,000 0 0.32%
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS
The following table lists the members of the Board of Directors and
provides their ages and current positions with us. Biographical information for
each nominee is provided below.
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE COMPANY
---- --------------------------
<S> <C>
Guojon Mar Guojonsson..................... Director, Chairman of the Board, Chief Visionary
Skuli Mogensen............................ Director, Chief Executive Officer
Stig-Arne Larsson......................... Director
Lars Boman................................ Director
Jeffrey Pulver............................ Director
</TABLE>
Guojon Mar Guojonsson, age 27, is our co-founder and our Chief Visionary.
He has served as a director since December 1995 and as Chairman of the Board
since November 1997. In 1990, he founded OZ, hf, our predecessor in Iceland. Mr.
Guojonsson has worked extensively in the computer software, communications and
Internet industry over the last decade. He has served as a government consultant
on various projects and was responsible for designing a future vision for the
Ministry of Communication in Iceland in 1998.
28
<PAGE> 29
Skuli Mogensen, age 31, is our co-founder and our Chief Executive Officer.
Mr. Mogensen has served as a director since December 1995. He has been involved
in several successful ventures in Scandinavia and has extensive international
business experience. Mr. Mogensen is responsible for our overall business
development, investment banking, major partners, general strategy and tactical
input in major contracts and key accounts.
Stig-Arne Larsson, age 57, is currently the Chief Executive Officer of Sal
Ventures AB, a telecom and information technology consulting firm. Previously,
he was the Chief Executive Officer and Chief Financial Officer of Telia Group,
the incumbent Swedish telecom operator, and Deputy Director General and Finance
Director at Swedish Telecom Televerket. Mr. Larsson is also a member of the
board of directors of TradeDoubler AB, Generic Systems AB and Castellum AB.
Jeffrey Pulver, age 37, is the President and founder of Pulver.com, Inc.,
an Internet based consulting firm that publishes Internet technology related
research, produces trade shows and related conferences and provides consulting
services to the telecommunications industry. Mr. Pulver is one of the leading
experts in the field of streaming audio and video technologies and their effect
on business communications. He is a pioneer in the field of Internet telephony
and is the founder of the Voice on the Net Coalition, which aims to keep the
Internet telephony industry free from regulations.
Lars Boman, age 51, is Vice President and Head of the Internet Applications
Business Unit for Ericsson Radio Systems AB (ERA), Stockholm.
OFFICERS
Officers serve at the discretion of the Board of Directors, subject to
rights, if any, under contracts of employment. See "Executive Compensation."
There is no family relationship between any director or executive officer and
any other director or executive officer. Our current executive officers are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Skuli Mogensen.................... 31 Chief Executive Officer
Guojon Mar Guojonsson............. 27 Chief Visionary
Robert G. Quinn................... 42 Chief Financial Officer
Kjartan Pierre Emilsson........... 34 Chief Technology Officer
Skuli Valberg Olafsson............ 33 Chief Operating Officer
Fredrik Torstensson............... 30 Executive Vice President of Business Development and
Sales
Gunnar Thoroddsen................. 30 General Counsel
Jon L. Arnason.................... 39 Secretary and Treasurer
</TABLE>
Biographical information for Skuli Mogensen and Guojon Mar Guojonsson is
provided above. Our executive officers in 1999 were Skuli Mogensen (Chief
Executive Officer), Guojon Mar Guojonsson (Chief Visionary), Jon L. Arnason
(Chief Financial Officer) and Robert G. Quinn (General Counsel).
Robert G. Quinn has been Chief Financial Officer since April 2000. Prior to
serving as our CFO, Mr. Quinn was our General Counsel. Mr. Quinn was formerly
the CFO for Safety Syringes, Inc., Paulsson Geophysical Services, Inc., Net4TV
Corporation, and Novora, Inc., and served as our Interim CFO from May 1996
through May 1997. Mr. Quinn is a founding partner of Quinn & Quinn, a law firm,
and is a member of the boards of directors of About Publishing, Inc., Heart Sine
Technologies, Inc., Paulsson Geophysical Services, Inc. and WebMetro. He earned
his B.A. from California State University and his J.D. from Vanderbilt
University School of Law.
Kjartan Pierre Emilsson has been Chief Technology Officer since 1996 and
Chief Software Architect from 1995 to 1996. Prior to joining us he worked both
in physics research and Internet communication technology at the Institut
Non-Lineaire De Nice -- Sophia Antipolis, the Advanced Center for Mathematical
Studies at the University of Arizona and the Science and Engineering Institute
of the University of Iceland. Mr. Emilsson holds a Ph.D. in Mathematical Physics
from the University of Nice -- Sophia Antipolis.
29
<PAGE> 30
Skuli Valberg Olafsson has been Chief Operating Officer since October 1999.
Prior to joining us he was Assistant Managing Director at EJS hf, the largest
systems integrator and solution developer in Iceland, specializing in banking,
finance, and retail solutions and services. Mr. Olafsson is a substitute
director of Iceland Telecom. He also serves as Chairman of SmartVR, Inc., a
wholly owned subsidiary of the Company. Mr. Olafsson holds a B.Sc. degree in
Industrial and Systems Engineering from the University of Florida and has
completed postgraduate studies in Total Quality Management and Process
Engineering.
Fredrik Torstensson has been Executive Vice President of Business
Development and Sales since April 2000. Prior to joining us, Mr. Torstensson
worked for six years for Ericsson, most recently as Director of Business
Development for Ericsson Mobile Phones. He holds a Bachelor Degree in
Engineering from the Chalmers University of Technology in Gothenburg, Sweden,
and a Master of International Management from the University of Texas.
Gunnar Thoroddsen has been in-house legal counsel since July 1998. Prior to
joining us, Mr. Thoroddsen was a partner at a large Icelandic law firm. Mr.
Thoroddsen holds a law degree from the University of Iceland and an LL.M. from
Duke University in North Carolina. He was admitted to the Icelandic Bar in 1995.
Jon L. Arnason has been Secretary and Treasurer since April 2000 and
formerly was Chief Financial Officer from 1997 to April 2000. Prior to joining
us, Mr. Arnason worked for three years for an accounting firm in Iceland,
representing Arthur Andersen Worldwide. Mr. Arnason is an International Chess
Grandmaster and was a member of the Icelandic Olympic team from 1978 to 1994. He
is three times Icelandic Champion and a former junior World Champion. He holds a
Cand. Oecon. Degree in Finance and Accounting from the University of Iceland.
ITEM 6. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table summarizes the annual and
long-term compensation of, and stock options held by our Chief Executive Officer
and the two additional most highly compensated executive officers whose annual
salaries and bonuses exceeded $100,000 in total during the fiscal year ended
December 31, 1999 (collectively, the "Named Officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ----------------------- ------------
------------------------------ SECURITIES RESTRICTED ALL
SALARY BONUS OTHER ANNUAL UNDERLYING STOCK OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION OPTION AWARDS COMPENSATION
--------------------------- ---- ------- ----- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Skuli Mogensen.................... 1999 150,600 0 0 0 0 0
Chief Executive Officer 1998 129,763 0 0 0 0 0
1997 152,000 0 0 0 0 0
Guojon Mar Guojonsson............. 1999 151,710 0 0 0 0 0
Chairman of the Board, 1998 146,000 0 0 0 0 0
Chief Visionary 1997 132,000 0 0 0 0 0
Robert Quinn...................... 1999 103,640 0 0 0 0 0
Chief Financial Officer 1998 81,170 0 0 0 0 0
1997 175,000 0 0 0 0 0
</TABLE>
Option Grants in Last Fiscal Year
No stock options or SARs have been granted to any Named Officer in 1999.
Long-Term Incentive Plans
No long-term incentive plan was in effect in 1999.
30
<PAGE> 31
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
SHARES UNDERLYING UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED IN-THE-MONEY
NAME EXERCISE REALIZED(1) OPTIONS OPTIONS(1)
---- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Skuli Mogensen............................. 0 N/A N/A N/A
Guojon Mar Guojonsson...................... 0 N/A N/A N/A
Robert Quinn............................... 200,000 $155,000 175,000 $188,125
</TABLE>
- ---------------
(1) Market value of underlying security at exercise date minus the exercise or
base price of in the money options.
EMPLOYMENT CONTRACTS
Skuli Mogensen has entered into an employment contract with us effective
until January 2002 by which he will receive an annual salary of $132,000 and an
annual bonus based on increases in revenues from the previous year, with the
bonus capped at 100% of salary. Under the employment contract, Mr. Mogensen
receives standard expatriation benefits. If Mr. Mogensen is terminated without
cause, he will receive a twelve-month continuation of salary and benefits and a
pro rata portion of his annual bonus. The employment contract includes a
non-competition provision.
Guojon Mar Guojonsson has entered into an employment contract with us
effective until January 2002 by which he will receive an annual salary of
$132,000 and an annual bonus based on increases in revenues from the previous
year, with the bonus capped at 100% of salary. Under the employment contract,
Mr. Guojonsson receives standard expatriation benefits. If Mr. Guojonsson is
terminated without cause, he will receive a twelve-month continuation of salary
and benefits and a pro rata portion of his annual bonus. The employment contract
includes a non-competition provision.
Robert G. Quinn has entered into an employment contract with us effective
until March 31, 2002 by which he will receive an annual salary of $250,000,
adjusted for locations where the cost of living is higher than that of
California, an annual bonus based on increases in revenues from the previous
year, with the bonus capped at 100% of salary, expatriation benefits, and
400,000 incentive stock options vesting quarterly over two years at an exercise
price of $1.17. If we terminate Mr. Quinn for any reason other than "good
cause," he will be paid the remainder of the salary due under the employment
agreement and the options will vest immediately.
Skuli Valberg Olafsson has entered into an employment contract with us, by
which he will receive an annual salary of $128,571, 400,000 options vesting
during the next 3 years, and use of an automobile. If Mr. Olafsson's employment
is terminated, he will receive six months base salary. All other benefits will
terminate as of the date of Mr. Olafsson's termination of employment. The
employment contract contains confidentiality and assignment of intellectual
property rights provisions.
DIRECTOR COMPENSATION
Commencing in 2000, outside directors will receive a nonstatutary stock
option to purchase up to 25,000 shares of Common Stock at 85% of the fair market
value of the Common Stock at the date of grant and the reimbursement of their
expenses associated with the performance of their duties.
STOCK OPTION PLANS
2000 EMPLOYEE STOCK PURCHASE PLAN
Our Board of Directors and shareholders have approved and adopted the 2000
Employee Stock Purchase Plan (the "Stock Purchase Plan") which is intended to
qualify under the provisions of Sections 421 and 423 of the United States
Internal Revenue Code of 1986, as amended (the "Code"). A total of 5,000,000
shares of Common Stock are reserved for issuance under the Stock Purchase Plan.
The Stock Purchase Plan is administered by the Board of Directors or a committee
appointed by the Board. Subject to certain limitations imposed by Section 423 of
the Code, any person employed by us, or by any of our majority-owned
subsidiaries
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<PAGE> 32
that are designated by the Board, is eligible to participate in the Stock
Purchase Plan. The Stock Purchase Plan is to be implemented through a series of
24-month offering periods. Each offering period is comprised of a series of one
or more successive purchase intervals which run from the first payroll day on or
after June 15 of each year to the last payroll day in December of the same year
and from the first payroll day in January of each year to the last payroll day
prior to June 15 of the following year. The last day of each purchase interval
is a purchase date under the Stock Purchase Plan. Should the fair market value
per share of Common Stock on any purchase date within an offering period be less
than the fair market value per share of Common Stock on the start date of that
offering period, then that offering period shall automatically terminate
immediately after the purchase of shares of Common Stock on such purchase date,
and a new offering period shall commence on the next business day following such
purchase date. The new offering period shall have a duration of 24 months,
unless a shorter duration is established by the plan administrator within 5
business days following the start date of that offering period.
On the first day of each offering period (or quarterly entry date, in the
case of a newly-eligible employee), each eligible employee will be granted an
option to purchase, on each purchase date during the offering period, a number
of shares of Common Stock determined by dividing the participant's accumulated
payroll deductions prior to such exercise date by the purchase price.
Notwithstanding the foregoing, no employee is permitted to subscribe for shares
under the Stock Purchase Plan, if, immediately after the grant of the option,
the employee would own 5% or more of the voting power or value of all classes of
our stock or of a parent or of any of our subsidiaries (including stock which
may be purchased under the Stock Purchase Plan or pursuant to any other
options), nor shall any employee be granted an option which would permit the
employee to purchase more than $25,000 worth of stock (determined based on the
fair market value of the shares at the time the option is granted) under the
Stock Purchase Plan in any calendar year.
Unless a participant withdraws from the Stock Purchase Plan, such
participant's option to purchase shares will be exercised automatically on each
purchase date of the offering period to purchase the maximum number of whole
shares that may be purchased at the exercise price with the accumulated payroll
deductions in the participant's account.
The purchase price per share at which shares are sold under the Stock
Purchase Plan shall be equal to the lower of 85% of the fair market value of the
Common Stock on the date of commencement of the applicable 24-month offering
period (or quarterly entry date, in the case of a newly-eligible employee) or
85% of the fair market value of the Common Stock on each purchase date of the
option. The fair market value of the Common Stock on a given date will be the
closing price of the Common Stock on the Stockholm Stock Exchange as of such
date.
The purchase price of the shares will be accumulated by payroll deductions
during an offering period. The payroll deductions may be any whole percentage
amount between 1% and 15%, as determined by the participant, of the
participant's cash earnings (as defined in the Stock Purchase Plan) on each
payroll date during the offering period. A participant may discontinue his or
her participation in the Stock Purchase Plan at any time during the offering
period, in which case he or she may obtain a refund of his or her payroll
deductions for the purchase interval in which the discontinuance occurs, and he
or she cannot rejoin the Stock Purchase Plan during the offering period. In
addition, a participant may, no more than once in any purchase interval, reduce
the rate of payroll deductions. Payroll deductions will commence on the first
payday following the offering date (or quarterly entry date, in the case of a
newly-eligible employee), and will continue at the same rate until the end of
the offering period unless the participant terminates participation in the Stock
Purchase Plan or reduces the rate of the payroll deductions. The amounts
collected through payroll deductions shall be credited to the participant's book
account under the Stock Purchase Plan, but no interest shall be paid on the
balance from time to time outstanding in such account. The amounts collected
from the participant shall not be required to be held in any segregated account
or trust fund and may be commingled with our general assets and used for general
corporate purposes. Any payroll deductions not applied to the purchase of shares
of Common Stock on any purchase date because they are not sufficient to purchase
a whole share of Common Stock shall be held for the purchase of Common Stock on
the next purchase date.
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<PAGE> 33
Appropriate adjustments may be made to the shares subject to purchase and
the purchase price per share in the event of certain changes in our
capitalization as set forth in the Stock Purchase Plan. Each outstanding option
shall automatically be exercised, immediately prior to the effective date of any
change in control (as defined in the Stock Purchase Plan), by applying the
payroll deductions of each participant for the purchase interval in which such
change in control occurs to the purchase of whole shares of Common Stock at a
purchase price per share equal to 85% of the lower of (i) the fair market value
per share of Common Stock on the first day of the offering period (or quarterly
entry date, in the case of a newly-eligible employee) in which such change in
control occurs or (ii) the fair market value per share of Common Stock
immediately prior to the effective date of such change in control. Options to
purchase Common Stock under the Stock Purchase Plan may not be transferred by a
participant except by the laws of descent and distribution, and may be exercised
during a participant's lifetime only by the participant.
1995 STOCK OPTION PLAN
On March 13, 2000, our Board of Directors approved, and on May 3, 2000 our
shareholders approved, an increase in the number of shares reserved for issuance
under our 1995 Stock Option Plan (the "1995 Plan") from 13,000,000 to
18,000,000.
Options granted under the 1995 Option Plan may be "incentive stock options"
as defined in Section 422 of the Code, or nonqualified options. Under the terms
of the Plan, incentive stock options may be granted only to our key employees.
The exercise price of incentive stock options may not be less than 100% of the
fair market value of the Common Stock as of the date of grant (110% of the fair
market value if the grant is to a person who owns more than 10% of the total
combined voting power of all classes of our capital stock or any of our
affiliates). The Code and the Plan limit the options first becoming exercisable
in any calendar year which are treated as incentive stock options to options
covering $100,000 of aggregate value (determined as of the date of the grant of
the options) of Common Stock; options first becoming exercisable in any calendar
year in excess of this limit are treated as nonqualified stock options.
Nonqualified options may be granted under the 1995 Option Plan at an exercise
price of not less than 85% of the fair market value of the Common Stock on the
date of grant, or, if the grant is to a person who owns more than 10% of the
total combined voting power of all classes of our capital stock or any of our
affiliates, not less than 110% of the fair market value of the Common Stock as
of the date of grant. The purchase price of stock acquired may be paid in cash
or, at the discretion of the Committee, in Common Stock or through a deferred
payment or other arrangement. We may require an optionee to give written
assurances with respect to the optionee's business experience and investment
purposes if required under the then applicable securities laws before exercising
an option. If provided by the terms of the option, the optionee may satisfy
tax-withholding obligations relating to the exercise of options by a cash
payment or the withholding or delivery of Common Stock with a fair market value
equal to the obligations.
Unless otherwise provided in the applicable stock option agreement, upon
termination of employment of an optionee, all options that were then exercisable
will terminate three months (twelve months in the case of termination by reason
of disability and eighteen months in the case of death) after the termination of
employment. Upon an optionee's leave of absence, we may decide that such leave
will be treated as a termination for the purposes of determining the termination
date of the options or may suspend the vesting of the options.
Options granted under the 1995 Option Plan may not be exercised more than
ten years after the grant (five years after the grant if the grant is an option
to a person who owns more than 10% of the total combined voting power of all
classes of our capital stock or any of our affiliates). Options granted under
the 1995 Option Plan are not transferable and may be exercised only by the
respective grantees during their lifetime or by their heirs, executors or
administrators in the event of death (or, in the case of nonqualified options, a
transferee pursuant to a qualified domestic relations order). Shares subject to
cancelled or terminated options are reserved for subsequently granted options.
The number of options outstanding and the exercise price thereof are subject to
adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends.
33
<PAGE> 34
The 1995 Plan may be administered by the Board of Directors or in the
Board's discretion by a committee designated by the Board. The 1995 Option Plan
is effective for ten years, unless sooner terminated or suspended.
1998 INCENTIVE STOCK PLAN
Two million shares of Common Stock are reserved for issuance under our 1998
Incentive Stock Plan (the "1998 Plan"). The Plan is administered by the Board of
Directors, which may delegate administration to a committee (in both cases, the
"Committee"). Under the 1998 Plan, the Committee may grant stock to directors,
executive officers and selected employees ("Participants") for which the
Participant is not obligated to pay additional consideration ("Stock Award") and
may grant Participants the right to purchase a specified number of shares of
Common Stock pursuant to a written agreement issued under the 1998 Plan ("Stock
Purchase Offer"). Shares of Common Stock that Participants may receive as a
Stock Award or under a Stock Purchase Offer may include restrictions on
transfer, repurchase rights, rights of first refusal and forfeiture provisions
as the Committee may determine. Under certain Stock Purchase Offers, we may
issue shares of Common Stock to employees upon the receipt of a note receivable
from the employee. The note receivable is secured by the shares of Common Stock,
does not have a maturity date and is interest free. Upon termination any amount
unpaid is settled through receipt of the original shares issued. The 1998 Plan
will terminate in 2008, unless terminated earlier by the Board of Directors. As
of March 31, 2000 no option to purchase shares of Common Stock was outstanding
under the 1998 Plan, no shares had been issued by us upon exercise of options
under the 1998 Plan, and 682,076 shares remained available for future grants
under the 1998 Plan.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors. In July 1998 we loaned Skuli Mogensen and Guojon Mar Guojonsson
$75,000, respectively. The loans accrued interest at a rate of 8% per annum and
were due and payable on June 1, 1999. The total indebtedness for each of Messrs.
Mogensen and Guojonsson was $84,240 at December 31, 1999. Both of these loans
(including accrued interest) were repaid in full in April 2000.
Ericsson. In February 1999 we and Ericsson agreed to create a long-term
strategic partnership and to cooperate in the area of Internet-based
technologies, applications and services. We and Ericsson anticipated joint
development, testing, integration, marketing, sales, distribution, support and
maintenance of solutions based on relevant technologies and services. We signed
the GCDA with Ericsson that set the framework for current and future development
projects. The GCDA anticipates specific development projects to be structured
under various specific agreements. In the months following the execution of the
GCDA, Ericsson, Inc. invested $13.1 million in us in exchange for 10,052,431
shares of Series A Preferred stock.
We and Ericsson entered into a specific agreement under the GCDA to develop
iPulse(TM) solutions. iPulse(TM) is a client-server application merging secure
Internet messaging, message routing, IP telephony and traditional phone systems
in one application. As a starting point for the iPulse(TM) development project,
under the GCDA we licensed our server- and client technology to Ericsson. More
specifically, Ericsson acquired the license to use, modify and distribute our
server and client technology in connection with Ericsson's commercialization of
the iPulse(TM) solution. With respect to further development of technologies and
solutions for which Ericsson would fund development costs, the parties agreed
that ownership of specific results of the joint development work, including
iPulse(TM), would reside with Ericsson. As a net result of the GCDA, we receive
11.81% royalties of iPulse(TM) sales. We also retained a cross-license that
gives us the right to use, modify and distribute any such development results.
We and Ericsson also agreed that we would have the right to use, modify and
distribute an OZ-branded version of the iPulse(TM) solution as a complementary
service to the iPulse(TM) offering of Ericsson, without any charge by Ericsson.
To further establish the framework in which we would be free to develop and
distribute our proprietary products and services in combination with the joint
development of iPulse(TM), the parties concluded a value-added reseller
agreement in February 2000. The agreement is intended to secure the rights for
us to a) license and distribute iPulse(TM) directly to our customers, b) use the
iPulse(TM) software code to develop and market additional products and services
based upon the iPulse(TM) technology platform, and c) provide our customers
34
<PAGE> 35
with hosting and maintenance services as a separate product offering running
parallel with the iPulse(TM) solution marketed by Ericsson. In addition, the
value-added reseller agreement grants Ericsson the non-exclusive right to buy or
license any such products and solutions that are developed under the terms of
the value-added reseller agreement.
We received from Ericsson $3,577,348 in development revenues in 1998 and
$3,909,533 in development revenues in 1999 related to the aforementioned
agreements. We also received a license fee of $1,000,000 from Ericsson during
1999, half of which has been deferred and will be recognized over the three-year
life of the GCDA.
Lars Boman, a director, is currently Vice President of Ericsson Radio
Systems AB (ERA). Ericsson nominated Mr. Boman to the Board of Directors under
the terms of the agreement by which Ericsson, Inc. made its $13.1 million
investment in us. Fredrik Torstensson, our Executive Vice President of Business
Development and Sales, was Director of Business Development for Ericsson Mobile
Phones from 1998 until April 2000.
ITEM 8. DESCRIPTION OF SECURITIES
The following is a summary of certain information concerning our shares and
certain provisions of our Articles and California law in effect on the date
hereof. This summary does not purport to be complete and is qualified in its
entirety by reference to the Articles and the laws of California. Any change to
the Articles is subject to approval by a general meeting of shareholders.
Our authorized share capital consists of two hundred seventy-five million
shares of Common Stock and twenty-five million shares of Preferred Stock. Our
Board of Directors is authorized to issue the Preferred Stock from time to time
in one or more series and is authorized to fix, alter or revoke the rights of
such series and to increase or decrease the number of shares of that series.
Twenty million shares of Preferred Stock have been designated as Series A
Preferred.
COMMON STOCK
As of March 24, 2000, 69,785,848 shares of Common Stock were outstanding
and held of record by 1,217 shareholders of record. The holders of Common Stock
are entitled to one vote per share on all matters to be voted upon by the
stockholders and to vote as a single class with the holders of Series A
Preferred stock, unless otherwise required by law and except in certain
circumstances enumerated in the Articles. Shareholders may have cumulative
voting rights with respect to the election of directors if one or more
shareholders gives notice at the shareholder's meeting of the intention to
cumulate votes prior to the commencement of voting. Holders of Common Stock are
entitled to such dividends as may be declared from time to time by the Board of
Directors out of legally available funds. In the event of our liquidation,
dissolution, or winding up, each holder of Common Stock will be paid an amount
equal to fifty cents per share (as adjusted for stock splits, stock dividends
and other recapitalizations) out of the proceeds remaining after the payment of
the liquidation preference to the Series A Preferred stock. Holders of Common
Stock have no preemptive, conversion, subscription or other rights. All
outstanding shares of Common Stock are fully paid and non-assessable, except for
802,000 shares of restricted Common Stock that were issued to certain employees
in consideration of non-recourse promissory notes in the aggregate amount of
$381,000.
SERIES A PREFERRED STOCK
As of March 24, 2000, 15,554,264 shares of Series A Preferred stock were
outstanding and held by 32 shareholders. Holders of Series A Preferred stock are
entitled to vote as a single class with holders of Common Stock with each holder
of Series A Preferred stock entitled to one vote on an as converted basis. The
approval of a majority of outstanding shares of Series A Preferred stock voting
separately as a class is required before we may:
- change the rights, preferences, privileges or restrictions so as to
adversely affect any shares of Series A Preferred stock or issue any
shares of Series A Preferred stock in excess of 20,000,000;
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<PAGE> 36
- reclassify any shares of Common Stock or give them preference or priority
as to dividends or assets superior to or on a parity with any shares of
Series A Preferred stock;
- increase the authorized number of Series A Preferred stock or authorize
or issue shares of any class or series of stock having any preference or
priority as to dividends, assets or voting rights superior to or on
parity with such preferences, priority or rights of Series A Preferred
stock;
- purchase or redeem Common Stock except pursuant to a stock restriction,
stock option, or any other agreement or plan providing for employee
ownership of our shares;
- sell or transfer all or substantially all of our assets or effect any
liquidation, consolidation or merger by us; or
- fix special qualifications of persons who may hold any shares of Series A
Preferred stock or restrict the right to transfer Series A Preferred
stock, unless required by law.
Holders of Series A Preferred stock are entitled to a one dollar
liquidation preference (subject to adjustment) in the event of our liquidation,
dissolution or winding up. The merger or consolidation by us in which the
shareholders own less than a majority of the outstanding shares of the surviving
corporation, or the sale of all or substantially all of our assets is deemed to
be a liquidation, dissolution or winding up.
Each share of Series A Preferred stock may be converted at the option of
the holder into shares of Common Stock based on a conversion ratio. After the
stock split on May 26, one share of Series A Preferred may be converted into two
shares of Common Stock. All shares of Series A Preferred stock will
automatically be converted into Common Stock upon the closing of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offer and sale of Common Stock for our
account and resulting in our receipt of more than $5,000,000, at a purchase
price (prior to underwriters' commissions and offering expenses) of not less
than $0.50 per share (subject to adjustment). Our Board of Directors and
shareholders have recently approved an amendment to our Articles that provides
that each share of Series A Preferred stock shall also be automatically
converted into fully paid and nonassessable shares of Common Stock at the
conversion price then in effect in the event of a closing of a public offering
in connection with which our shares are listed or otherwise designated for
trading on any "designated offshore securities market" as that term is defined
in Regulation S under the Securities Act, provided that such an offering covers
the offer and sale of Common Stock for our account and results in our receipt of
more than $5,000,000 at a purchase price (prior to underwriting commissions and
offering expenses of not less than $0.50 per share (subject to adjustment), and
provides that when we reacquire shares of a series, we are prohibited only from
reissuing shares of the same series. Our Board of Directors and shareholders
also have recently approved amendments that would designate a par value of $0.01
per share of Common Stock and Preferred Stock. Each share of Series A Preferred
stock is presently convertible into the number of shares of Common Stock that
results from dividing $1.00 by the conversion price. The conversion price will
be proportionately changed in the event we at any time subdivide our outstanding
Common Stock, issue a stock dividend on our outstanding Common Stock, or combine
or consolidate the outstanding shares of Common Stock by reverse stock split or
otherwise. Our Board of Directors and shareholders have recently approved a
2-for-1 stock split which will take effect on approximately May 26, 2000 and
which will have the effect of decreasing the conversion price to $0.50 per share
of Common Stock. If we should at any time make any distribution to the holders
of Common Stock, then the holder of each share of Series A Preferred stock is
entitled to receive at the time of the distribution the amount of property or
the number of securities that the holder would have received had the holder's
Series A Preferred stock been converted. Except in the case of a merger or
consolidation described above, in the event of any reorganization or
reclassification of the outstanding shares of Common Stock (other than certain
changes relating to the par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or in the case of any
consolidation or merger by us (other than a merger in which we are the surviving
party and which does not result in any reclassification of the outstanding
shares of Common Stock), the holder of each share of Series A Preferred stock
shall have the right to convert the share into the kind and amount of stock and
other securities and property that would have been received in such event by a
holder of the number of shares of Common Stock into which the shares of Series A
Preferred was convertible immediately prior to such event. The Articles also
provide for the adjustment of the conversion price in the
36
<PAGE> 37
event of certain diluting issues. The shares of Series A Preferred stock do not
have preemptive or subscription rights.
WARRANTS
In December 1996, we issued warrants to purchase up to a total of 308,000
shares at an exercise price of $0.55 per share to three individuals for
professional services performed in connection with the sale of our Common Stock
to investors. The warrants vested immediately and were exercisable until
September 30, 1997. The warrants were not exercised by the expiration date. In
April 1998 these warrants were extended and are exercisable until a public sale
of our Common Stock pursuant to an effective registration statement under the
Securities Act or a consolidation or merger by us into another corporation. As
of March 24, 2000, these warrants to purchase 308,000 shares of Common Stock
remain outstanding.
In December 1996, we issued warrants to purchase up to 40,000 shares of
Common Stock at an exercise price of $0.25 per share to a third party in
exchange for the transfer of an Internet domain to us. The warrants are fully
vested and are exercisable until the earlier of October 31, 2001 or immediately
prior to the closing of any consolidation or merger by us. As of March 24, 2000,
these warrants to purchase 40,000 shares of Common Stock remain outstanding.
In January 1997, we issued a warrant to purchase up to 80,000 shares of
Common Stock at an exercise price of $0.25 per share to a former employee for
services received. The warrant is fully vested and is exercisable until the
earlier of February 1, 2002 or immediately prior to the closing of any
consolidation or merger by us. As of March 24, 2000, this warrant to purchase up
to 80,000 shares of Common Stock remains outstanding.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATION
Currently there is no public trading market for our Common Stock in the
United States. No class of our capital stock is quoted on either the National
Quotations Bureau "Pink Sheets" or the NASD OTC Bulletin Board.
As of March 31, 2000 options to purchase 5,944,266 shares of Common Stock
were outstanding under the 1995 Stock Option Plan, no options were outstanding
under the 1998 Incentive Stock Plan, and 15,574,264 shares of Series A Preferred
stock convertible into 31,148,528 shares of Common Stock were outstanding. As of
March 31, 2000, warrants to purchase 428,000 shares of Common Stock were
outstanding.
DIVIDENDS
We have not paid dividends since our formation and do not anticipate paying
dividends in the foreseeable future. Any future determination to pay dividends
will be at the discretion of the Board of Directors and will be dependent upon
our financial condition, business, results of operations, capital requirements
and such other factors as the Board of Directors deems relevant.
HOLDERS
As of March 24, 2000, there were 1,217 holders of record of Common Stock
and 32 holders of record of Series A Preferred stock.
As of March 24, 2000, 69,785,848 shares of Common Stock and 15,554,264
shares of Series A Preferred stock were outstanding. Shares held by our
affiliates, as defined in Rule 144 of the Securities Act, may be sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144.
37
<PAGE> 38
RULE 144
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the effective date of this Registration Statement a number of shares of Common
Stock that does not exceed the greater of (a) 1% of the then outstanding shares
of common stock, or (b) the average weekly trading volume during the four
calendar weeks immediately preceding the date on which the notice of sale is
filed with the U.S. Securities and Exchange Commission, provided certain manner
of sale and notice requirements and requirements as to the availability of
current public information about us are satisfied. A person, or persons whose
shares are aggregated, who is not deemed to have been our affiliate at any time
during the 90 days immediately preceding the sale and who has beneficially owned
his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for the Common Stock, the
personal circumstances of the sellers and other factors. Currently, there is no
public trading market for the Common Stock in the United States, and we cannot
be certain that an active trading market will ever develop or be sustained.
Should a market develop for our Common Stock, any future sale of substantial
amounts of the Common Stock may adversely affect the market price of the Common
Stock.
RULE 701
In general, under Rule 701, any of our employees, consultants or advisors
who purchases or receives our shares in connection with a compensatory plan will
be eligible to resell his shares beginning 90 days after the date on which this
Registration Statement becomes effective. Non-affiliates will be able to sell
their shares subject only to the manner-of-sale provisions of Rule 144.
Affiliates will be able to sell their shares without compliance with the holding
period requirements of Rule 144.
REGISTRATION STATEMENT ON FORM S-8
We intend to file a registration statement on Form S-8 under the Securities
Act after this Registration Statement becomes effective to register the shares
of common stock subject to outstanding stock options reserved for issuance under
our stock option, incentive and purchase plans, thus permitting the resale of
such shares by nonaffiliates without restriction under the Securities Act. As of
March 31, 2000, there were outstanding options to purchase approximately
5,944,266 shares of Common Stock under our 1995 Stock Option Plan.
ITEM 2. LEGAL PROCEEDINGS
We are not a party to any legal proceeding in any court, and management is
not aware of any contemplated proceedings by any governmental authority against
us.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In January 1997, we issued a warrant to purchase up to 80,000 shares of
Common Stock at an exercise price of $0.25 per share to a former employee for
services received. The warrant is fully vested and is exercisable until the
earlier of February 1, 2002 or immediately prior to the closing of any
consolidation or merger by us. As of March 24, 2000, this warrant to purchase up
to 80,000 shares of Common Stock remains outstanding. The sale was made in
reliance on Regulation S under the Securities Act. No commissions were paid by
us.
38
<PAGE> 39
Between March 28, 1997 and October 22, 1997, 5,380,000 shares of Common
Stock were issued to eighteen individual and institutional Japanese investors
for an aggregate purchase price of $3,497,000. Of these shares, 200,000 shares
were issued in exchange for professional services as well as monetary
consideration. The sales were made in reliance on Regulation S under the
Securities Act. Yamaichi Securities served as an agent for the placement of some
of these shares. No commissions were paid by us.
On October 29, 1997 and November 6, 1997, we issued 319,646 shares of
Common Stock to two Icelandic investors for an aggregate purchase price of
$207,770. The sales were made in reliance on Regulation S under the Securities
Act. No commissions were paid by us.
In June 1998 we sold and issued a series of 1998 Convertible Bonds in
consideration for an aggregate amount of $2,500,000. The Convertible Bonds could
be converted at the election of the bondholder any time prior to June 1, 1999
for that number of shares equal to the face value of the bond, divided by $0.65.
Prior to June 1999, all of the holders of the Convertible Bonds converted their
bonds into an aggregate of 3,846,150 shares of Common Stock at a value of $0.65
per share. The sales were in reliance on Regulation S under the Securities Act.
No commissions were paid by us.
On March 16, 1999, we issued and sold 1,000,000 shares of Common Stock to
Landsbref hf. for resale to Icelandic individuals and institutional investors.
On May 12, 1999, we issued and sold an additional 1,000,000 shares of Common
Stock to Fjarfestingabanki atvinnulifsins hf. for resale to Icelandic
individuals and institutional investors. The purchase price was $1.90 per share
from which the purchasers received a ten percent discount. The sales were made
in reliance on Regulation S under the Securities Act.
In each of the six preceding paragraphs, the issuances were made to buyers
who were outside the United States and no directed selling efforts were made in
the United States by us or any of our agents. The buyers have certified that
they are not United States persons and have agreed to the resale provisions of
Regulation S. The shares of Common Stock contain a legend regarding the
restrictions on transfer, and we will not register any transfer of our shares
not made in accordance with Regulation S.
On December 14, 1997, the Board of Directors and shareholders approved and
adopted a plan of recapitalization. Under this plan, all shareholders who paid
$0.2344 or more per share of Common Stock were permitted to exchange two shares
of Common Stock for one share of Series A Preferred Stock. The exchange was
terminated on February 15, 1999. As of December 31, 1998 and 1999, an aggregate
of 10,797,510 and 11,370,436 shares of Common Stock had been exchanged for
Series A Preferred Stock, respectively. The exchange was made in reliance on
Sections 3(a)(9) and 4(2) under the Securities Act.
During 1998, 1999 and as of March 31, 2000, we issued respectively 746,000,
120,000 and 160,000 shares of Common Stock to employees in exchange for payments
of notes receivable in the amount of $74,600, $141,000 and $188,000,
respectively. During 1999 and as of March 31, 2000, we received payments of
$15,400 and $12,400 in exchange for 144,000 and 124,000 shares respectively of
Common Stock. On December 31, 1998 and 1999 and as of March 31, 2000, notes
receivable in the amount of $74,600, $200,200 and $375,800 were outstanding for
646,000, 712,000 and 748,000 shares of Common Stock, respectively. These shares
of Common Stock were issued under the 1998 Incentive Stock Option Plan which
provides that we may issue shares of Common Stock upon the receipt of a note
receivable from the employee. These shares were issued in reliance of Rule 701
under the Securities Act.
In 1998 and 1999 we issued 811,000 and 1,513,484 shares of Common Stock
respectively upon exercise of options issued under our 1995 Option Plan. These
sales were made in reliance on Rule 701 under the Securities Act.
In 1998 and 1999 we issued 269,110 and 122,814 shares of Common Stock
respectively as bonuses to employees under the 1998 Incentive Stock Option Plan.
These sales were made in reliance on Rule 701 under the Securities Act.
In February 1999, we entered into a Stock and Warrant Purchase Agreement
with Ericsson, Inc. under the terms of which Ericsson, Inc. had the right to
purchase up to 10,052,431 shares of Series A Preferred stock at $1.30 per share.
In June 1999, Ericsson, Inc. exercised its warrant by purchasing 4,769,231
shares of
39
<PAGE> 40
Series A Preferred stock for an aggregate purchase price of $6,200,000. In
October 1999, Ericsson, Inc. exercised the balance of its purchase rights by
purchasing 5,283,200 shares of Series A Preferred stock for an aggregate
purchase price of $6,868,160. The sales were made in reliance on Section 4(2) of
the Securities Act. We believe that Ericsson, Inc. is an accredited investor as
defined in Regulation D of the Securities Act. No commissions were paid by us.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code, as amended, allows us to
indemnify our officers, directors, employees and agents for any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that the person is or was
our agent against expenses, judgments, fines and settlements actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in our best
interests and, in the case of a criminal proceeding, had no reasonable cause to
believe the conduct of the person was unlawful.
Article V of our Articles provides that our directors shall be protected
from personal liability from monetary damages to the fullest extent permitted by
law. Article IV of the Company's Bylaws also contains a provision for the
indemnification of our directors and agents.
We have entered into an indemnification agreement with certain of our
directors and certain of our executive officers, among others, to provide them
with the maximum indemnification allowed under our Bylaws and applicable law,
including indemnification for all judgments and expenses incurred as the result
of any lawsuit in which such person is named as a defendant by reason of being
our director, officer or employee, to the extent such indemnification is
permitted by the laws of California.
40
<PAGE> 41
OZ.COM
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Accountants........................... 42
Consolidated Balance Sheets as of December 31, 1998, and
1999...................................................... 43
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... 44
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) and Comprehensive Income for the years ended
December 31, 1997, 1998 and 1999.......................... 45
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... 46
Notes to Consolidated Financial Statements.................. 47-57
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999..................................... 58
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1999 and 2000................ 59
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 1999 and 2000................ 60
Consolidated Statements of Comprehensive Income (unaudited)
for the three months ended March 31, 1999 and 2000........ 61
Notes to Consolidated Financial Statements (unaudited) for
the three months ended March 31, 1999 and 2000............ 62
</TABLE>
41
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of OZ.COM.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in shareholders'
equity (deficit) and comprehensive income and of cash flows present fairly, in
all material respects, the financial position of OZ.COM and its subsidiaries at
December 31, 1999 and 1998 and the results of their operations and their cash
flows for each of the three years ended December 31, 1999 in conformity with
generally accepted accounting principles in the United States. These financial
statements are the responsibility of OZ.COM's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS EHF
Reykjavik, Iceland
April 14, 2000, except for
Note 17 which is as of
May 3, 2000
42
<PAGE> 43
OZ.COM
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 368,275 $ 13,603,592
Trade accounts receivable................................. 625,357 22,456
Trade accounts receivable from shareholder (Note 2)....... 292,634 1,391,816
Prepaid expenses and other current assets................. 143,461 406,232
------------ ------------
Total current assets................................... 1,429,727 15,830,328
Property and equipment, net (Note 3)........................ 1,525,648 2,079,531
Other assets................................................ 215,049 130,510
------------ ------------
Total assets........................................... $ 3,170,424 $ 17,634,137
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Cash overdraft............................................ $ 383,304 $ --
Trade accounts payable.................................... 380,923 188,305
Accrued liabilities (Note 4).............................. 416,978 505,133
Current portion of deferred revenue....................... -- 171,920
Current portion of notes payable (Note 5)................. 25,244 24,069
Current portion of capital lease obligations (Note 7)..... 14,953 3,384
------------ ------------
Total current liabilities.............................. 1,221,402 892,811
Notes payable (Note 5).................................... 523,317 505,445
Deferred revenue.......................................... -- 171,920
Convertible bonds (Note 6)................................ 2,500,000 --
Capital lease obligations, net of current portion (Note
7)..................................................... 4,140 --
------------ ------------
Total liabilities...................................... 4,248,859 1,570,176
------------ ------------
Commitments and contingencies (Note 16)
Shareholders' equity (deficit): (Note 8)
Preferred Stock, $0.01 par value:
25,000,000 shares authorized:
5,398,755 and 15,737,649 shares issued and outstanding,
respectively (liquidation value $15,737,649)......... 5,012,574 18,453,136
Common stock, $0.01 par value:
275,000,000 shares authorized:
61,449,556 and 68,359,078 shares issued and
outstanding, respectively............................ 614,496 683,591
Additional paid in capital................................ 3,601,688 9,880,238
Notes receivable from shareholders (Note 12)................ (74,600) (200,200)
Deferred compensation (Note 10)............................. (114,292) (376,668)
Accumulated deficit including other comprehensive income of
$71,906 and $56,886, respectively......................... (10,118,301) (12,376,136)
------------ ------------
Total shareholders' equity (deficit)................... (1,078,435) 16,063,961
------------ ------------
Total liabilities and shareholders' equity (deficit)... $ 3,170,424 $ 17,634,137
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
43
<PAGE> 44
OZ.COM
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE............................................. $ 926,325 $ 4,119,815 $ 5,174,398
----------- ----------- -----------
OPERATING EXPENSES
Cost of sales..................................... 1,496,918 2,059,389 3,309,870
Sales and marketing............................... 1,597,727 1,236,314 1,924,807
General and administrative........................ 2,474,764 2,065,788 2,256,542
Research and development.......................... 225,527 446,212 487,388
----------- ----------- -----------
Total operating expenses.................. 5,794,936 5,807,703 7,978,607
----------- ----------- -----------
Operating loss............................ (4,868,611) (1,687,888) (2,804,209)
----------- ----------- -----------
Interest income..................................... 87,439 35,187 399,322
Interest expense (Note 5 & 6)....................... (111,430) (169,824) 31,251
Other income (expense), net......................... 39,659 11,138 130,821
----------- ----------- -----------
Loss before provision for income taxes.... (4,852,943) (1,811,387) (2,242,815)
Income taxes (Note 13).............................. 0 0 0
----------- ----------- -----------
Net loss.................................. $(4,852,943) $(1,811,387) $(2,242,815)
=========== =========== ===========
Loss per share: (Note 9)
Basic.......................................... $ (0.07) $ (0.03) $ (0.03)
=========== =========== ===========
Diluted........................................ $ (0.07) $ (0.03) $ (0.03)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
44
<PAGE> 45
OZ.COM
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1998 1999
----------------------- ------------------------- ------------------------
SHARES $ SHARES $ SHARES $
---------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock
Balance, beginning of year.......... -- -- -- -- 5,398,755 5,012,574
Series A Preferred shares issued.... -- -- -- -- 10,052,431 13,068,160
Conversion of common shares to
Series A Preferred................ -- -- 5,398,755 5,012,574 286,463 372,402
---------- ---------- ----------- ----------- ---------- -----------
Balance, end of year.............. -- -- 5,398,755 5,012,574 15,737,649 18,453,136
========== ========== =========== =========== ========== ===========
Common Stock and Additional Paid in
Capital
Balance, beginning of year.......... 65,467,310 5,265,212 71,166,956 9,120,748 61,449,556 4,216,184
Common stock issued................. 5,499,646 3,574,933 2,000,000 3,510,000
Employee stock options exercised.... -- -- 811,000 81,100 1,513,484 280,348
Common stock issued for professional
services.......................... 200,000 130,000 -- -- -- --
Common stock issued for employee
compensation...................... -- -- 269,110 26,910 122,814 79,229
Deferred compensation from stock
option grants..................... -- 110,333 -- -- -- 350,470
Issuance of warrants to purchase
common stock...................... -- 40,270
Convertible bonds converted to
common stock...................... -- -- -- -- 3,846,150 2,500,000
Conversion of common stock to
preferred stock................... -- -- (10,797,510) (5,012,574) (572,926) (372,402)
---------- ---------- ----------- ----------- ---------- -----------
Balance, end of year.............. 71,166,956 9,120,748 61,449,556 4,216,184 68,359,078 10,563,829
========== ========== =========== =========== ========== ===========
Notes Receivable from Shareholders
(Note 12)
Balance, beginning of year.......... -- -- (74,600)
Notes receivable issued............. -- (74,600) (141,000)
Payments received................... -- -- 15,400
---------- ----------- -----------
Balance, end of year.............. -- (74,600) (200,200)
========== =========== ===========
Deferred Compensation
Balance, beginning of year.......... (82,667) (165,292) (114,292)
Deferred compensation arising from
option grants..................... (110,333) -- 350,470
Amortization of deferred
compensation...................... 27,708 51,000 88,094
---------- ----------- -----------
Balance, end of year.............. (165,292) (114,292) (376,668)
========== =========== ===========
Accumulated Deficit
Balance, beginning of year.......... (3,518,970) (8,310,431) (10,118,301)
---------- ----------- -----------
Net loss.......................... (4,852,943) (1,811,387) (2,242,815)
Other comprehensive income:
Translation adjustments........... 61,482 3,517 (15,020)
---------- ----------- -----------
Comprehensive income.............. (4,791,461) (1,807,870) (2,257,835)
---------- ----------- -----------
Balance, end of year.............. (8,310,431) (10,118,301) (12,376,136)
========== =========== ===========
Total shareholders' equity
(deficit)....................... 645,025 (1,078,435) 16,063,961
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
45
<PAGE> 46
OZ.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(4,852,943) $(1,811,387) $(2,242,815)
Adjustments to reconcile net loss to net cash provided
(used) in operating activities:
Depreciation....................................... 309,180 288,471 344,000
Noncash charges (credits), net..................... 170,270 (129,004) 99,920
Amortization of deferred compensation.............. 27,708 51,000 88,094
Changes in operating assets and liabilities:
Increase in trade accounts receivable.............. (200,394) (604,644) (496,281)
(Increase) decrease in prepaid expenses and other
assets........................................... 25,299 (83,761) (165,744)
Increase (decrease) in trade accounts payable...... (135,382) 268,050 (192,618)
Increase (decrease) in accrued liabilities......... (66,105) 223,731 260,075
Increase in deferred revenue....................... -- -- 171,920
----------- ----------- -----------
Net cash used in operating activities.............. (4,722,367) (1,797,544) (2,133,449)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment.................... (193,981) (547,349) (948,932)
Proceeds from sales of furniture and equipment........ -- -- 17,875
----------- ----------- -----------
Net cash used in investing activities................. (193,981) (547,349) (931,057)
----------- ----------- -----------
Cash flows from financing activities:
Bank overdraft........................................ 121,340 261,964 (383,304)
Issuance of preferred stock........................... -- -- 13,068,160
Issuance of common stock.............................. 3,574,933 -- 3,510,000
Exercise of employee stock options.................... -- 6,500 154,748
Issuance of notes payable and convertible bonds....... 54,476 2,500,000 --
Payments of notes payable............................. (182,465) (39,986) (19,047)
Payment of capital lease obligation................... (46,634) (22,939) (15,714)
----------- ----------- -----------
Net cash provided by financing activities............. 3,521,650 2,705,539 16,314,841
----------- ----------- -----------
Effect of currency exchange rates on cash............... 61,482 3,518 (15,020)
----------- ----------- -----------
Net increase (decrease) in cash....................... (1,333,216) 364,164 13,235,317
Cash and cash equivalents at beginning of period........ 1,337,327 4,111 368,275
----------- ----------- -----------
Cash and cash equivalents at end of period.............. $ 4,111 $ 368,275 $13,603,592
=========== =========== ===========
Supplemental cash flow information:
Cash paid for interest................................ $ 54,660 $ 55,235 $ 49,698
=========== =========== ===========
Supplemental schedule of non-cash investing and
financing activities:
Conversion of bonds to common stock................... $ -- $ -- $ 2,500,000
=========== =========== ===========
Conversion of common stock to preferred stock......... $ -- $ 5,012,574 $ 372,402
=========== =========== ===========
Common stock issued for notes......................... $ -- $ 74,600 $ 141,000
=========== =========== ===========
Common stock issued for employee compensation......... $ -- $ 26,910 $ 79,229
=========== =========== ===========
Common stock issued for professional services......... $ 130,000 $ -- $ --
=========== =========== ===========
Capital lease obligations for equipment............... $ 44,185 $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
46
<PAGE> 47
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
OZ.COM was incorporated in California on December 14, 1995. OZ.COM and its
subsidiaries (the Company) are developers and vendors of software and services,
including hosting services, that enable the delivery of wireless and
Internet-based services over multiple communications networks, including
wireless networks, the public fixed telephone network and the Internet. The
Company conducts its marketing and sales in North America, Iceland and Sweden,
while, design and development activities are primarily conducted in Iceland.
Through December 1999 the Company's business has primarily been in the
development of customer specific software products.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
OZ.COM and its subsidiaries. Significant intercompany accounts and transactions
have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in its consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments, which are readily
convertible into cash or have maturities of three months or less on the date of
purchase.
Financial Instruments
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash and cash equivalents
and accounts receivable. Cash and cash equivalents are held with financial
institutions with high credit standings.
The customer base currently consists of one large related party customer.
The concentration of credit risk with this one customer is not considered
significant due to their size and credit standing. See the discussion of related
parties in Note 2. Cost approximates market value for all financial instruments.
Property and Equipment
Property, and equipment, including property under capital leases, are
recorded at cost. The Company uses the straight line method in computing
depreciation based on the estimated useful lives of the assets. The annual
provisions for depreciation have been computed principally in accordance with
the following ranges of asset lives: buildings -- 50 years; computer equipment
and software -- 2 to 3 years; furniture and leasehold improvements -- 5 years;
and other equipment -- 5 years.
Maintenance and repairs are expensed as incurred, while capital
improvements to assets are recorded as an addition to the original cost of the
asset and depreciated over the remaining useful life of the related asset. When
assets are retired or otherwise disposed of, the assets and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss is
reflected in the statement of operations.
47
<PAGE> 48
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Long-Lived Assets
As appropriate, management determines whether any property or equipment has
been impaired based on the criteria established by Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of." The Company has made no
adjustments to the carrying values of property and equipment during the years
ended December 31, 1997, 1998, and 1999.
Capitalized Research and Development Costs
Software development costs are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized until
the product is available for general release to customers. To date, the
establishment of technological feasibility of products and general release of
such software have substantially coincided. As a result, software development
costs qualifying for capitalization have been insignificant and, therefore, the
Company has not capitalized any such costs.
Research and Development
The Company expenses all research and development costs as incurred.
Revenue Recognition
The Company's revenues consist primarily of fees for software development
received from contracted research and development agreements; additionally,
there are some software license revenues. Revenues from contracted research and
development agreements are recognized at the completion and acceptance of the
project by the customer provided that the fee is fixed and determinable, and
collection is considered probable by management. Software license revenues
consist of sales of software licenses, which are recognized upon execution of a
contract and delivery of software, provided that the license fee is fixed and
determinable, no significant production, modification or customization of the
software is required and collection is considered probable by management.
Amounts received in advance of satisfying revenue recognition criteria are
classified as deferred revenue in the accompanying consolidated balance sheets.
The Company generally warrants that its products will function
substantially in accordance with documentation provided to customers for
approximately twelve months following initial shipment to the customer. As of
December 31, 1999, the Company has not incurred any significant expenses related
to warranty claims.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities using enacted statutory rates in the relevant tax
jurisdictions. A valuation allowance against net deferred tax assets is
established if, based on the available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. No provision is
made for U.S. income taxes applicable to undistributed earnings of foreign
subsidiaries that are indefinitely reinvested in foreign operations.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries, whose functional currency
is the local currency, are translated at the year-end exchange rates. Revenues
and expenses are translated at the average rates of exchange prevailing during
the year. The adjustments resulting from translating the financial statements of
such foreign subsidiaries is included in accumulated other comprehensive income,
which is reflected as a separate component of shareholders' equity.
48
<PAGE> 49
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings per Share
Basic earnings per share is based upon the weighted average number of
common shares outstanding during the year. Diluted earnings per share is
computed on the basis of the weighted average number of common shares
outstanding during the year plus the effect of common stock issuable upon the
exercise of employee stock options using the treasury stock method and the
effect of convertible debt, conversion of preferred shares, or common stock
warrants using the if converted method. Reconciliations of the net loss per
share computations for the years ended December 31, 1997, 1998 and 1999 are
included in Note 9.
Employee Stock-Based Compensation
The Company accounts for stock-based compensation under the intrinsic value
method as set forth in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." The alternative fair value accounting provided
for under Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation," is discussed in Note 10.
Stock-Based Compensation for Non-Employees
The Company periodically settles fees incurred for professional services
through the issuance of common stock. The number of shares of common stock equal
to the fees incurred is calculated and issued based upon the fair value of
common stock on the date of issuance. The Company records an expense equal to
the fair value of common stock issued.
Recently Issued Accounting Pronouncements:
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS 133 is effective for
fiscal years beginning after January 1, 2001. The Company does not believe the
adoption of SFAS 133 will have a material effect on the Company's results of
operations or financial condition.
2. RELATED PARTY TRANSACTIONS:
In February 1999, the Company entered into a stock and warrant purchase
agreement with Ericsson, Inc. pursuant to which Ericsson received a warrant and
other purchase rights to purchase up to 10,052,431 shares of the Company's
Series A Preferred stock at $1.30 per share, at the time equal to approximately
20% of the capital stock of the Company. In June 1999, Ericsson exercised a
portion of its warrant by purchasing 4,769,231 shares of the Company's Series A
Preferred stock for total cash consideration of $6,200,000. In October 1999,
Ericsson exercised the balance of its warrant by purchasing 5,283,200 shares of
the Company's Series A Preferred stock for total cash consideration of
$6,868,160. On the date of issuance of the stock warrants to Ericsson, the fair
value of the Company's common stock was approximately $0.10 and the price of the
warrants was $1.30. The warrants have a contracted life of nine months and based
upon a fair value calculation the value of the warrants is insignificant.
In February 1999, Ericsson and the Company entered into two agreements,
which laid the basis for a strategic partnership between the two companies.
Pursuant to these agreements, the companies agreed to cooperate in the area of
Internet-based technologies, applications and services, including, but not
limited to, development, testing, integration, marketing, sales, distribution,
support and maintenance of solutions based on the technologies and services of
each company. The parties' co-operation is non-exclusive and each party's
participation is based on its individual evaluation of the commercial viability
and expected benefits of the relationship. The initial terms of the agreements
expire on December 31, 2001, but the agreements renew automatically for one year
terms until terminated by either party.
49
<PAGE> 50
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of one of the agreements, as long as Ericsson owns shares
representing 5% or more of the capital stock of OZ.COM, OZ.COM must inform
Ericsson of any proposal to license or sell any of the technology covered in the
agreement or to enter into any transaction with any principal competitor of
Ericsson. Ericsson may opt to enter into the proposed transaction on the same
terms and conditions.
For the years ended December 31, 1997, 1998 and 1999, the Company
recognized revenue from Ericsson in the amounts of $798,500, $3,577,348 and
$4,565,693, respectively. At year end all amounts due to the Company from
Ericsson in connection with development agreements have been classified as trade
accounts receivables from shareholders in the accompanying consolidated balance
sheets.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Buildings................................................... $ 991,691 $ 1,383,156
Computer equipment and software............................. 874,097 1,272,654
Computer equipment under capital leases..................... 197,252 197,252
Furniture and leasehold improvements........................ 404,778 400,940
Other equipment............................................. 62,281 61,695
----------- -----------
2,530,099 3,315,697
Less accumulated depreciation............................... (1,004,451) (1,236,166)
----------- -----------
$ 1,525,648 $ 2,079,531
=========== ===========
</TABLE>
At December 31, 1998 and 1999, accumulated depreciation on computer
equipment under capital leases is $190,708, and $197,252, respectively.
Depreciation expense is $309,180, $288,471 and $344,000 for 1997, 1998 and 1999,
respectively.
4. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Accrued vacations........................................... $168,591 $239,058
Other payroll liabilities................................... 133,390 189,389
Accrued interest on bonds................................... 100,000 --
Other accrued liabilities................................... 14,997 76,686
-------- --------
$416,978 $505,133
======== ========
</TABLE>
50
<PAGE> 51
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE:
The Company has entered into several long-term borrowing agreements with
Icelandic lenders. At December 31, 1998 and 1999 the following borrowings are
outstanding:
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
OUTSTANDING AT
DECEMBER 31,
ANNUAL INTEREST --------------------
LENDER RATE MATURITY DATE 1998 1999
- ------ --------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Bunaoarbanki Islands hf.............. -- July 1, 1999 $ 1,457 $ --
Bunaoarbanki Islands hf(1)........... 6.85% Dec. 15, 2021 148,461 150,219
Bunaoarbanki Islands hf(2)........... 7.35% June 15, 2009 124,707 114,167
Osta-og smjorsalan sf(3)............. 6.00% Oct. 1, 2022 273,936 265,128
-------- --------
$548,561 $529,514
======== ========
</TABLE>
- ---------------
(1) The bank note payable is denominated in Icelandic Krona with a original
principal balance of ISK 10 million. The original principal balance is
adjusted monthly for fluctuations in the Icelandic consumer price index, in
accordance with the terms of the note agreement. At December 31, 1998 and
1999 the adjusted principal balances are ISK 10,291,317 and ISK 10,868,347,
respectively. Principal payments commence on July 15, 2009. Payments are
made monthly on a pro-rata basis over the remaining 150 months of the note
term. Interest payments are made on a monthly basis.
(2) The bank note payable is denominated in Icelandic Krona with a original
principal balance of ISK 10 million. The original principal balance is
adjusted annually for fluctuations in the Icelandic consumer price index, in
accordance with the terms of the note agreement. At December 31, 1998 and
1999 the adjusted principal balances are ISK 8,644,705 and 8,259,942,
respectively. Principal payments commenced on January 15, 1997. Principal
and interest payments are made monthly on a pro-rata basis of the remaining
principal plus accrued interest balance.
(3) Note payable is denominated in Icelandic Krona with a original principal
balance of ISK 20 million. The original principal balance is adjusted
annually for fluctuations in the Icelandic consumer price index, in
accordance with the terms of the note agreement. At December 31, 1998 and
1999 the adjusted principal balances are ISK 18,989,213 and 19,182,022,
respectively. Principal payments commenced on October 1, 1997. Principal and
interest payments are made annually on a pro-rata basis of the remaining
principal plus accrued interest balance.
Principal maturities of notes payable at December 31, 1999 are as follows:
<TABLE>
<S> <C>
Years ending December 31,
2000........................................................ $ 24,069
2001........................................................ 24,069
2002........................................................ 24,069
2003........................................................ 24,069
2004........................................................ 24,069
Thereafter.................................................. 409,169
--------
Total principal amounts due................................. 529,514
Current maturities.......................................... (24,069)
--------
Long term portion of notes payable.......................... $505,445
========
</TABLE>
Pursuant to the note agreements, the Company has pledged its buildings as
collateral for several loans. The amount pledged at December 31, 1998 and 1999
approximates $914,000 and $534,000, respectively.
51
<PAGE> 52
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CONVERTIBLE BONDS:
In June 1998, the Company issued $2.5 million in convertible bonds. The
bonds bore interest at a rate of 8% and were to mature on September 1, 2001. The
bonds provided for annual interest commencing on September 1, 1999.
In accordance with the terms of the bond agreement, the bonds were
converted at the option of the bondholders into common stock from January 11 to
May 31, 1999 at a conversion price of $0.65 per share of common stock on a
post-split basis. As the date of the conversion preceded the interest payment
date all accrued interest was reversed in the 1999 statement of operations,
which included $100,000 of interest expense recognized in the year ended 1998.
This amount was recognized as a reduction to interest expense in fiscal year
1999.
7. CAPITAL LEASES:
The Company's lease obligations under capital leases having an initial or
remaining term of more than one year, are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES
-------
<S> <C>
Fiscal year ending December 31:
2000........................................................ $4,182
------
Total minimum lease payments.............................. 4,182
Less amount representing interest........................... (798)
------
Present value of net minimum lease payments............... $3,384
======
</TABLE>
8. SHAREHOLDERS' EQUITY:
The Company is authorized to issue two hundred seventy five million shares
of $0.01 par value common stock and twenty-five million shares of $0.01 par
value preferred stock. Twenty million shares of preferred stock are designated
as Series A Preferred. The remaining five million shares of preferred stock has
not yet been designated.
On December 14, 1997, the shareholders of the Company approved and adopted
a plan of recapitalization. Under this plan, all shareholders who paid $0.2344
or more per share of common stock were permitted to exchange two shares of
common stock for one share of Series A Preferred. The exchange was terminated on
February 15, 1999. At December 31, 1998 and 1999, 10,797,510 and 11,370,436
shares of common stock were exchanged for Series A Preferred, respectively.
Amounts were reclassified from common stock to preferred stock on the specific
identification method.
Series A Preferred Shares
In the event of liquidation, dissolution, winding up or merger of the
Company, either voluntary or involuntary, the holders of the Series A Preferred
shares retain liquidation preference over the common shareholders equal to $1.00
per share, as adjusted for stock splits, stock dividends and other
recapitalizations. If there are sufficient proceeds to pay the holders of the
Series A Preferred stock their liquidation preference in full, then the holders
of common stock are entitled to be paid an amount equal to $0.50 per share (as
adjusted). Thereafter, holders of preferred and common stock share equally in
any remaining assets.
Holders of the Series A Preferred shares are entitled to vote on the basis
of the number of shares of common stock into which the preferred stock could be
converted on the record date for the vote.
The Series A Preferred shares are convertible at any time into common stock
at a ratio of one to two. All preferred shares will be converted into shares of
common stock upon the closing of the sale of shares pursuant to a
52
<PAGE> 53
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
registration statement under the Securities Act of 1933 at an offering price of
not less than $0.50 per share (adjusted to reflect any stock splits,
recapitalizations, or combinations), and $5 million in the aggregate.
9. EARNINGS PER SHARE:
The components of basic and diluted loss per share are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net loss........................................ $(4,852,943) $(1,811,387) $(2,242,815)
=========== =========== ===========
Weighted average outstanding shares of common
stock......................................... 69,352,284 63,306,314 66,228,956
Loss per share:
Basic......................................... $ (0.07) $ (0.03) $ (0.03)
=========== =========== ===========
Diluted....................................... $ (0.07) $ (0.03) $ (0.03)
=========== =========== ===========
</TABLE>
Diluted net loss per share does not differ from basic net loss per share
since potential common shares from the conversion of preferred stock, stock
options, convertible bonds and warrants are antidilutive for all periods
presented and are, therefore, excluded from the calculation.
10. EMPLOYEE STOCK OPTION PLANS:
1995 Stock Option Plan
In December 1995, the Company adopted the 1995 Stock Option Plan (the 1995
Plan), under which the Company has now reserved up to 13,000,000 shares of
common stock for issuance to certain employees, directors and consultants. The
Company has the ability to grant both incentive and supplemental stock options.
Incentive stock options are issuable at an exercise price at least equal to the
fair value of the Company's shares of common stock at the date of grant.
Supplemental stock options may be issued at prices as low as 85% of fair market
value. Compensation expense is recorded for options granted at prices below fair
market value on the date of grant. Both incentive and supplemental stock options
have a maximum term of ten years.
In December 1997, all outstanding options were cancelled and re-issued with
a grant price of $0.10 in connection with the recapitalization of the Company as
described in Note 8. The grant price of $0.10 reflected the fair market value of
the Company's common stock following the recapitalization. At December 31, 1999,
the Company had 4,064,250 authorized shares to be granted under the 1995 Plan.
1998 Incentive Stock Option Plan
In May 1998, the Company adopted the 1998 Incentive Stock Plan (the 1998
Plan), under which the Company has reserved up to 2,000,000 shares of common
stock. The 1998 Plan provides for grants to directors, executive officers and
selected employees and consultants ("Participants"). Under this plan the Company
may grant stock to Participants for which the Participant is not obligated to
pay additional consideration ("Stock Award") and may grant Participants the
right to purchase a specified number of shares of common stock pursuant to a
written agreement issued under the 1998 Plan ("Stock Purchase Offer"). Shares of
common stock that Participants may receive as a Stock Award or under a Stock
Purchase Offer may include restrictions on transfer, repurchase rights, rights
of first refusal and forfeiture provisions. At December 31, 1999, there were
842,076 shares remaining which were available for future grants under the 1998
Plan.
53
<PAGE> 54
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of options outstanding and activity under the 1995 and 1998 stock
option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF PRICE PER EXERCISE
SHARES SHARE PRICE
---------- ------------ --------
<S> <C> <C> <C>
Outstanding at January 1, 1997....................... 3,200,000 $0.24 - 0.65 $0.40
Options granted...................................... 2,800,000 0.10 - 0.65 0.60
Options forfeited.................................... (1,140,000) 0.24 - 0.65 0.40
Options cancelled.................................... (4,860,000) 0.24 - 0.65 0.49
Options reissued..................................... 4,860,000 0.10 0.10
---------- ------------ -----
Outstanding at December 31, 1997..................... 4,860,000 0.10 0.10
Options granted...................................... 4,219,110 0.10 0.10
Options exercised.................................... (1,080,110) 0.10 0.10
---------- ------------ -----
Outstanding at December 31, 1998..................... 7,799,000 0.10 0.10
Options granted...................................... 2,736,000 0.10 - 1.20 0.93
Options exercised.................................... (1,636,298) 0.10 - 1.18 0.22
Options forfeited.................................... (1,721,436) 0.10 - 1.20 0.35
---------- ------------ -----
Outstanding at December 31, 1999..................... 7,377,266 0.10 - 1.20 0.33
========== ============ =====
</TABLE>
Information regarding the stock options outstanding at December 31, 1999 is
summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS
---------------------- EXERCISABLE
REMAINING -----------
EXERCISE PRICE SHARES LIFE SHARES
- -------------- --------- --------- -----------
<S> <C> <C> <C>
$0.10.................................................. 5,793,266 6.4 years 3,707,260
$1.175................................................. 1,354,000 9.9 years 378,500
$1.20.................................................. 230,000 9.4 years 57,500
--------- ---------
7,377,266 4,143,260
========= =========
</TABLE>
The Company recorded deferred compensation of $110,333 and $350,470 for
options granted at less than fair value during 1997 and 1999, respectively. This
deferred compensation, net of cancellations, is being amortized ratably over the
vesting period of the related options.
The following information concerning OZ.COM's stock option plans is
provided in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"). OZ.COM accounts for the
Plan in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations.
The fair value of each grant option has been estimated on the date of grant
using the minimum value method. Weighted average assumptions used in determining
the fair value of grants in 1997, 1998 and 1999, include a risk-free interest
rate of 6.17%, 4.81% and 5.9%, respectively, and an expected life of five and a
half years. Volatility and dividend yields are not factors in OZ.COM's minimum
value calculation.
As a result of the above assumptions, the weighted average fair value of
options granted in 1997, 1998 and 1999, was $0.17, $0.02 and $0.93 per share,
respectively.
The pro forma net loss for the Company, for the years ended December 31,
1997, 1998 and 1999, following the provisions of SFAS 123, is $4,921,879,
$1,868,448, and $2,776,516, respectively. The pro forma net loss per share for
the Company for the years ended December 31, 1997, 1998, and 1999, following the
provisions of SFAS 123, is $0.07, $0.03 and $0.04, respectively.
54
<PAGE> 55
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. WARRANTS TO PURCHASE COMMON STOCK:
In December 1996, the Company issued warrants to purchase up to a total of
308,000 shares of common stock at an exercise price of $0.55 per share to three
individuals in consideration for professional services performed in connection
with a private equity offering by the Company. The warrants vested immediately
and were exercisable until September 30, 1997. The fair value of these warrants
has been charged to common stock as issuance costs. The warrants were not
exercised by the expiration date. In April 1998 these warrants were extended and
are exercisable until a sale of the Company's shares of common stock pursuant to
an effective registration statement under the Securities Act or a consolidation
or merger of the Company into another corporation. As of December 31, 1999, all
of these warrants remain unexercised and outstanding.
Also in December 1996, the Company issued warrants to purchase up to 40,000
shares of common stock at an exercise price of $0.25 per share to a third party
in exchange for the transfer of an Internet domain to the Company. The warrants
are fully vested and are exercisable until the earlier of October 31, 2001 or
immediately prior to the completion of any consolidation or merger of the
Company. The fair value of these warrants has been charged to general and
administrative expenses during the year ended December 31, 1996. As of December
31, 1999, all of these warrants remain unexercised and outstanding.
In January 1997, the Company issued a warrant to purchase up to 80,000
shares of common stock at an exercise price of $0.25 per share to a former
employee for services rendered during his employment. The warrant is fully
vested and is exercisable until the earlier of February 1, 2002 or immediately
prior to the completion of any consolidation or merger of the Company. As of
December 31, 1999, all of these warrants remain unexercised and outstanding. The
fair value of this warrant has been charged to compensation expenses during the
year ended December 31, 1997.
12. NOTES RECEIVABLE FROM SHAREHOLDERS:
Notes receivable issued to founders
In July 1998, the Company advanced $150,000 in total to the two founders of
the Company. The notes receivable have a maturity date of April 27, 2000 and a
stated interest rate of 8% compounded annually. Principal and interest are due
upon maturity of the notes. Accrued interest on the notes receivable is $6,000
and $18,480 at December 31, 1998 and 1999, respectively. These notes are
classified as other current assets in the consolidated financial statements in
1999.
Notes receivable issued for common stock
Under certain written agreements issued under the 1998 Incentive Stock
Plan, the Company may issue shares of common stock to employees upon the receipt
of a note receivable from the employee. The note receivable is secured by the
shares of common stock, does not have a maturity date and is interest free. Upon
termination any amount unpaid is settled through receipt of the original shares
issued.
During 1998 and 1999, the Company issued 746,000 and 120,000 shares of
common stock in exchange for notes receivable in the amount of $74,600 and
$141,000, respectively. During 1999, the Company received payments of $15,400 in
exchange for 154,000 shares of common stock. At December 31, 1998 and 1999,
notes receivable in the amount of $74,600 and $200,200 were outstanding for
746,000 and 712,000 shares of common stock, respectively.
55
<PAGE> 56
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES:
The components of deferred taxes at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Non-current deferred tax assets:
Net operating loss carryforwards............................ $ 3,576,727 $ 4,377,138
Other....................................................... 144,099 144,111
----------- -----------
Total deferred tax asset............................... 3,720,826 4,521,249
Valuation allowance......................................... (3,720,826) (4,521,249)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
Due to the uncertain nature of the ultimate realization of the above
deferred tax asset, the Company has recorded a valuation allowance against
deferred tax assets.
At December 31, 1999 the Company has net operating loss carryforwards of
approximately $11,800,000, $5,600,000 and $100,000 for federal, state and
Icelandic income tax purposes, respectively. These carryforwards will expire
from year 2001 through 2013.
14. EMPLOYEE BENEFIT PLAN:
In July 1997, the Company established a 401(k) defined contribution benefit
plan covering all eligible employees. Company contributions to the plan may be
made at the discretion of the Company. As of December 31, 1999 the Company has
not made any contributions to the plan since its inception.
15. SEGMENTS:
The Company operates in a single industry segment -- the design and
development of computer software and services. Substantially all revenues result
from the development of various solutions for clients' needs based upon agreed
upon contracts.
Revenues attributable to geographic regions are based upon the origination
of the sales. Geographic information for the Company is as follows:
<TABLE>
<CAPTION>
REVENUES LONG LIVED ASSETS
------------------------------------ ------------------------
1997 1998 1999 1998 1999
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
United States.............. $858,500 $4,020,760 $4,468,827 $ 137,380 $ 44,118
Iceland.................... 67,825 99,055 705,571 1,388,268 2,035,413
-------- ---------- ---------- ---------- ----------
$926,325 $4,119,815 $5,174,398 $1,525,648 $2,079,531
======== ========== ========== ========== ==========
</TABLE>
During the years ended 1997, 1998 and 1999, total revenues derived from one
customer were $798,500 (86%), $3,577,348 (87%), and $4,565,693 (88%),
respectively. See Note 2 which discusses the nature of the relationship with
this customer.
56
<PAGE> 57
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. COMMITMENTS AND CONTINGENCIES:
The Company has entered into various noncancellable operating leases for
office space. Future minimum lease payments under operating leases as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 206,974
2001........................................................ 276,204
2002........................................................ 276,204
2003........................................................ 220,704
2004........................................................ 45,170
----------
Total minimum lease payments........................... $1,025,256
==========
</TABLE>
17. SUBSEQUENT EVENT:
On May 3, 2000 the shareholders of the Company approved the following
changes in the capital structure of the Company, 1.) an increase in the number
of authorized shares of common stock from 75 million to 275 million; 2.) a 2 for
1 stock split of the Company's common stock; and 3.) the establishment of a par
value for common stock and preferred stock of $0.01 per share. The accompanying
consolidated financial statements give effect to these events as if they had
occurred on December 31, 1996.
57
<PAGE> 58
OZ.COM
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 13,603,592 $ 12,622,995
Trade accounts receivable................................. 22,456 4,029
Trade accounts receivable from shareholder................ 1,391,816 1,701,690
Prepaid expenses and other current assets................. 406,232 317,159
------------ ------------
Total current assets.............................. 15,424,096 14,645,873
Property and equipment, net................................. 2,079,531 2,353,064
Other assets................................................ 130,510 176,073
------------ ------------
Total assets...................................... $ 17,634,137 $ 17,175,010
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 188,305 $ 486,010
Accrued liabilities....................................... 505,133 870,767
Current portion of deferred revenue....................... 171,920 171,920
Current portion of notes payable.......................... 24,069 23,989
Current portion of capital lease obligations.............. 3,384 --
------------ ------------
Total current liabilities......................... 892,811 1,552,686
Notes payable............................................... 505,445 500,765
Deferred revenue............................................ 171,920 128,940
------------ ------------
Total liabilities................................. 1,570,176 2,182,391
------------ ------------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $0.01 par value:
25,000,000 shares authorized:
15,737,649 and 15,574,264 shares issued and
outstanding, respectively, (liquidation value
$15,574,264)........................................... 18,453,136 18,240,735
Common stock, $0.01 par value:
275,000,000 shares authorized:
68,359,078 and 70,118,848 shares issued and
outstanding, respectively.............................. 683,591 701,188
Additional paid in capital................................ 9,880,238 10,412,342
Notes receivable from shareholders.......................... (200,200) (375,800)
Deferred compensation....................................... (376,668) (346,372)
Accumulated deficit including other comprehensive income of
$56,886 and $87,808, respectively......................... (12,376,136) (13,639,474)
------------ ------------
Total shareholders' equity........................ 16,063,961 14,992,619
------------ ------------
Total liabilities and shareholders' equity........ $ 17,634,137 $ 17,175,010
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
58
<PAGE> 59
OZ.COM
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
1999 2000
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUE..................................................... $ 906,028 $ 1,745,902
---------- -----------
OPERATING EXPENSES
Cost of sales............................................. 746,148 973,367
Sales and marketing....................................... 261,151 646,157
General and administrative................................ 703,228 1,197,543
Research and development.................................. 79,597 231,859
---------- -----------
Total operating expenses.......................... 1,790,124 3,048,926
---------- -----------
Operating loss.................................... (884,096) (1,303,024)
---------- -----------
Interest income............................................. 3,614 113,855
Interest expense............................................ (19,382) (16,041)
Other income (expense), net................................. (36,376) (89,050)
---------- -----------
Loss before provision for income taxes............ (936,240) (1,294,260)
Income taxes................................................ 0 0
---------- -----------
Net loss.......................................... $ (936,240) $(1,294,260)
========== ===========
Loss per share:
Basic..................................................... $ (0.01) $ (0.02)
========== ===========
Diluted................................................... $ (0.01) $ (0.02)
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
59
<PAGE> 60
OZ.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
1999 2000
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (936,240) $(1,294,260)
Adjustments to reconcile net loss to net cash provided
(used) in operating activities:
Depreciation........................................... 58,728 127,703
Amortization of deferred compensation.................. 12,750 30,296
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable....... 350,817 (291,447)
(Increase) decrease in prepaid expenses and other
assets............................................... (22,311) 43,510
Increase (decrease) in trade accounts payable.......... (105,853) 297,705
Increase (decrease) in accrued liabilities............. 9,505 365,634
Increase (decrease) in deferred revenue................ 472,780 (42,980)
---------- -----------
Net cash used in operating activities.................. (159,824) (763,839)
---------- -----------
Cash flows from investing activities:
Purchase of property and equipment........................ (197,734) (401,326)
---------- -----------
Net cash used in investing activities.................. (197,734) (401,326)
---------- -----------
Cash flows from financing activities:
Repayment of bank overdraft............................... (351,219) --
Issuance of common stock.................................. 1,800,000 --
Exercise of employee stock options........................ 116,600 161,700
Payments on notes payable................................. (23,109) (4,760)
Payment of capital lease obligation....................... (3,805) (3,384)
---------- -----------
Net cash provided by financing activities................. 1,538,467 153,556
---------- -----------
Effect of currency exchange rates on cash................... 77,831 30,922
---------- -----------
Net increase (decrease) in cash........................... 1,258,740 (980,687)
Cash and cash equivalents at beginning of period............ 368,275 13,603,592
---------- -----------
Cash and cash equivalents at end of period.................. $1,627,015 $12,622,905
========== ===========
Supplemental cash flow information:
Cash paid for interest.................................... $ 15,703 $ 6,163
========== ===========
Supplemental schedule of non-cash investing and financing
activities:
Conversion of bonds to common stock....................... $ 900,000 $ --
========== ===========
Conversion of common stock to preferred stock............. $ 686,212 $ --
========== ===========
Conversion of preferred stock to common stock............. $ -- $ 212,401
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
60
<PAGE> 61
OZ.COM
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
1999 2000
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net loss.................................................... $(936,240) $(1,294,260)
Other comprehensive income:
Foreign currency translation adjustment................... 77,831 30,922
--------- -----------
Comprehensive loss.......................................... $(858,409) $(1,263,338)
========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
61
<PAGE> 62
OZ.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations.
Accordingly, these interim financial statements and notes should be read in
connection with the Company's Registration Statement on Form 10-SB for the year
ended December 31, 1999. The results of operations for the interim periods shown
in this report are not necessarily indicative of results to be expected for
other interim periods or for the full fiscal year. In the opinion of management,
the information contained herein reflects all adjustments necessary for a fair
statement of the interim results of operations.
The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.
The accompanying consolidated financial statements include accounts of the
Company and its subsidiaries.
2. LOSS PER SHARE:
Basic loss per share is computed based upon the weighted average number of
common shares outstanding. Diluted loss per share is computed based upon the
weighted average number of common shares outstanding and any potentially
dilutive securities. Potentially dilutive securities are not included in the
diluted earnings per share calculations if their inclusion would be
anti-dilutive to the basic loss per share calculations. Potentially dilutive
securities not included in the diluted loss per share calculation and
outstanding during the three months ended March 31, 1999, included preferred
shares, convertible bonds, stock options, and stock warrants. Potentially
dilutive securities not include in the diluted loss per share calculation and
outstanding during the three months ended March 31, 2000, included preferred
shares, stock options, and stock warrants.
The components of basic and diluted loss per share are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Net loss.................................................... $ (936,240) $(1,294,260)
=========== ===========
Weighted average outstanding shares of Common Stock......... 62,535,918 68,861,956
Loss per share:
Basic..................................................... $ (0.01) $ (0.02)
=========== ===========
Diluted................................................... $ (0.01) $ (0.02)
=========== ===========
</TABLE>
3. CONVERTIBLE BONDS:
During the three months ended March 31, 1999, holders of $900,000 of
convertible bonds exercised their option to convert their bonds into the
Company's Common Stock. In connection with the conversion the Company issued
1,384,616 shares of Common Stock. As the conversion of the bonds into Common
Stock occurred prior to the interest payment date, accrued interest expense at
December 31, 1998 in the amount of $36,000 was recognized as a reduction of
interest expense during the three months ended March 31, 1999, as the interest
is no longer payable as a result of the conversion of the bonds.
4. CONVERSION OF SERIES A PREFERRED STOCK INTO COMMON STOCK:
During the three months ended March 31, 2000, holders of 163,385 shares of
Series A Preferred stock elected to convert their shares into shares of Common
Stock. In accordance with the terms of conversion, the shares of Preferred stock
were converted into 326,770 shares of Common Stock.
62
<PAGE> 63
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
3.1 Amended and Restated Articles of Incorporation
3.2 Certificate of Amendment
3.3 Bylaws
10.1 1995 Stock Option Plan
10.2 1998 Incentive Stock Option Plan
10.3 2000 Employee Stock Purchase Plan
10.4 Employment Agreement between the Company and Skuli Mogensen
10.5 Employment Agreement between the Company and Guojon Mar
Guojonsson
10.6 Employment Agreement between the Company and Robert Quinn
10.7 Employment Agreement between the Company and Skuli Valberg
Olafsson
10.8 Form of Indemnification Agreement
10.9 General Co-operation and Development Agreement with Ericsson
Telecom AB
10.10 Specific Co-operation and Development Agreement with
Ericsson Telecom AB for Communities and Link
10.11 VAR Agreement with Ericsson Telecom AB
21.1 List of Subsidiaries
</TABLE>
ITEM 2. DESCRIPTION OF EXHIBITS
The following documents are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation
3.2 Certificate of Amendment
3.3 Bylaws
10.1 1995 Stock Option Plan
10.2 1998 Incentive Stock Option Plan
10.3 2000 Employee Stock Purchase Plan
10.4 Employment Agreement between the Company and Skuli Mogensen
10.5 Employment Agreement between the Company and Guojon Mar
Guojonsson
10.6 Employment Agreement between the Company and Robert Quinn
10.7 Employment Agreement between the Company and Skuli Valberg
Olafsson
10.8 Form of Indemnification Agreement
10.9 General Co-operation and Development Agreement with Ericsson
Telecom AB
10.10 Specific Co-operation and Development Agreement with
Ericsson Telecom AB for Communities and Link
10.11 VAR Agreement with Ericsson Telecom AB
21.1 List of Subsidiaries
</TABLE>
63
<PAGE> 64
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
OZ.COM
a California Corporation
Date: May 24, 2000
By: /s/ ROBERT G. QUINN
------------------------------------
Robert G. Quinn
Chief Financial Officer
64
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation
3.2 Certificate of Amendment
3.3 Bylaws
10.1 1995 Stock Option Plan
10.2 1998 Incentive Stock Option Plan
10.3 2000 Employee Stock Purchase Plan
10.4 Employment Agreement between the Company and Skuli Mogensen
10.5 Employment Agreement between the Company and Guojon Mar
Guojonsson
10.6 Employment Agreement between the Company and Robert Quinn
10.7 Employment Agreement between the Company and Skuli Valberg
Olafsson
10.8 Form of Indemnification Agreement
10.9 General Co-operation and Development Agreement with Ericsson
Telecom AB
10.10 Specific Co-operation and Development Agreement with
Ericsson Telecom AB for Communities and Link
10.11 VAR Agreement with Ericsson Telecom AB
21.1 List of Subsidiaries
</TABLE>
65
<PAGE> 1
Exhibit 3.1
[SECRETARY OF STATE STAMP]
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
OZ INTERACTIVE, INC.
Garry Hare and Robert Friedman certify that:
1. They are the President and Secretary, respectively, of OZ
Interactive, Inc., a California corporation.
2. The articles of incorporation of the Corporation are amended and
restated in their entirety to provide as follows:
I.
The name of this corporation is OZ Interactive, Inc.
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
This corporation is authorized to issue only two classes of stock, to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which this corporation is authorized to issue is one hundred million
(100,000,000) shares. Seventy-five million (75,000,000) shares shall be Common
Stock and twenty-five million (25,000,000) shall be Preferred Stock.
IV.
1. Designation of a Series. There is hereby provided one series of
Preferred Stock designated and to be know as " Series A Preferred."
2. Number of Shares. The number of shares constituting Series A
Preferred shall be 20,000,000.
3. Rights, Preferences, Privileges and Restrictions. The rights,
preferences, privileges, restrictions and other matters relating to the Series A
Preferred are as follows:
3.1 Preference on Liquidation
1
<PAGE> 2
(a) Preferred Stock. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation, the
holders of shares of Series A Preferred then outstanding shall be entitled to be
paid, pro rata, out of the assets of the Corporation legally available for
distribution to its shareholders, whether from capital, surplus, or earnings
(collectively referred to as "proceeds"), before any payment shall be made in
respect of the Corporation's Common Stock, an amount equal to $ 1.00 (as
adjusted for stock splits, stock dividends and other recapitalizations and
hereafter referred to as the "Liquidation Preference(s)") for each share of
Series A Preferred. If, upon liquidation, dissolution or winding up of the
Corporation, the proceeds available for distribution to its shareholders shall
be insufficient to pay the holders of the Series A Preferred the full amount of
the Liquidation Preference to which they respectively shall be entitled to as
set forth above, then the proceeds available for distribution shall be
distributed ratably among holders of the Series A Preferred outstanding as of
the date of distribution upon the occurrence of such event.
(b) Common Stock. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation wherein
the aggregate proceeds exceed the Liquidation Preference, after such Liquidation
Preferences shall have been paid in full to the holders of shares of Series A
Preferred, then the holders of Common Stock shall be entitled to be paid, pro
rata, out of the proceeds an amount equal to $1.00 per share and any remaining
proceeds shall be distributed ratably among the holders of Common Stock and
Series A Preferred on an as-if-converted basis.
(c) Deemed Liquidations, Dissolutions. The merger or
consolidation of the Corporation into or with another corporation or a
reorganization in which the shareholders of the Corporation shall own less than
a majority of the voting securities of the surviving corporation, or the sale or
transfer (but not including a transfer by pledge or mortgage to a bona fide
lender) of all or substantially all of the assets of the Corporation, shall be
deemed to be a liquidation, dissolution, or winding up of the Corporation as
those terms are used in this Section 3.1.
(d) Appraisals. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation which will involve the
distribution of assets other than cash, the Corporation shall promptly engage
competent independent appraisers to determine the value of the assets to be
distributed to the holders of any shares of Series A Preferred and the holders
of Common Stock. The Corporation shall, upon receipt of such appraiser's
valuation, give prior written notice to each holder of any Series A Preferred or
Common Stock of the appraiser's valuation.
3.2 Voting Rights. Except as otherwise required by law and as
provided in Section 3.4 below, the holders of Series A Preferred and the holders
of Common Stock shall be entitled to notice of any shareholders' meeting and to
vote as a single class upon any offer submitted to the shareholders for a vote,
as follows: (i) each holder of Series A Preferred shall have one vote for each
full share of Common Stock into which its respective shares of Series A
Preferred would be convertible on the record date for the vote and (ii) the
holders of Common Stock shall have one vote per share of Common Stock; provided,
however, fractional votes by the holders of the Series A Preferred shall not be
permitted, and
2
<PAGE> 3
any fractional voting rights (after aggregating all shares into which shares of
Series A Preferred held by each holder could be converted) shall be rounded to
the nearest whole number.
3.3 Conversion Rights. The holders of Series A Preferred shall
have conversion rights as follows:
(a) Conversion Price. Each share of Series A Preferred shall
be convertible into the number of shares of Common Stock that results from
dividing $1.00 (the "Original Purchase Price") by the Conversion Price, as
hereinafter provided, in effect at the time of conversion; provided, however,
that each share of Series A Preferred shall in no event be convertible into less
than one share of Common Stock (or such lesser or greater number of shares of
Common Stock as may result from an adjustment pursuant to Section 3.3(e) below).
The price at which shares of Common Stock shall be deliverable upon conversion
(the "Conversion Price") shall initially be $1.00 per share of Common Stock.
Such initial Conversion Price shall be subject to adjustment from time to time
as provided herein.
(b) Voluntary Conversion. Each share of Series A Preferred
shall be converted into fully paid and nonassessable shares of Common Stock of
the Corporation, pursuant to Section 3.3(a) above, at the option of the holder
thereof exercised by delivery of a written notice to the Secretary of the
Corporation and delivery of certificates as provided herein.
(c) Automatic Conversion. Each share of Series A Preferred
shall automatically be converted into fully paid and nonassessable shares of
Common Stock, at the Conversion Price then in effect for such share of Series A
Preferred, in the manner provided herein, in the event of the closing of a
firmly underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Corporation and resulting in the
receipt by the Corporation of more than $5,000,000, at a purchase price (prior
to underwriters' commissions and offering expenses) of not less than $1.00 per
share (as adjusted to reflect stock splits, stock combinations, stock dividends,
recapitalizations and the like). In the event of such an offering, the person(s)
entitled to receive the Common Stock issuable upon such conversion of Series A
Preferred shall not be deemed to have converted until immediately prior to the
closing of such sale of securities.
(d) Certificates. Before any holder of shares of Series A
Preferred shall be entitled to convert the same into shares of Common Stock,
such holder shall surrender the certificate or certificates therefor, duly
endorsed in blank or accompanied by proper instruments of transfer, at the
office of the Corporation's secretary or its transfer agent, and shall at such
time give written notice to the Corporation at such office that such holder
elects to convert the same; provided, however, that in the event of an automatic
conversion pursuant to Section 3.3(c) above, the outstanding shares of Series A
Preferred shall be converted automatically without any further action of the
holders of such shares and whether or not the certificates representing each
shares are surrendered to the Corporation; and provided further that the
Corporation or its transfer agent shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such automatic conversion
unless the certificates evidencing
3
<PAGE> 4
such shares are either delivered to the Corporation or its transfer agent or, if
any such certificates have been lost, stolen, or destroyed, the shareholder
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation, as soon as practicable thereafter, shall issue and deliver at
the Corporation's office to such holder certificates for the full number of
shares of Common Stock to which such holder shall be entitled. No fractional
shares of Common Stock shall be issued by the Corporation. The holder of such
fractional shares shall be issued a check payable to the holder in the amount of
any cash amounts, as reasonably determined by the board of directors, payable as
the result of a conversion into fractional shares of Common Stock. Such
conversion shall be deemed to have been made as of the date of delivery of such
notice and surrender of the shares of Series A Preferred to be converted, and
the person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock on said date.
(e) Stock Dividends. In case the Corporation shall at any
time subdivide the outstanding Common Stock, or issue a stock dividend on its
outstanding Common Stock, the Conversion Price of the shares of Series A
Preferred, immediately prior to such subdivision or the issuance of such stock
dividend, shall be proportionately decreased; and in case the Corporation shall
at any time combine or consolidate the outstanding shares of Common Stock, by
reverse stock split or otherwise, the Conversion Price of the shares of Series A
Preferred immediately prior to such combination shall be proportionately
increased. Any such changes shall be effective at the close of business on the
date of such subdivision, stock dividend or combination, as the case may be.
(f) Adjustments for Distributions. In the event at any time
or from time to time the Corporation makes any distribution to holders of its
Common Stock (including any repurchases of securities by the Corporation not
made on a pro rata basis from all holders of any class of the Corporation's
securities and payable in property or in securities of the Corporation and other
than as otherwise adjusted in this Section 3.3), then in such event the holder
of each share of Series A Preferred shall receive at the time of such
distribution the amount of property or the number of securities of the
Corporation that such holder would have received had such holder's shares of
Series A Preferred been converted into Common Stock on the date set for
determining the holders of Common Stock entitled to such distribution, or if no
such date shall have been set, then on the date of such distribution.
(g) Reorganization. Except as provided in Section 3.1, in the
case of any reorganization or any reclassification of the outstanding shares of
Common Stock of the Corporation (other than a change in par value or from par
value to no par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), or in the
case of any consolidation or merger to which the Corporation is a party (except
a merger in which the Corporation is the surviving corporation and which does
not result in any reclassification of the outstanding Common Stock of the
Corporation), the holder of each share of Series A Preferred then outstanding
shall thereafter have the right to convert such share into the kind and amount
of stock and other securities and property which would have been received upon
such reorganization, reclassification, consolidation or merger by a holder of
the
4
<PAGE> 5
number of shares of Common Stock of the Corporation into which such share of
Series A Preferred was convertible immediately prior to such event. The
provisions of this subparagraph (g) shall similarly apply to successive
reorganizations, reclassifications, consolidations and mergers.
(h) Adjustments to Conversion Price for Diluting Issues
(i) Special Definitions. For purposes of this Section
3.3(h), the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or convertible
securities.
(B) "Original Issue Date" shall mean the date on which
the first share of Series A Preferred was first issued.
(C) "Convertible Securities" shall mean any evidence of
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 3.3(h)(ii), deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable at any time:
(1) upon conversion of shares of the Series A
Preferred authorized herein;
(2) to employees of, or consultants to, the
Corporation pursuant to a stock grant, stock option plan or
stock purchase plan or other stock agreement or arrangement
approved by the Board of Directors (up to a maximum of 5,000,000
shares), as adjusted for any stock split, stock dividend or
other recapitalization;
(3) to holders of warrants to purchase up to
214,000 shares of the Common Stock of the Company outstanding as
of September 1, 1998; and
(4) as a dividend or distribution on the Series
A Preferred authorized herein, and
(5) pursuant to Section 3.3(e).
(ii) Deemed Issue of Additional Shares of Common Stock;
Options and Convertible Securities. In the event the Corporation at any time or
from time to time after the Original Issue Date issues any Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any pro-
5
<PAGE> 6
visions contained therein for a subsequent adjustment of such number) of Common
Stock issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, upon the conversion or exchange of such
Convertible Securities shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue provided that Additional Shares of Common
Stock shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 3.3(h)(iv) hereof) of such Additional Shares of
Common Stock would be less than the Conversion Price in effect on the date of
and immediately prior to such issue, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any change in the
amount of consideration payable to the Corporation, or change in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof and any
subsequent adjustments based thereon, shall, upon any such change becoming
effective, be recomputed to reflect an appropriate increase or decrease
reflecting such change insofar as it affects such options or the rights of
conversion or exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof, and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only additional shares of Common
Stock issued were the shares of Common Stock, if any, actually
issued 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
Corporation for the issue of all such options, whether or not
exercised, plus the consideration actually received by the
Corporation upon such exercise, or for the issue of all such
Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the Corporation upon such conversion or exchange;
and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of
issue of such Options, and the consideration received by the
Corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or
not exercised, plus the consideration deemed to have been
received
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by the Corporation upon the issue of the Convertible Securities
with respect to which such Options were actually exercised;
(D) no adjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (1) the Conversion Price on the Original Adjustment Date
for said deemed adjustment without giving effect to said deemed adjustment, or
(2) the Conversion Price that would have resulted from any actual issuance of
Additional Shares of Common Stock between the Original Adjustment Date and such
readjustment date if said original adjustment had not been made; and
(E) in the case of any Option which expires by its
terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price shall be made until the expiration or
exercise of such Option, whereupon such adjustment shall be made as of the date
such Option was granted and otherwise in the same manner as provided in clause
(C) above.
(iii) Shares Issued for Less Than Conversion Price. If at
any time or from time to time after the Original Issue Date, the Corporation
shall issue or sell Additional Shares of Common Stock, other than as a dividend
or other distribution on any class of stock as provided in Section 3.3(e), then
and in each case the then existing Conversion Price shall be adjusted as of the
opening of business on the date of such issue or sale, to a price determined by
multiplying the Conversion Price of such shares by a fraction (i) the numerator
of which shall be (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale (assuming for this purpose that all
outstanding Convertible Securities are then converted into Common Stock), plus
(B) the number of shares of Common Stock that the aggregate consideration
received by the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price, and (ii) the
denominator of which shall be (X) the number of such shares of Common Stock
outstanding immediately prior to such issue or sale (assuming for this purpose
that all outstanding Convertible Securities are then converted into Common
Stock) plus (Y) the number of such Additional Shares of Common Stock so issued.
(iv) Determination of Consideration. For purposes of this
Section 3.3(h), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Corporation
(before commissions or expenses) excluding amounts paid or
payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board; and
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(3) in the event Additional Shares of Common
Stock are issued together with other shares or securities or
other assets of the Corporation for consideration that covers
both, be the proportion of such consideration so received,
computed as provided in clauses (1) and (2) above, as determined
in good faith by the Board.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 3.3(h)(ii) shall be
determined by dividing
(x) the total amount, it any, received or receivable by
the Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such options or
the conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities, the exercise of
such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(i) Available Shares. The Corporation shall at all times
reserve and keep available, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of the Series A Preferred,
the full number of shares of Common Stock deliverable upon the conversion of all
Series A Preferred from time to time outstanding. The Corporation shall from
time to time (subject to obtaining necessary director and shareholder action),
in accordance with the laws of the State of California, increase the authorized
amount of its Common Stock if at any time the authorized number of shares of
Common Stock remaining unissued shall not be sufficient to permit the conversion
of all of the shares of Series A Preferred at the time outstanding.
(j) Notices. Any notices required by the provisions of this
Section 3.3 to be given to the holders of Series A Preferred shall be deemed
given at the time deposited in the United States mail, postage prepaid and
addressed to each holder of record at its address appearing on the books of the
Corporation. In the event that the Corporation shall propose at any time:
(i) to declare any dividend or distribution (other than by
purchase of Common Stock of employees, officers and directors pursuant to the
termination of such persons or pursuant to the Corporation's exercise of rights
of first refusal with respect to Com-
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<PAGE> 9
mon Stock held by such persons) upon its Common Stock, whether in cash,
property, stock or other securities, whether or not a regular cash dividend and
whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
Corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, this Corporation shall send to the
holders of the Series A Preferred:
(A) at least twenty (20) days' prior written notice of
the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in (i) and (ii) above; and
(B) in the case of the matters referred to in (iii) and
(iv) above, 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).
(k) No Impairment. The Corporation shall not amend its
Articles of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue, or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed by the
Corporation under this Section 3.3. It will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series A Preferred
against impairment.
(l) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this Section
3.3, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series A Preferred, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price then in effect, and
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<PAGE> 10
(iii) the number of shams of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series A
Preferred.
3.4 Changes. So long as not less than 2,500,000 shares of Series A
Preferred are issued and outstanding, the Corporation shall not, without first
obtaining the approval by vote or written consent of the holders of a majority
of such outstanding shares of Series A Preferred voting as a single class:
(a) Changes of Rights, Preferences, Privileges or
Restrictions. Alter or change any of the rights, preferences, privileges or
restrictions provided herein so as to affect adversely any shares of Series A
Preferred, or issue any shares of Series A Preferred in excess of 20,000,000;
(b) Reclassification. Reclassify any shares of Common Stock
to give them a preference or priority as to dividends or assets superior to or
on a parity with any shares of Series A Preferred;
(c) Increase. Increase the authorized number of shares of
Series A Preferred or authorize or issue shares of any class or series of stock
having any preference or priority as to dividends, assets or voting rights
superior to or on a parity with such preferences, priority or rights of Series A
Preferred;
(d) Purchase or Redemption. Purchase or redeem any share of
Common Stock, except for purchases or redemptions pursuant to a stock
restriction agreement, stock option agreement, or any other agreement or plan
providing for employee ownership of the Corporation's shares;
(e) Sale or Transfer of Assets. Effect any sale, lease,
assignment, transfer or other conveyance of all or substantially all of the
assets of the Corporation, or effect any liquidation, consolidation or merger of
the Corporation; or
(f) Special Qualifications for Shareholders. Make any
provision in the Articles of Incorporation of the Corporation fixing special
qualifications of persons who may be holders of any shares of Series A Preferred
or restricting the right to transfer or hypothecate such shares, unless such
provision is required by California, or federal law or applicable securities
laws, rules or regulations.
3.5 Exclusion of Other Rights. Except as may otherwise be required
by law, the shares of Series A Preferred shall not have any preferences or
relative, participating option or other special rights, other than those
specifically set forth in this resolution (as such resolution may be amended
from time to time) and in the Corporation's Certificate of Incorporation. The
shares of Series A Preferred shall have no preemptive or subscription rights.
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3.6 Headings of Subdivisions. The headings of the various
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
3.7 Status of Reacquired Shares. Shares of Series A Preferred
that have been issued and reacquired in any manner shall (upon compliance with
any applicable provisions of the law of the state of California) have the status
of authorized and unissued shares of preferred stock issuable in series
undesignated as to series and may be redesignated and reissued.
V.
Except for the Series A Preferred, the Preferred Stock may be issued
from time to time in one or more series. The Board of Directors of this
corporation is hereby authorized, by filing a certificate of determination
pursuant to the General Corporation Law of California, to fix, alter or revoke
from time to time the specific rights, preferences, privileges and restrictions,
or any of them, or the number of shares constituting any series or the
designation of the series of the Preferred Stock; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of such series then outstanding. In case the
number of shares of any series shall be decreased in accordance with the
foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
VI.
The personal liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law, as the same exists when this Article VI becomes effective and to such
greater extent as California law may thereafter permit.
VII.
The corporation is authorized to indemnify any agent (as hereinafter
defined) to the maximum and broadest extent permitted by California law, as the
same exists when this Article VII becomes effective and to such greater extent
as California law may thereafter permit, if and to the extent such agent becomes
entitled to indemnification by bylaw, agreement, vote of shareholders or
disinterested directors or otherwise. This authorization includes, without
limitation, the authority to indemnify any agent in excess of that otherwise
expressly permitted by Section 317 of the California Corporations Code as to
action in an official capacity and as to action in another capacity while
holding such office for breach of duty to the
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corporation and its shareholders; provided, however, that the corporation is not
authorized to indemnify any agent for any acts or omissions from which a
director may not be relieved of liability as set forth in the exceptions to
paragraph (10) of Section 204(a) of the California Corporations Code or as to
circumstances in which indemnity is expressly prohibited by Section 317 of the
California Corporations Code. When used in this Article VII, "agent" shall have
the meaning assigned to this term in Section 317 of the California Corporations
Code. Each reference in this Article VII to a provision of the California
Corporations Code shall mean that provision when this Article VII becomes
effective and as the same may be amended thereafter from time to time, but only
to the extent that such amendment would broaden or increase the scope or
magnitude of permissible indemnification.
3. The foregoing amended and restated articles of incorporation have
been duly approved by the board of directors.
4. The foregoing amended and restated articles of incorporation have
been duly approved by the required vote of shareholders in accordance with
Section 903 of the Corporations Code. The total number of outstanding shares of
the Corporation is 30,423,778 shares of Common Stock and 5,306,755 shares of
Series A Stock. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than 50% of
the Common Stock and more than 50% of the Series A Preferred, voting as separate
classes.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Dated: October 19, 1998
/s/ GARRY HARE
------------------------------------
Garry Hare, President
/s/ ROBERT FRIEDMAN
------------------------------------
Robert Friedman, Secretary
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Exhibit 3.2
FILED
In the office of the Secretary of State
of the State of California
OCT 27 1998
Bill Jones
Bill Jones, Secretary of State
CERTIFICATE OF AMENDMENT
OF
OZ INTERACTIVE, INC.
The undersigned officers of OZ Interactive, Inc., a California
corporation do hereby certify pursuant to Section 401(a) of the California
General Corporation Law as to the following:
1. They are the president and secretary, respectively, of OZ
Interactive, Inc., a California corporation.
2. Article I of the Articles of Incorporation of this corporation is
amended to read as follows:
I.
The name of this corporation is oz.com.
3. The foregoing amendment of the Articles of Incorporation has been
duly approved by the Board of Directors.
4. The foregoing amendment of the Articles of Incorporation has been
duly approved by the required vote of the shareholders in accordance with
Section 902 of the California General Corporation Law. The total number of
outstanding shares of the corporation is 35,730,553. The number of shares voting
in favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate of Amendment are
true and correct of our own knowledge.
Dated: October 21, 1998 at San Francisco, California.
/s/ GARRY HARE /s/ ROBERT D. FRIEDMAN
- ------------------------------- ------------------------------------
Garry Hare, President Robert D. Friedman, Secretary
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EXHIBIT 3.3
BYLAWS
OF
OZ INTERACTIVE, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The Board of Directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this state, and the corporation has one or more business offices
in this state, the Board of Directors shall fix and designate a principal
business office in the State of California.
Section 2. OTHER OFFICES. The Board of Directors may at any time
establish, or may designate an officer of the corporation to establish, branch
or subordinate offices at any place or places where the corporation is qualified
to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
at any place within or outside the State of California designated by the Board
of Directors. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall
be held each year on a date and at a time designated by the Board of Directors.
At each annual meeting directors shall be elected and any other proper business
may be transacted.
Section 3. SPECIAL MEETING. A special meeting of the shareholders
may be called at any time by the Board of Directors, or by the Chairman of the
Board, or by the President, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than 10% of the votes at that meeting.
If a special meeting is called by any person or persons other than
the Board of Directors or the President or the Chairman of the Board, the
request shall be in writing, specifying the time of such meeting and the general
nature of the business
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proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
Chairman of the Board, the President, any Vice President, or the Secretary of
the corporation. The officer receiving the request shall cause notice to be
promptly given to the shareholders entitled to vote, in accordance with the
provisions of Sections 4 and 5 of this Article II, that a meeting will be held
at the time requested by the person or persons calling the meeting, not less
than thirty-five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after receipt of the
request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph of this Section 3 shall be construed as
limiting, fixing or affecting the time when a meeting of shareholders called by
action of the Board of Directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings
of shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of the annual meeting, those
matters which the Board of Directors, at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i)
a contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code, (ii) an
amendment of the articles of incorporation, pursuant to Section 902 of that
Code, (iii) a reorganization of the corporation, pursuant to 1201 of that Code,
(iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of
that Code, or (v) a distribution in dissolution other than in accordance with
the rights of outstanding preferred shares, pursuant to Section 2007 of that
Code, the notice shall also state the general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
any meeting of shareholders shall be given either personally or by first-class
mail or telegraphic or other written communication, charges prepaid, addressed
to the shareholder at the address of that shareholder appearing on the books of
the corporation or given by the shareholder to the corporation for the purpose
of notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United
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States Postal Service marked to indicate that the United States Postal Service
is unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if these shall be available to the shareholder on written demand of the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of
any shareholders' meeting shall be executed by the secretary, assistant
secretary, or any transfer agent of the corporation giving the notice, and shall
be filed and maintained in the minute book of the corporation.
Section 6. QUORUM. Unless otherwise provided in the Articles of
Incorporation of the corporation, a majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of the
shareholders. The shareholders present at a duly called or held meeting at which
a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at that meeting, except as provided in Section 6 of
this Article II.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case the Board of Directors shall
set a new record date. Notice of any such adjourned meeting shall be given to
each shareholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 4 and 5 of this Article II. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting
of shareholders shall be determined in accordance with the provisions of Section
11 of this Article II, subject to the provisions of Sections 702 to 704,
inclusive, of the California Corporations Code (relating to voting shares held
by a fiduciary, in the name of a corporation, or in joint ownership). The
shareholders' vote may be by voice vote or by ballot; provided, however, that
any election for directors must be by ballot if demanded by any shareholder
before the voting has begun. On any matter other than elections of directors,
any shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal, but, if the
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shareholder fails to specify the number of shares which the shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares that the shareholder is entitled to
vote. If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter (other than the
election of directors) shall be the act of the shareholders, unless the vote of
a greater number or voting by classes is required by California Corporations
Code or by the Articles of Incorporation.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholder's
shares) unless the candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes. If
any shareholder has given such a notice, then every shareholder entitled to vote
may cumulate votes for candidates in nomination and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which that shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates, as
the shareholder thinks fit. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though a meeting had
been duly held after regular call and notice, if a quorum is present either in
person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a Written
Waiver of Notice or a Consent to a holding of the meeting, or an approval of the
minutes. The Waiver of Notice or Consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that, if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article II,
the Waiver of Notice or Consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver
of notice of that meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a
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consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote thereon were present and voted. In the case of election
of directors, such a consent shall be effective only if signed by the holders of
all outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy on the
Board of Directors that has not been filled by the directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
Secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxy holders, or
a transferee of the shares or a personal representative of the shareholder or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the Unanimous Written Consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 5 of this Article
II. In the case of approval of (i) contracts or transactions in which a director
has a direct or indirect financial interest, pursuant to Section 310 of the
California Corporations Code, (ii) indemnification of agents of the corporation,
pursuant to Section 317 of that Code, (iii) a reorganization of the corporation,
pursuant to Section 1201 of that Code, and (iv) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of that Code, the notice shall be given at least ten
(10) days before the consummation of any action authorized by that approval.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of any
meeting or to vote or entitled to give consent to corporate action without a
meeting, the Board of Directors may fix, in advance, a record date which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
any such meeting nor more than sixty (60) days before any such action without a
meeting, and in this event only shareholders of record on the date so fixed are
entitled to notice and to vote or to give consents, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the California Corporations
Code.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business
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day next preceding the day on which notice is given or if notice is waived, at
the close of business on the business day next preceding the day on which the
meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action of the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to such prior action, or the sixtieth (60th) day before the date of
such prior action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for directors or
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the Secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Sections 705(e) and 705(f) of the California Corporations Code.
Section 13. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Directors may appoint any person or persons other
than nominees for office to act as Inspectors of Election at the meeting or its
adjournment. If no Inspector of Election is so appointed or if any persons so
appointed fail to appear or refuse to act, then the Chairman of the meeting may,
and on the request of any shareholder or a shareholder's proxy shall, appoint
Inspectors of Election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the Chairman of the meeting may, and upon
the request of any shareholder or a shareholder's proxy shall, appoint a person
to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
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(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California
Corporations Code and any limitations in the Articles of Incorporation and these
bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
Without prejudice to these general powers, and subject to the same
limitations, the Board of Directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
corporation; present any powers and duties for them that are consistent with
law, with the articles of incorporation, and with these bylaws; and fix their
compensation.
(b) Change the principal executive office or the principal business
office in the State of California from one location to another; cause the
corporation to be qualified to do business in any other state, territory,
dependency, or country and conduct business within or without the State of
California; and designate any place within or without the State of California
for the holding of any shareholders' meeting, or meetings, including annual
meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
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(d) Authorize the issuance of shares of stock of the corporation on
any lawful terms, in consideration of money paid, labor done, services actually
rendered, debts or securities canceled, or tangible property actually received.
(e) Borrow money and incur indebtedness on behalf of the
corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt and
securities.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of directors shall be not less than three (3) and not more than five (5)
until changed by a duly adopted amendment to the Articles of Incorporation or by
an amendment to this bylaw adopted by the vote or written consent of holders of
a majority of the outstanding shares entitled to vote. The exact number of
directors shall be fixed from time to time, within the limits specified, by
resolution of the board of directors or the shareholders. Subject to the
foregoing provisions for changing the exact number of directors, the number of
directors of this corporation shall be three (3).
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall
be elected at each annual meeting of the shareholders to hold office until the
next annual meeting. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Section 4. VACANCIES. Vacancies in the Board of Directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, except that a vacancy created by the removal of a
director by the vote or written consent of the shareholders or by court order
may be filled only by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of all shares entitled to vote for the election of
directors. Each director so elected shall hold office until the next annual
meeting of the shareholders and until a successor has been elected and
qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, or if
the Board of Directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, or if the shareholders fail, at any meeting of shareholders at which any
director or directors are elected, to elect the number of directors to be voted
for at that meeting.
The shareholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors, but any such election
by written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
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Any director may resign effective on giving written notice to the
chairman of the Board, the President, the Secretary, or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular
meetings of the Board of Directors may be held at any place within or outside
the State of California that has been designated from time to time by resolution
of the board. In the absence of such a designation, regular meetings shall be
held at the principal executive office of the corporation. Special meetings of
the board shall be held at any place within or outside the State of California
that has been designated in the notice of the meeting or, if not stated in the
notice or there is no notice, at the principal executive office of the
corporation. Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another, and all such directors shall
be deemed to be present in person at the meeting.
Section 6. ANNUAL MEETING. Immediately following each annual meeting
of shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the
Board of Directors shall be held without call at such time as shall from time to
time be fixed by the Board of Directors. Such regular meetings may be held
without notice.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose or purposes may be called at any time by the Chairman
of the Board or the President or any Vice President or the Secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, or by telecopier, addressed to each director at that
director's address as it is shown on the records of the corporation. In case the
notice is mailed, it shall be deposited in the United States Postal Service at
least four (4) days before the time of the holding of the meeting. In case the
notice is delivered personally, or by telephone or by telecopier or telegram, it
shall be delivered personally or by telephone or to the telegraph company at
least forty-eight (48) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not
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specify the purpose of the meeting nor the place if the meeting is to be held at
the principal executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Directors, subject to
the provisions of Section 310 of the California Corporations Code (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of that Code (as to
appointment of committees), and Section 317(e) of that Code (as to
indemnification of directors). A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
for that meeting.
Section 10. WAIVER OF NOTICE. The transactions of any meeting of the
Board of Directors, however called and noticed or wherever held, shall be as
valid as though a meeting had been duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents, and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any director who
attends the meeting without protesting before or at its commencement, the lack
of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors present,
whether or not constituting a quorum, may adjourn any meeting to another time
and place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting, in the manner specified
in Section 8 of this Article III, to the directors who were not present at the
time of the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the Board of Directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and effect
as a unanimous vote of the Board of Directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and
members of committees may receive such compensation, if any, for their services,
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and such reimbursement of expenses, as may be fixed or determined by resolution
of the Board of Directors. This Section 14 shall not be construed to preclude
any director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any committee, to the extent provided in
the resolution of the board, shall have all the authority of the board, except
with respect to:
(a) The approval of any action which, under the California
Corporations Code, also requires shareholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new bylaws.
(e) the amendment or repeal of any resolutions of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the Board
of Directors; and
(g) the appointment of any other committees of the Board of
Directors or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action without
meetings), with such
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changes in the context of those bylaws as are necessary to substitute the
committee and its members for the Board of Directors and its members, except
that the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee; special
meetings of committees may also be called by resolution of the Board of
Directors; and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
President, a Secretary, and a Chief Financial Officer. The corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, one
or more Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Financial Officers, and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article V. Any number of
offices may be held by the same person.
Section 2. APPOINTMENT OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the Board of
Directors, and each shall serve at the pleasure of the board, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
and may empower the President to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the bylaws or as
the Board of Directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an officer under any contract of employment, any officer may
be removed, either with or without cause, by the Board of Directors, at any
regular or special meeting of the board, or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation
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is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointments to that
office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
an officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
bylaws. If there is no President, the Chairman of the Board shall in addition be
the Chief Executive Officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers of
the corporation. He shall preside at all meetings of the shareholders and, in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a Vice President designated by the Board
of Directors, shall perform all the duties of the President, subject to all the
restrictions upon the President. The Vice Presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board of Directors or the bylaws, and the President, or
the Chairman of the Board.
Section 9. SECRETARY. The Secretary shall keep or cause to be kept,
at the principal executive office or such other place as the Board of Directors
may direct, a book of minutes of all meetings and actions of directors,
committees of directors, and shareholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice given,
the names of those present at directors' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register,
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showing the names of all shareholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors required by the
bylaws or by law to be given, and he shall keep the seal of the corporation if
one be adopted, in safe custody, and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or by the
bylaws.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained earning, and shares.
The books of account shall at all reasonable times be open to inspection by any
director.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the corporation as may be ordered by the Board of Directors, shall
render to the President and directors, whenever they request it, an account of
all of his transactions as Chief Financial Officer and of the financial
condition of the corporation, and shall have other powers and perform such other
duties as may be prescribed by the Board of Directors or the bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AUTHORIZATION. The corporation shall have the authority,
to the maximum and broadest extent permitted by California law, to indemnify
each of its agents against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that any such person is or was an agent of the
corporation. The corporation shall have the authority, to the maximum and
broadest extent permitted by California law, to advance expenses incurred by any
agent of the corporation in defending any proceeding. This Article VI authorizes
but does not obligate the corporation to indemnify and advance expenses for its
agents.
Section 2. EXCESS INDEMNIFICATION. The indemnification authorized by
this Article VI may include, without limitation, indemnification of an agent in
excess of that expressly permitted by Section 317 of the California Corporations
Code,
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as the same shall exist from time to time, as to action by such agent in an
official capacity and as to action in another capacity while holding such
office.
Section 3. OTHER RIGHTS. The indemnification authorized by this
Article VI shall not be deemed exclusive of any rights to which those seeking
indemnification may be entitled under California law, any other bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office.
Section 4. INSURANCE. The corporation shall have the authority to
purchase and maintain insurance on behalf of agents of the corporation against
any liability asserted against or incurred by an agent in such capacity or
arising out of the agent's status as an agent.
Section 5. DEFINITIONS. For purposes of this Article VI, an "agent"
of the corporation includes any person who is or was a director, officer,
employee, or other agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, or was a
director, officer, employee or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation. For purposes of this Article VI, "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative. For purposes of this Article VI, "expenses"
includes, without limitation, attorneys' fees and any expenses of establishing a
right to indemnification. For purposes of this Article VI, "California law"
means California law as it exists when this Article VI becomes effective and as
the same may be amended or otherwise changed thereafter from time to time but
only to the extent that such amendment or change would broaden or increase the
scope or magnitude of indemnification of agents by the corporation.
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ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the Board of Directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.
A shareholder or shareholders of the corporation holding at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of such voting shares and have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors may (i) inspect and copy the records of
shareholders' names and addresses and shareholdings during usual business hours
on five (5) days prior written demand on the corporation, and (ii) obtain from
the transfer agent of the corporation, on written demand and on the tender of
such transfer agent's usual charges for such list, a list of the shareholders'
names and addresses, who are entitled to vote for the election of directors, and
their shareholdings, as of the most recent record date for which that list has
been compiled or as of the date specified by the shareholder after the date of
demand. This list shall be made available to any such shareholder by the
transfer agent on or before the later of five (5) days after the demand is
received or the date specified in the demand as the date as of which the list is
to be compiled. The record of shareholders shall also be open to inspection on
the written demand of any shareholder or holder of a voting trust certificate,
at any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate. Any inspection and copying under this Section l may be made in
person or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California, at its principal business office in
this state, the original or a copy of the bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside the State
of California and the corporation has no principal business office in this
state, the Secretary shall, upon the written request of any shareholder, furnish
to that shareholder a copy of the bylaws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records and minutes of proceedings of the shareholders
and the Board of Directors and any committee or committees of the Board of
Directors shall be kept at such place or places designated by the Board of
Directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept either in written form or
any other form capable
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of being converted into written form. The minutes and accounting books and
records shall be open to inspection upon the written demand of any shareholder
or holder of a voting trust certificate, at any reasonable time during usual
business hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. The inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. These rights of inspection shall extend to the records
of each subsidiary corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California Corporations Code is
expressly dispensed with, but nothing herein shall be interpreted as prohibiting
the Board of Directors from issuing annual or other periodic reports to the
shareholders of the corporation as they consider appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for twelve
(12) months and each such statement shall be exhibited at all reasonable times
to any shareholder demanding an examination of any such statement or a copy
shall be mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%)
of the outstanding shares of any class of stock of the corporation makes a
written request to the corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the then current fiscal
year ended more than thirty (30) days before the date of the request, and a
balance sheet of the corporation as of the end of that period, the Chief
Financial Officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, this report shall likewise be delivered or mailed to
the shareholder or shareholders within thirty (30) days after the request.
The corporation shall also, on the written request of any
shareholder, mail to the shareholder a copy of the last annual, semi-annual, or
quarterly income statement which it has prepared, and a balance sheet as of the
end of that period.
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The quarterly income statements and balance sheets referred to in
this section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation
shall, during the period commencing on July 1 and ending on June 30 in each
year, file with the Secretary of State of the State of California, on the
prescribed form, a statement setting forth the authorized number of directors,
the names and complete business or residence addresses of all incumbent
directors, the names and complete business or residence addresses of the Chief
Executive Officer, Secretary, and Chief Financial Officer, the street address of
its principal executive office or principal business office in this state, and
the general type of business constituting the principal business activity of the
corporation, together with a designation of the agent of the corporation for the
purpose of service of process, all in compliance with Section 1502 of the
California Corporations Code.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than Action by
Shareholders by Written Consent Without a Meeting), the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in Articles of Incorporation or the
California Corporations Code.
If the Board of Directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name or payable to the corporation, shall be signed
or endorsed by such person or persons and in such manner as, from time to time,
shall be determined by resolution of the Board of Directors.
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<PAGE> 19
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Board of Directors, except as otherwise provided in these bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and this
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the Board of Directors or within the agency power of
an officer, no officer, agent, or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates
for shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the Board of Directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the Chairman of the Board or Vice Chairman of the Board or
the President or Vice President and by the Chief Financial Officer or an
Assistant Financial Officer or the Secretary or any Assistant Secretary,
certifying the number of shares and the class or series of shares owned by the
shareholder. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed on a certificate shall have ceased to be
that officer, transfer agent, or registrar before that certificate is issued, it
may be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
Section 5. LOST CERTIFICATES. Except as provided in this Section 5,
no new certificates for shares shall be issued to replace an old certificate
unless the latter is surrendered to the corporation and canceled at the same
time. The Board of Directors may, in case any share certificate or certificate
for any other security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft, or destruction of the certificate or the issuance of
the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
Chairman of the Board, the President, or any Vice President, or any other person
authorized by resolution of the Board of Directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these officers
to vote or represent on behalf of the corporation any and all shares held by the
corporation in any other
19
<PAGE> 20
corporation or corporations may be exercised by any of these officers in person
or by any person authorized to do so by a proxy duly executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
California Corporations Code shall govern the construction of these bylaws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the Articles of Incorporation of the corporation set forth the
number of authorized directors of the corporation, the authorized number of
directors may be changed only by an amendment of the Articles of Incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section l of this Article IX, to adopt, amend, or
repeal bylaws, bylaws may be adopted, amended, or repealed by the Board of
Directors, provided, however, that the Board of Directors may adopt a bylaw or
amendment of a bylaw changing the authorized number of directors only for the
purpose of fixing the exact number of directors within the limits specified in
the Articles of Incorporation or in Section 2 of Article III of these bylaws.
20
<PAGE> 1
EXHIBIT 10.1
OZ INTERACTIVE, INC.
1995 STOCK OPTION PLAN
Adopted December 14, 1995
(As amended February 14, 1996, July 22, 1997 and May 4, 1999)
1. PURPOSE.
(a) The purpose of the OZ Interactive, Inc. 1995 Stock Option Plan (the
"Plan") is to provide a means by which selected employees and directors (if
declared eligible under paragraph 4) of and consultants to OZ Interactive, Inc.,
a California corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), may be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now employed by or serving as consultants or directors to the Company,
to secure and retain the services of new employees/persons capable of filling
such positions, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
(d) The Company intends that the options issued under the Plan shall, in
the discretion of the Board of Directors of the Company (the "Board") or any
committee to which responsibility for administration of the Plan has been
delegated pursuant to subparagraph 2(c), be either incentive stock options as
that term is used in Section 422 of the Code ("Incentive Stock
1.
<PAGE> 2
Options"), or options which do not qualify as incentive stock options
("Supplemental Stock Options"). All options shall be separately designated
Incentive Stock Options or Supplemental Stock Options at the time of grant, and
in such form as issued pursuant to paragraph 5. A separate certificate or
certificates will be issued for shares purchased on exercise of each type of
option. An option designated as a Supplemental Stock Option shall not be treated
as an incentive stock option.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a committee, as provided in subparagraph 2(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted options; when and how the option shall be
granted; whether the option will be an Incentive Stock Option or a Supplemental
Stock Option; the provisions of each option granted (which need not be
identical), including the time or times during the term of each option within
which all or portions of such option may be exercised; and the number of shares
for which an option shall be granted to each such person.
(2) To construe and interpret the Plan and options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
2.
<PAGE> 3
(3) To amend the Plan as provided in paragraph 10.
(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be disinterested persons, if required and as defined by
the provisions of subparagraph 2(d). If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Additionally,
prior to the date of the first registration of an equity security of the Company
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and notwithstanding anything to the contrary contained herein,
the Board may delegate administration of the Plan to any person or persons and
the term "Committee" shall apply to any person or persons to whom such authority
has been delegated.
(d) The term "disinterested person," as used in this Plan, shall mean
a director: (i) who was not during the one year prior to service as an
administrator of the Plan granted or awarded equity securities pursuant to the
Plan or any other plan of the Company or any of its Affiliates entitling the
participants therein to acquire equity securities of the Company or any of its
Affiliates except as permitted by Rule 16b-3(c)(2)(i) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") ("Rule
16b-3(c)(2)(i)"); or (ii) who is otherwise considered to be a "disinterested
person" in accordance with Rule 16b-3(c)(2)(i), or any other
3.
<PAGE> 4
applicable rules, regulations or interpretations of the Securities and Exchange
Commission. Any such person shall otherwise comply with the requirements of Rule
16b-3 promulgated under the Exchange Act.
(e) Any requirement that an administrator of the Plan be a
"disinterested person" shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that such
requirement shall not apply.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 9 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate Six Million Five Hundred
Thousand (6,500,000) shares of the Company's Common Stock. If any option granted
under the Plan shall for any reason expire or otherwise terminate without having
been exercised in full, the stock not purchased under such option shall again
become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to key employees
(including officers) of the Company or its Affiliates. A director of the Company
shall not be eligible to receive Incentive Stock Options unless such director is
also an employee (including an officer) of the Company or any Affiliate.
Supplemental Stock Options may be granted only to employees (including officers)
of, directors of or consultants to the Company or its Affiliates.
4.
<PAGE> 5
(b) A director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the director
as a person to whom options may be granted, or in the determination of the
number of shares which may be covered by options granted to the director: (i)
the Board has delegated its discretionary authority over the Plan to a Committee
which consists solely of "disinterested persons" as defined in subparagraph
2(d); or (ii) the Plan otherwise complies with the requirements of Rule 16b-3
promulgated under the Exchange Act, as from time to time in effect. The Board
shall otherwise comply with the requirements of Rule 16b-3 promulgated under the
Exchange Act, as from time to time in effect. This subparagraph 4(b) shall not
apply (i) prior to the date of the first registration of an equity security of
the Company under Section 12 of the Exchange Act, or (ii) if the Board or
Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an option under the
Plan if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such option is at least one hundred
ten percent (110%) of the fair market value of such stock at the date of grant
and the option is not exercisable after the expiration of five (5) years from
the date of grant.
5. OPTION PROVISIONS.
Each option shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. The provisions
of separate options need not be identical, but each option shall include
(through incorporation of provisions hereof by reference in the option or
otherwise) the substance of each of the following provisions:
5.
<PAGE> 6
(a) No option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the fair market value of the stock
subject to the option on the date the option is granted. The exercise price of
each Supplemental Stock Option shall be not less than eighty-five percent (85%)
of the fair market value of the stock subject to the option on the date the
option is granted.
(c) The purchase price of stock acquired pursuant to an option shall
be paid, to the extent permitted by applicable statutes and regulations, either
(i) in cash at the time the option is exercised, or (ii) at the discretion of
the Board or the Committee, either at the time of the grant or exercise of the
option, (A) by delivery to the Company of Common Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of such Common Stock of the
Company) with the person to whom the option is granted or to whom the option is
transferred pursuant to subparagraph 5(d), or (C) in any other form of legal
consideration that may be acceptable to the Board or the Committee.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) An Incentive Stock Option shall not be transferable except by
will or by the laws of descent and distribution, and shall be exercisable during
the lifetime of the person to whom
6.
<PAGE> 7
the Incentive Stock Option is granted only by such person. An option which is
not an Incentive Stock Option shall not be transferable except by will or by the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder (a "QDRO"), and shall be exercisable
during the lifetime of the person to whom the option is granted only by such
person or any transferee pursuant to a QDRO.
(e) The total number of shares of stock subject to an option may, but
need not, be allotted in periodic installments (which may, but need not, be
equal). From time to time during each of such installment periods, the option
may become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or all of the
shares allotted to such period and/or any prior period as to which the option
was not fully exercised. During the remainder of the term of the option (if its
term extends beyond the end of the installment periods), the option may be
exercised from time to time with respect to any shares then remaining subject to
the option. The provisions of this subparagraph 5(e) are subject to any option
provisions governing the minimum number of shares as to which an option may be
exercised.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 5(d), as a condition of exercising any
such option, (1) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters, and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits
7.
<PAGE> 8
and risks of exercising the option; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the option for such person's own account and not with any present
intention of selling or otherwise distributing the stock. These requirements,
and any assurances given pursuant to such requirements, shall be inoperative if
(i) the issuance of the shares upon the exercise of the option has been
registered under a then currently effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws.
(g) An option shall terminate three (3) months after termination of
the optionee's employment or relationship as a consultant or director with the
Company or an Affiliate, unless (i) such termination is due to such person's
permanent and total disability, within the meaning of Section 422(c)(6) of the
Code, in which case the option may, but need not, provide that it may be
exercised at any time within one (1) year following such termination of
employment or relationship as a consultant or director; or (ii) the optionee
dies while in the employ of or while serving as a consultant or director to the
Company or an Affiliate, in which case the option may, but need not, provide
that it may be exercised at any time within eighteen (18) months following the
death of the optionee by the person or persons to whom the optionee's rights
under such option pass by will or by the laws of descent and distribution; or
(iii) the option by its terms specifies either (A) that it shall terminate
sooner than three (3) months after termination of the optionee's employment or
relationship as a consultant or director, or (B) that it may be exercised more
than three (3) months after termination of such relationship with the Company or
an Affiliate. This subparagraph 5(g)
8.
<PAGE> 9
shall not be construed to extend the term of any option or to permit anyone to
exercise the option after expiration of its term, nor shall it be construed to
increase the number of shares as to which any option is exercisable from the
amount exercisable on the date of termination of the optionee's employment or
relationship as a consultant or director.
(h) The option may, but need not, include a provision whereby the
optionee may elect at any time during the term of his or her employment or
relationship as a consultant or director with the Company or any Affiliate to
exercise the option as to any part or all of the shares subject to the option
prior to the stated vesting date of the option or of any installment or
installments specified in the option. Any shares so purchased from any unvested
installment or option may be subject to a repurchase right in favor of the
Company or to any other restriction the Board or the Committee determines to be
appropriate.
(i) To the extent provided by the terms of an option, the optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by any of the following means or by a combination of
such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold from the shares of the Common Stock otherwise issuable to the
participant as a result of the exercise of the stock option a number of shares
having a fair market value less than or equal to the amount of the withholding
tax obligation; or (3) delivering to the Company owned and unencumbered shares
of the common stock having a fair market value less than or equal to the amount
of the withholding tax obligation.
9.
<PAGE> 10
6. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options unless and until such authority is obtained.
7. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
8. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is
transferred under subparagraph 5(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(b) Throughout the term of any option granted pursuant to the Plan,
the Company shall make available to the holder of such option, not later than
one hundred twenty (120) days
10.
<PAGE> 11
after the close of each of the Company's fiscal years during the option term,
upon request, such financial and other information regarding the Company as
comprises the annual report to the shareholders of the Company provided for in
the Bylaws of the Company.
(c) Nothing in the Plan or any instrument executed or option granted
pursuant thereto shall confer upon any eligible employee, consultant, director
or optionee any right to continue in the employ of the Company or any Affiliate
(or to continue acting as a consultant or director) or shall affect the right of
the Company or any Affiliate to terminate the employment or consulting
relationship or directorship of any eligible employee consultant or director or
optionee with or without cause. In the event that an optionee is permitted or
otherwise entitled to take a leave of absence, the Company shall have the
unilateral right to (i) determine whether such leave of absence will be treated
as a termination of employment or relationship as consultant or director for
purposes of paragraph 5(g) hereof and corresponding provisions of any
outstanding options, and (ii) suspend or otherwise delay the time or times at
which the shares subject to the option would otherwise vest.
(d) To the extent that the aggregate fair market value (determined at
the time of grant) of stock with respect to which incentive stock options (as
defined in the Code) are exercisable for the first time by any optionee during
any calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Supplemental Stock Options.
11.
<PAGE> 12
9. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(b) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise then to the extent permitted by applicable law: (i) any surviving
corporation shall assume any options outstanding under the Plan or shall
substitute similar options for those outstanding under the Plan, or (ii) such
options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such options, or to substitute similar
options for those outstanding under the Plan, then, with respect to options held
by persons then performing services as employees, consultants or directors for
the Company, the time at which such options may first be exercised shall be
accelerated and the options terminated if not exercised prior to such event. In
the event of a dissolution or liquidation of the Company, any options
outstanding under the Plan shall terminate if not exercised prior to such event.
12.
<PAGE> 13
10. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 9 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
shareholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for options under
the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires shareholder
approval in order for the Plan to satisfy the requirements of Section 422(b) of
the Code); or
(iii) Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to satisfy the requirements
of Section 422(b) of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act.
(b) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide optionees with
the maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to employee incentive stock
options and/or to bring the Plan and/or incentive stock options granted under it
into compliance therewith.
(c) Rights and obligations under any option granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the option was
granted and (ii) such person consents in writing.
13.
<PAGE> 14
11. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on December 12, 2005, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the shareholders of the Company, whichever is earlier. No options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the option was granted.
12. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
options granted under the Plan shall be exercised unless and until the Plan has
been approved by the shareholders of the Company, and, if required, an
appropriate permit has been issued by the Commissioner of Corporations of the
State of California.
14.
<PAGE> 1
EXHIBIT 10.2
OZ INTERACTIVE, INC.
1998 INCENTIVE STOCK PLAN
1. Objectives. The OZ Interactive, Inc. 1998 Incentive Stock Plan (the
"Plan") is designed to retain directors, executives and selected employees and
consultants and reward them for making major contributions to the success of the
Company. These objectives are accomplished by making long-term incentive awards
under the Plan thereby providing Participants with a proprietary interest in the
growth and performance of the Company.
2. Definitions
(a) "Board" - The Board of Directors of the Company.
(b) "California Securities Rules" - California Corporate Securities
Law of 1968 and the rules promulgated thereunder.
(c) "Code" - The Internal Revenue Code of 1986, as amended from time
to time.
(d) "Committee" - The Executive Compensation Committee of the
Company's Board, or such other committee of the Board that is designated by the
Board to administer the Plan, composed of not less than two members of the Board
all of whom are disinterested persons, as contemplated by Rule 16b-3 ("Rule
16b-3") promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The foregoing requirement for disinterested administration
shall not apply prior to the date of the first registration of any of the
securities of the Company under the Exchange Act.
(e) "Company" - OZ Interactive, Inc. and its subsidiaries including
subsidiaries of subsidiaries.
(f) "Exchange Act" - The Securities Exchange Act of 1934, as amended
from time to time.
(g) "Fair Market Value" - The fair market value of the Company's
issued and outstanding Stock as determined in good faith by the Board or
Committee.
(h) "Grant" - The grant of any form of stock award or stock purchase
offer, whether granted singly, in combination or in tandem, to a Participant
pursuant to such terms, conditions and limitations as the Committee may
establish in order to fulfill the objectives of the Plan.
(i) "Grant Agreement" - An agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable to
a Grant.
(k) "Participant" - A director, officer, employee or consultant of
the Company to whom an Award has been made under the Plan.
(l) "Restricted Stock Purchase Offer" - A Grant of the right to
purchase a specified number of shares of Stock pursuant to a written agreement
issued under the Plan.
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(m) "Securities Act" - The Securities Act of 1933, as amended from
time to time.
(n) "Stock" - Authorized and issued or unissued shares of common
stock of the Company.
(o) "Stock Award" - A Grant made under the Plan in stock or
denominated in units of stock for which the Participant is not obligated to pay
additional consideration.
3. Administration. The Plan shall be administered by the Board, provided
however, that the Board may delegate such administration to the Committee.
Subject to the provisions of the Plan, the Board and/or the Committee shall have
authority to (a) grant, in its discretion, Stock Awards or Restricted Stock
Purchase Offers; (b) determine in good faith the fair market value of the Stock
covered by any Grant; (c) determine which eligible persons shall receive Grants
and the number of shares, restrictions, terms and conditions to be included in
such Grants; (d) construe and interpret the Plan; (e) promulgate, amend and
rescind rules and regulations relating to its administration, and correct
defects, omissions and inconsistencies in the Plan or any Grant; (f) consistent
with the Plan and with the consent of the Participant, as appropriate, amend any
outstanding Grant or amend the exercise date or dates thereof; (g) determine the
duration and purpose of leaves of absence which may be granted to Participants
without constituting termination of their employment for the purpose of the Plan
or any Grant; and (h) make all other determinations necessary or advisable for
the Plan's administration. The interpretation and construction by the Board of
any provisions of the Plan or selection of Participants shall be conclusive and
final. No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Grant made
thereunder.
4. Eligibility
The persons who shall be eligible to receive Grants shall be directors,
officers, employees or consultants to the Company. The term consultant shall
mean any person, other than an employee, who is engaged by the Company to render
services and is compensated for such services. Any issuance of a Grant to an
officer or director of the Company subsequent to the first registration of any
of the securities of the Company under the Exchange Act shall comply with the
requirements of Rule 16b-3.
5. Stock
(a) Authorized Stock: Stock subject to Grants may be either unissued
or reacquired Stock.
(b) Number of Shares. The total number of shares of Stock which may
be purchased or granted directly by Stock Awards or Restricted Stock Purchase
Offers shall not exceed One Million (1,000,000). Any shares of Stock issued
pursuant to a Grant and repurchased pursuant to the terms thereof shall be
available for future Grants as though not previously covered by a Grant.
(c) Reservation of Shares. The Company shall reserve and keep
available at all times during the term of the Plan such number of shares as
shall be sufficient to satisfy the requirements
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of the Plan. If, after reasonable efforts, which efforts shall not include the
registration of the Plan or Grants under the Securities Act, the Company is
unable to obtain authority from any applicable regulatory body, which
authorization is deemed necessary by legal counsel for the Company for the
lawful issuance of shares hereunder, the Company shall be relieved of any
liability with respect to its failure to issue and sell the shares for which
such requisite authority was so deemed necessary unless and until such authority
is obtained.
(d) Application of Funds. The proceeds received by the Company from
the sale of Stock pursuant to rights under Stock Purchase Agreements will be
used for general corporate purposes.
6. Stock Awards and Restricted Stock Purchase Offers.
(a) Types of Grants
(i) Stock Award. All or part of any Stock Award under the Plan
may be subject to conditions established by the Board or the Committee, and set
forth in the Stock Award Agreement, which may include, but are not limited to,
continuous service with the Company, achievement of specific business
objectives, increases in specified indices, attaining growth rates and other
comparable measurements of Company performance. Such Awards may be based on Fair
Market Value or other specified valuation. All Stock Awards will be made
pursuant to the execution of a Stock Award Agreement substantially in the form
attached hereto as Exhibit "A."
(ii) Restricted Stock Purchase Offer. A Grant of a Restricted
Stock Purchase Offer under the Plan shall be subject to such (i) vesting
contingencies related to the Participant's continued association with the
Company for a specified time and (ii) other specified conditions as the Board or
Committee shall determine, in their sole discretion, consistent with the
provisions of the Plan. All Restricted Stock Purchase Offers shall be made
pursuant to a Restricted Stock Purchase Offer substantially in the form attached
hereto as Exhibit "B."
(b) Conditions and Restrictions. Shares of Stock which Participants
may receive as a Stock Award under a Stock Award Agreement or Restricted Stock
Purchase Offer under a Restricted Stock Purchase Offer may include such
restrictions as the Board or Committee, as applicable, shall determine,
including restrictions on transfer, repurchase rights, right of first refusal,
and forfeiture provisions. When transfer of Stock is so restricted or subject to
forfeiture provisions it is referred to as "Restricted Stock." Further, with
Board or Committee approval, Stock Awards or Restricted Stock Purchase Offers
may be deferred, either in the form of installments or a future lump sum
distribution. The Board or Committee may permit selected Participants to elect
to defer distributions of Stock Awards or Restricted Stock Purchase Offers in
accordance with procedures established by the Board or Committee to assure that
such deferrals comply with applicable requirements of the Code including, at the
choice of Participants, the capability to make further deferrals for
distribution after retirement. Any deferred distribution, whether elected by the
Participant or specified by the Stock Award Agreement, Restricted Stock Purchase
Offers or by the Board or Committee, may require the payment be forfeited in
accordance with the provisions of Section 6(c). Dividends or dividend equivalent
rights may be extended to and made part of any Stock Award or Restricted Stock
Purchase Offers denominated in Stock or
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units of Stock, subject to such terms, conditions and restrictions as the Board
or Committee may establish.
(c) Cancellation and Rescission of Grants. Unless the Stock Award
Agreement or Restricted Stock Purchase Offer specifies otherwise, the Board or
Committee, as applicable, may cancel any unexpired, unpaid, or deferred Grants
at any time if the Participant is not in compliance with all other applicable
provisions of the Stock Award Agreement or Restricted Stock Purchase Offer, the
Plan and with the following conditions:
(i) A Participant shall not render services for any organization
or engage directly or indirectly in any business which, in the judgment of the
chief executive officer of the Company or other senior officer designated by the
Board or Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization or
business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company. For Participants whose employment has terminated, the
judgment of the chief executive officer shall be based on the Participant's
position and responsibilities while employed by the Company, the Participant's
post-employment responsibilities and position with the other organization or
business, the extent of past, current and potential competition or conflict
between the Company and the other organization or business, the effect on the
Company's customers, suppliers and competitors and such other considerations as
are deemed relevant given the applicable facts and circumstances. A Participant
who has retired shall be free, however, to purchase as an investment or
otherwise, stock or other securities of such organization or business so long as
they are listed upon a recognized securities exchange or traded
over-the-counter, and such investment does not represent a substantial
investment to the Participant or a greater than 10 percent equity interest in
the organization or business.
(ii) A Participant shall not, without prior written authorization
from the Company, disclose to anyone outside the Company, or use in other than
the Company's business, any confidential information or material, as defined in
the Company's Proprietary Information and Inventions Agreement or similar
agreement regarding confidential information and intellectual property, relating
to the business of the Company, acquired by the Participant either during or
after employment with the Company.
(iii) A Participant, pursuant to the Company's Proprietary
Information and Inventions Agreement, shall disclose promptly and assign to the
Company all right, title and interest in any invention or idea, patentable or
not, made or conceived by the Participant during employment by the Company,
relating in any manner to the actual or anticipated business, research or
development work of the Company and shall do anything reasonably necessary to
enable the Company to secure a patent where appropriate in the United States and
in foreign countries.
(iv) Upon exercise, payment or delivery pursuant to a Grant, the
Participant shall certify on a form acceptable to the Committee that he or she
is in compliance with the terms and conditions of the Plan. Failure to comply
with all of the provisions of this Section 6(c) prior to, or during the six
months after, any exercise, payment or delivery pursuant to a Grant shall cause
such exercise, payment or delivery to be rescinded. The Company shall notify the
Participant in writing of any such rescission within two years after such
exercise, payment or delivery. Within ten days after receiving such a notice
from the Company, the Participant shall pay to the Company the amount of any
gain realized or payment received as a result of the rescinded exercise, payment
or
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delivery pursuant to a Grant. Such payment shall be made either in cash or by
returning to the Company the number of shares of Stock that the Participant
received in connection with the rescinded exercise, payment or delivery.
(d) Nonassignability
(i) Except pursuant to Section 6(e)(iii) and except as set forth
in Section 6(d)(ii), no Grant or any other benefit under the Plan shall be
assignable or transferable, or payable to or exercisable by, anyone other than
the Participant to whom it was granted.
(ii) Where a Participant terminates employment and retains a
Grant pursuant to Section 6(e)(ii) in order to assume a position with a
governmental, charitable or educational institution, the Board or Committee, in
its discretion and to the extent permitted by law, may authorize a third party
(including but not limited to the trustee of a "blind" trust), acceptable to the
applicable governmental or institutional authorities, the Participant and the
Board or Committee, to act on behalf of the Participant with regard to such
Awards.
(e) Termination of Employment. If the employment or service to the
Company of a Participant terminates, other than pursuant to any of the following
provisions under this Section 6(e), all unexercised, deferred and unpaid Stock
Awards or Restricted Stock Purchase Offers shall be cancelled immediately,
unless the Stock Award Agreement or Restricted Stock Purchase Offer provides
otherwise:
(i) Retirement Under a Company Retirement Plan. When a
Participant's employment terminates as a result of retirement in accordance with
the terms of a Company retirement plan, the Board or Committee may permit Stock
Awards or Restricted Stock Purchase Offers to continue in effect beyond the date
of retirement in accordance with the applicable Grant Agreement and the
exercisability and vesting of any such Grants may be accelerated.
(ii) Rights in the Best Interests of the Company. When a
Participant resigns from the Company and, in the judgment of the Board or
Committee, the acceleration and/or continuation of outstanding Stock Awards or
Restricted Stock Purchase Offers would be in the best interests of the Company,
the Board or Committee may (i) authorize, where appropriate, the acceleration
and/or continuation of all or any part of Grants issued prior to such
termination and (ii) permit the exercise, vesting and payment of such Grants for
such period as may be set forth in the applicable Grant Agreement, subject to
earlier cancellation pursuant to Section 10 or at such time as the Board or
Committee shall deem the continuation of all or any part of the Participant's
Grants are not in the Company's best interest.
(iii) Death or Disability of a Participant.
(1) In the event of a Participant's death, the
Participant's estate or beneficiaries shall have a period up to the expiration
date specified in the Grant Agreement within which to receive or exercise any
outstanding Grant held by the Participant under such terms as may be specified
in the applicable Grant Agreement. Rights to any such outstanding Grants shall
pass by will or the laws of descent and distribution in the following order: (a)
to beneficiaries so designated by the Participant; if none, then (b) to a legal
representative of the Participant; if none, then (c) to the persons entitled
thereto as determined by a court of competent jurisdiction. Grants so passing
shall be made at such times and in such manner as if the Participant were
living.
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(2) In the event a Participant is deemed by the Board or
Committee to be unable to perform his or her usual duties by reason of mental
disorder or medical condition which does not result from facts which would be
grounds for termination for cause, Grants and rights to any such Grants may be
paid to or exercised by the Participant, if legally competent, or a committee or
other legally designated guardian or representative if the Participant is
legally incompetent by virtue of such disability.
(3) After the death or disability of a Participant, the
Board or Committee may in its sole discretion at any time (1) terminate
restrictions in Grant Agreements; (2) accelerate any or all installments and
rights; and (3) instruct the Company to pay the total of any accelerated
payments in a lump sum to the Participant, the Participant's estate,
beneficiaries or representative -- notwithstanding that, in the absence of such
termination of restrictions or acceleration of payments, any or all of the
payments due under the Grant might ultimately have become payable to other
beneficiaries.
(4) In the event of uncertainty as to interpretation of
or controversies concerning this Section 6, the determinations of the Board or
Committee, as applicable, shall be binding and conclusive.
7. Investment Intent. All Grants under the Plan are intended to be
exempt from registration under the Securities Act provided by Rule 701
thereunder. Unless and until the sale and issuance of Stock subject to the Plan
are registered under the Securities Act or shall be exempt pursuant to the rules
promulgated thereunder, each Grant under the Plan shall provide that the
purchases or other acquisitions of Stock thereunder shall be for investment
purposes and not with a view to, or for resale in connection with, any
distribution thereof.
8. Amendment, Modification, Suspension or Discontinuance of the Plan.
The Board may, insofar as permitted by law, from time to time, with respect to
any shares at the time not subject to outstanding Grants, suspend or terminate
the Plan or revise or amend it in any respect whatsoever, except that without
the approval of the shareholders of the Company, no such revision or amendment
shall (i) increase the number of shares subject to the Plan, (ii) decrease the
price at which Grants may be granted, (iii) materially increase the benefits to
Participants, or (iv) change the class of persons eligible to receive Grants
under the Plan; provided, however, no such action shall alter or impair the
rights and obligations under any Stock Award or Restricted Stock Purchase Offer
outstanding as of the date thereof without the written consent of the
Participant thereunder. No Grant may be issued while the Plan is suspended or
after it is terminated, but the rights and obligations under any Grant issued
while the Plan is in effect shall not be impaired by suspension or termination
of the Plan.
In the event of any change in the outstanding Stock by reason of a stock
split, stock dividend, combination or reclassification of shares,
recapitalization, merger, or similar event, the Board or the Committee may
adjust proportionally (a) the number of shares of Stock (i) reserved under the
Plan, (ii) covered by outstanding Stock Awards or Restricted Stock Purchase
Offers; (b) the Stock prices related to outstanding Grants; and (c) the
appropriate Fair Market Value and other price determinations for such Grants. In
the event of any other change affecting the Stock or any
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distribution (other than normal cash dividends) to holders of Stock, such
adjustments as may be deemed equitable by the Board or the Committee, including
adjustments to avoid fractional shares, shall be made to give proper effect to
such event. In the event of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the Board or the
Committee shall be authorized to issue or assume Grants by means of substitution
of new Grant Agreements for previously issued Grants or an assumption of
previously issued Grants.
9. Tax Withholding. The Company shall have the right to deduct
applicable taxes from any Grant payment and withhold, at the time of delivery of
Stock Awards or Restricted Stock Purchase Offers or vesting of shares under such
Grants, an appropriate number of shares for payment of taxes required by law or
to take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for withholding of such taxes. If Stock is used to
satisfy tax withholding, such stock shall be valued based on the Fair Market
Value when the tax withholding is required to be made.
10. Availability of Information. During the term of the Plan and any
additional period during which a Grant granted pursuant to the Plan shall be
exercisable, the Company shall make available, not later than one hundred and
twenty (120) days following the close of each of its fiscal years, such
financial and other information regarding the Company as is required by the
bylaws of the Company and applicable law to be furnished in an annual report to
the shareholders of the Company.
11. Notice. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the president or to the chief
executive officer of the Company, and shall become effective when it is received
by the office of the president or the chief executive officer.
12. Indemnification of Board. In addition to such other rights or
indemnifications as they may have as directors or otherwise, and to the extent
allowed by applicable law, the members of the Board and the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense of any
claim, action, suit or proceeding, or in connection with any appeal thereof, to
which they or any of them may be a party by reason of any action taken, or
failure to act, under or in connection with the Plan or any Grant granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any such claim,
action, suit or proceeding, except in any case in relation to matters as to
which it shall be adjudged in such claim, action, suit or proceeding that such
Board or Committee member is liable for negligence or misconduct in the
performance of his or her duties; provided that within sixty (60) days after
institution of any such action, suit or Board proceeding the member involved
shall offer the Company, in writing, the opportunity, at its own expense, to
handle and defend the same.
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13. Governing Law. The Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the Code or the
securities laws of the United States, shall be governed by the law of the State
of California, USA, and construed accordingly.
14. Effective and Termination Dates. The Plan shall become effective
on the date it is approved by the holders of a majority of the shares of Stock
then outstanding. The Plan shall terminate ten years later, subject to earlier
termination by the Board pursuant to Section 8.
The foregoing 1998 Incentive Stock Plan (consisting of 8 pages,
including this page) was duly adopted and approved by the Board of Directors on
May 12, 1998 and will be submitted to the the shareholders of the Corporation
for approval at the next annual meeting of the Corporation.
----------------------------------
Robert D. Friedman, Secretary
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EXHIBIT A
FORM OF
OZ INTERACTIVE, INC.
STOCK AWARD AGREEMENT
THIS STOCK AWARD AGREEMENT ("Agreement") is made and entered into as of
the date set forth below, by and between OZ Interactive, Inc., a California
corporation (the "Company"), and the employee, director or consultant of the
Company named in Section 1(b). ("Grantee"):
In consideration of the covenants herein set forth, the parties hereto
agree as follows:
1. Stock Award Information
(a) Date of Award:
(b) Grantee:
(c) Number of Shares:
(d) Original Value:
2. Acknowledgements.
(a) Grantee is a [employee/director/consultant] of the Company.
(b) The Company has adopted a 1998 Incentive Stock Plan (the
"Plan") under which the Company's common stock ("Stock") may be offered
to directors, officers, employees and consultants pursuant to an
exemption from registration under the Securities Act of 1933, as amended
(the "Securities Act") provided by Rule 701 thereunder.
3. Shares; Value. The Company hereby grants to Grantee, upon and subject
to the terms and conditions herein stated, the number of shares of Stock set
forth in Section 1(c) (the "Shares"), which Shares have a fair value per share
("Original Value") equal to the amount set forth in Section 1(d). For the
purpose of this Agreement, the terms "Share" or "Shares" shall include the
original Shares plus any shares derived therefrom, regardless of the fact that
the number, attributes or par value of such Shares may have been altered by
reason of any recapitalization, subdivision, consolidation, stock dividend or
amendment of the corporate charter of the Company. The number of Shares covered
by this Agreement and the Original Value thereof shall be proportionately
adjusted for any increase or decrease in the number of issued shares resulting
from a recapitalization, subdivision or consolidation of shares or the payment
of a stock dividend, or any other increase or decrease in the number of such
shares effected without receipt of consideration by the Company.
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4. Investment Intent. Grantee represents and agrees that Grantee is
accepting the Shares for the purpose of investment and not with a view to, or
for resale in connection with, any distribution thereof; and that, if requested,
Grantee shall furnish to the Company a written statement to such effect,
satisfactory to the Company in form and substance. If the Shares are registered
under the Securities Act, Grantee shall be relieved of the foregoing investment
representation and agreement and shall not be required to furnish the Company
with the foregoing written statement.
5. Restriction Upon Transfer. The Shares may not be sold, transferred or
otherwise disposed of and shall not be pledged or otherwise hypothecated by the
Grantee except as hereinafter provided.
(a) Repurchase Right on Termination Other Than for Cause. For
the purposes of this Section, a "Repurchase Event" shall mean an
occurrence of one of (i) termination of Grantee's employment [or service
as a director/consultant] by the Company, voluntary or involuntary and
with or without cause; (ii) retirement or death of Grantee; (iii)
bankruptcy of Grantee, which shall be deemed to have occurred as of the
date on which a voluntary or involuntary petition in bankruptcy is filed
with a court of competent jurisdiction; (iv) dissolution of the marriage
of Grantee, to the extent that any of the Shares are allocated as the
sole and separate property of Grantee's spouse pursuant thereto (in
which case, this Section shall only apply to the Shares so affected); or
(v) any attempted transfer by the Grantee of Shares, or any interest
therein, in violation of this Agreement. Upon the occurrence of a
Repurchase Event, the Company shall have the right (but not an
obligation) to purchase all or any portion of the Shares of Grantee, at
a price equal to the fair value of the Shares as of the date of the
Repurchase Event. [10 CCR 260.140.42(h)]
(b) Repurchase Right on Termination for Cause. In the event
Grantee's employment [or service as a director/consultant] is terminated
by the Company "for cause" (as defined below), then the Company shall
have the right (but not an obligation) to purchase Shares of Grantee at
a price equal to the Original Value. Such right of the Company to
purchase Shares shall apply to 100% of the Shares for one (1) year from
the date of this Agreement; and shall thereafter lapse at the rate of
twenty percent (20%) of the Shares on each anniversary of the date of
this Agreement. In addition, the Company shall have the right, in the
sole discretion of the Board and without obligation, to repurchase upon
termination for cause all or any portion of the Shares of Grantee, at a
price equal to the fair value of the Shares as of the date of
termination, which right is not subject to the foregoing lapsing of
rights. Termination of employment [or service as a director/consultant]
"for cause" means (i) as to employees or consultants, termination for
cause as contemplated by applicable law, or as defined in the Plan, this
Agreement or in any employment [or consulting] agreement between the
Company and Grantee, or (ii) as to directors, removal pursuant to the
California corporation law. In the event the Company elects to purchase
the Shares, the stock certificates representing the same shall forthwith
be returned to the Company for cancellation.
(c) Exercise of Repurchase Right. Any Repurchase Right under
Paragraphs 4(a) or 4(b) shall be exercised by giving notice of exercise
as provided herein to Grantee or the estate of Grantee, as applicable.
Such right shall be exercised, and the repurchase price thereunder shall
be paid, by the Company within a ninety (90) day period beginning on the
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date of notice to the Company of the occurrence of such Repurchase Event
(except in the case of termination or cessation of services as director,
where such option period shall begin upon the occurrence of the
Repurchase Event). Such repurchase price shall be payable only in the
form of cash (including a check drafted on immediately available funds)
or cancellation of purchase money indebtedness of the Grantee for the
Shares. If the Company can not purchase all such Shares because it is
unable to meet the financial tests set forth in the California
corporation law, the Company shall have the right to purchase as many
Shares as it is permitted to purchase under such sections. Any Shares
not purchased by the Company hereunder shall no longer be subject to the
provisions of this Section 5.
(d) Right of First Refusal. In the event Grantee desires to
transfer any Shares during his or her lifetime, Grantee shall first
offer to sell such Shares to the Company. Grantee shall deliver to the
Company written notice of the intended sale, such notice to specify the
number of Shares to be sold, the proposed purchase price and terms of
payment, and grant the Company an option for a period of thirty days
following receipt of such notice to purchase the offered Shares upon the
same terms and conditions. To exercise such option, the Company shall
give notice of that fact to Grantee within the thirty (30) day notice
period and agree to pay the purchase price in the manner provided in the
notice. If the Company does not purchase all of the Shares so offered
during foregoing option period, Grantee shall be under no obligation to
sell any of the offered Shares to the Company, but may dispose of such
Shares in any lawful manner during a period of one hundred and eighty
(180) days following the end of such notice period, except that Grantee
shall not sell any such Shares to any other person at a lower price or
upon more favorable terms than those offered to the Company.
(e) Acceptance of Restrictions. Acceptance of the Shares shall
constitute the Grantee's agreement to such restrictions and the
legending of his certificates with respect thereto. Notwithstanding such
restrictions, however, so long as the Grantee is the holder of the
Shares, or any portion thereof, he shall be entitled to receive all
dividends declared on and to vote the Shares and to all other rights of
a shareholder with respect thereto.
(f) Permitted Transfers. Notwithstanding any provisions in this
Section 5 to the contrary, the Grantee may transfer Shares subject to
this Agreement to his or her parents, spouse, children, or
grandchildren, or a trust for the benefit of the Grantee or any such
transferee(s); provided, that such permitted transferee(s) shall hold
the Shares subject to all the provisions of this Agreement (all
references to the Grantee herein shall in such cases refer mutatis
mutandis to the permitted transferee, except in the case of clause (iv)
of Section 5(a) wherein the permitted transfer shall be deemed to be
rescinded); and provided further, that notwithstanding any other
provisions in this Agreement, a permitted transferee may not, in turn,
make permitted transfers without the written consent of the Grantee and
the Company.
(g) Release of Restrictions on Shares. All rights and
restrictions under this Section 5 shall terminate three (3) years
following the date of this Agreement, or when the Company's securities
are publicly traded, whichever occurs earlier.
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6. Representations and Warranties of the Grantee. This Agreement and the
issuance and grant of the Shares hereunder is made by the Company in reliance
upon the express representations and warranties of the Grantee, which by
acceptance hereof the Grantee confirms that:
(a) The Shares granted to him pursuant to this Agreement are
being acquired by him for his own account, for investment purposes, and
not with a view to, or for sale in connection with, any distribution of
the Shares. It is understood that the Shares have not been registered
under the Act by reason of a specific exemption from the registration
provisions of the Act which depends, among other things, upon the bona
fide nature of his representations as expressed herein;
(b) The Shares must be held by him indefinitely unless they are
subsequently registered under the Act and any applicable state
securities laws, or an exemption from such registration is available.
The Company is under no obligation to register the Shares or to make
available any such exemption; and
(c) Grantee further represents that Grantee has had access to
the financial statements or books and records of the Company, has had
the opportunity to ask questions of the Company concerning its business,
operations and financial condition and to obtain additional information
reasonably necessary to verify the accuracy of such information,
(d) Unless and until the Shares represented by this Grant are
registered under the Securities Act, all certificates representing the
Shares and any certificates subsequently issued in substitution therefor
and any certificate for any securities issued pursuant to any stock
split, share reclassification, stock dividend or other similar capital
event shall bear legends in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER
THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR UNDER THE
APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR
ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR
ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO
EXEMPTIONS THEREFROM.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO
THAT CERTAIN STOCK AWARD AGREEMENT DATED ____________ BETWEEN THE
COMPANY AND THE ISSUEE WHICH RESTRICTS THE TRANSFER OF THESE SHARES
WHICH ARE SUBJECT TO REPURCHASE BY THE COMPANY UNDER CERTAIN CONDITIONS.
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and/or such other legend or legends as the Company and its counsel deem
necessary or appropriate. Appropriate stop transfer instructions with
respect to the Shares have been placed with the Company's transfer
agent.
(e) Grantee understands that he or she will recognize income,
for income tax purposes, in an amount equal to the amount by which the
fair market value of the Shares, as of the date of grant, exceeds the
price paid by Grantee, if any. The acceptance of the Shares by Grantee
shall constitute an agreement by Grantee to report such income in
accordance with then applicable law. Withholding for income and
employment tax purposes will be made, if and as required by law, from
Grantee's then current compensation, or, if such current compensation is
insufficient to satisfy withholding tax liability, the Company may
require Grantee to make a cash payment to cover such liability.
7. Stand-off Agreement. Grantee agrees that, in connection with any
registration of the Company's securities under the Securities Act, and upon the
request of the Company or any underwriter managing an underwritten offering of
the Company's securities, Grantee shall not sell, short any sale of, loan, grant
an option for, or otherwise dispose of any of the Shares (other than Shares
included in the offering) without the prior written consent of the Company or
such managing underwriter, as applicable, for a period of at least one year
following the effective date of registration of such offering. This Section 7
shall survive any termination of this Agreement.
8. Termination of Agreement. This Agreement shall terminate on the
occurrence of any one of the following events: (a) written agreement of all
parties to that effect; (b) a proposed dissolution or liquidation of the
Company, a merger or consolidation in which the Company is not the surviving
entity, or a sale of all or substantially all of the assets of the Company; (c)
the closing of any public offering of common stock of the Company pursuant to an
effective registration statement under the Securities Act; or (d) dissolution,
bankruptcy, or insolvency of the Company.
9. Agreement Subject to Plan; Applicable Law. This Grant is made
pursuant to the Plan and shall be interpreted to comply therewith. A copy of
such Plan is available to Grantee, at no charge, at the principal office of the
Company. Any provision of this Agreement inconsistent with the Plan shall be
considered void and replaced with the applicable provision of the Plan. This
Grant shall be governed by the laws of the State of California, USA and subject
to the exclusive jurisdiction of the courts therein.
10. Miscellaneous.
(a) Notices. Any notice required to be given pursuant to this
Agreement or the Plan shall be in writing and shall be deemed to have
been duly delivered upon receipt or, in the case of notices by the
Company, five (5) days after deposit in the U.S. or Iceland mail,
postage prepaid, addressed to Grantee at the last address provided by
Grantee for use in the Company's records.
(b) Entire Agreement. This instrument constitutes the sole
agreement of the parties hereto with respect to the Shares. Any prior
agreements, promises or representations concerning the Shares not
included or reference herein shall be of no force or effect. This
Agreement shall be binding on, and shall inure to the benefit of, the
Parties hereto and their respective transferees, heirs, legal
representatives, successors, and assigns.
5
<PAGE> 14
(c) Enforcement. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California and subject
to the exclusive jurisdiction of the courts located in San Francisco
county, state of California. If Grantee attempts to transfer any of the
Shares subject to this Agreement, or any interest in them in violation
of the terms of this Agreement, the Company may apply to any court for
an injunctive order prohibiting such proposed transaction, and the
Company may institute and maintain proceedings against Grantee to compel
specific performance of this Agreement without the necessity of proving
the existence or extent of any damages to the Company. Any such
attempted transaction shares in violation of this Agreement shall be
null and void.
(d) Validity of Agreement. The provisions of this Agreement may
be waived, altered, amended, or repealed, in whole or in part, only on
the written consent of all parties hereto. It is intended that each
Section of this Agreement shall be viewed as separate and divisible, and
in the event that any Section shall be held to be invalid, the remaining
Sections shall continue to be in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
OZ INTERACTIVE, INC.
By:
------------------------------------
---------------------------------------
Grantee
(one of the following, as appropriate, shall be signed)
I certify that as of the date By his or her signature, the
hereof I am unmarried spouse of Optionee hereby agrees
to be bound by the provisions of
the foregoing STOCK AWARD
AGREEMENT
- ---------------------------- --------------------------------
Grantee Spouse of Grantee
6
<PAGE> 15
EXHIBIT "B"
OZ INTERACTIVE, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT ("Agreement") is made and
entered into as of the date set forth below, by and between OZ Interactive,
Inc., a California corporation (the "Company"), and the employee, director or
consultant of the Company named in Section 1(b) ("Grantee").
In consideration of the covenants herein set forth, the parties hereto
agree as follows:
1. Stock Purchase Information
(a) Date of Agreement:
(b) Grantee:
(c) Number of Shares:
(d) Price per Share:
2. Acknowledgements
(a) Grantee is a [employee/director/consultant] of the Company.
(b) The Company has adopted a 1998 Incentive Stock Plan (the
"Plan") under which the Company's common stock ("Stock") may be offered
to officers, employees, directors and consultants pursuant to an
exemption from registration under the Securities Act of 1933, as amended
(the "Securities Act") provided by Rule 701 thereunder.
(c) The Grantee desires to purchase shares of the Company's
common stock on the terms and conditions set forth herein.
3. Purchase of Shares. The Company hereby agrees to sell and Grantee
hereby agrees to purchase, upon and subject to the terms and conditions herein
stated, the number of shares of Stock set forth in Section 1(c) (the "Shares"),
at the price per Share set forth in Section 1(d) (the "Price"). For the purpose
of this Agreement, the terms "Share" or "Shares" shall include the original
Shares plus any shares derived therefrom, regardless of the fact that the
number, attributes or par value of such Shares may have been altered by reason
of any recapitalization, subdivision, consolidation, stock dividend or amendment
of the corporate charter of the Company. The number of Shares covered by this
Agreement shall be proportionately adjusted for any increase or decrease in the
number of issued shares resulting from a recapitalization, subdivision or
consolidation of shares or
1
<PAGE> 16
the payment of a stock dividend, or any other increase or decrease in the number
of such shares effected without receipt of consideration by the Company.
4. Investment Intent. Grantee represents and agrees that Grantee is
accepting the Shares for the purpose of investment and not with a view to, or
for resale in connection with, any distribution thereof; and that, if requested,
Grantee shall furnish to the Company a written statement to such effect,
satisfactory to the Company in form and substance. If the Shares are registered
under the Securities Act, Grantee shall be relieved of the foregoing investment
representation and agreement and shall not be required to furnish the Company
with the foregoing written statement.
5. Restriction Upon Transfer. The Shares may not be sold, transferred or
otherwise disposed of and shall not be pledged or otherwise hypothecated by the
Grantee except as hereinafter provided.
(a) Repurchase Right on Termination Other Than for Cause. For
the purposes of this Section, a "Repurchase Event" shall mean an
occurrence of one of (i) termination of Grantee's employment [or service
as a director/consultant] by the Company, voluntary or involuntary and
with or without cause; (ii) retirement or death of Grantee; (iii)
bankruptcy of Grantee, which shall be deemed to have occurred as of the
date on which a voluntary or involuntary petition in bankruptcy is filed
with a court of competent jurisdiction; (iv) dissolution of the marriage
of Grantee, to the extent that any of the Shares are allocated as the
sole and separate property of Grantee's spouse pursuant thereto (in
which case, this Section shall only apply to the Shares so affected); or
(v) any attempted transfer by the Grantee of Shares, or any interest
therein, in violation of this Agreement. Upon the occurrence of a
Repurchase Event, the Company shall have the right (but not an
obligation) to repurchase all or any portion of the Shares of Grantee at
a price equal to the fair value of the Shares as of the date of the
Repurchase Event.
(b) Repurchase Right on Termination for Cause. In the event
Grantee's employment [or service as a director/consultant] is terminated
by the Company "for cause" (as defined below), then the Company shall
have the right (but not an obligation) to repurchase Shares of Grantee
at a price equal to the Price. Such right of the Company to repurchase
Shares shall apply to 100% of the Shares for one (1) year from the date
of this Agreement; and shall thereafter lapse at the rate of twenty
percent (20%) of the Shares on each anniversary of the date of this
Agreement. In addition, the Company shall have the right, in the sole
discretion of the Board and without obligation, to repurchase upon
termination for cause all or any portion of the Shares of Grantee, at a
price equal to the fair value of the Shares as of the date of
termination, which right is not subject to the foregoing lapsing of
rights. Termination of employment [or service as a director/consultant]
"for cause" means (i) as to employees and consultants, termination for
cause under applicable law, or as defined in the Plan, this Agreement or
in any employment [or consulting] agreement between the Company and
Grantee, or (ii) as to directors, removal pursuant to the California
corporation law. In the event the Company elects to repurchase the
Shares, the stock certificates representing the same shall forthwith be
returned to the Company for cancellation.
(c) Exercise of Repurchase Right. Any Repurchase Right under
Paragraphs 4(a) or 4(b) shall be exercised by giving notice of exercise
as provided herein to Grantee or the estate of Grantee, as applicable.
Such right shall be exercised, and the repurchase price
2
<PAGE> 17
thereunder shall be paid, by the Company within a ninety (90) day period
beginning on the date of notice to the Company of the occurrence of such
Repurchase Event (except in the case of termination of employment or
retirement, where such option period shall begin upon the occurrence of
the Repurchase Event). Such repurchase price shall be payable only in
the form of cash (including a check drafted on immediately available
funds) or cancellation of purchase money indebtedness of the Grantee for
the Shares. If the Company can not purchase all such Shares because it
is unable to meet the financial tests set forth in the [state]
corporation law, the Company shall have the right to purchase as many
Shares as it is permitted to purchase under such sections. Any Shares
not purchased by the Company hereunder shall no longer be subject to the
provisions of this Section 5.
(d) Right of First Refusal. In the event Grantee desires to
transfer any Shares during his or her lifetime, Grantee shall first
offer to sell such Shares to the Company. Grantee shall deliver to the
Company written notice of the intended sale, such notice to specify the
number of Shares to be sold, the proposed purchase price and terms of
payment, and grant the Company an option for a period of thirty days
following receipt of such notice to purchase the offered Shares upon the
same terms and conditions. To exercise such option, the Company shall
give notice of that fact to Grantee within the thirty (30) day notice
period and agree to pay the purchase price in the manner provided in the
notice. If the Company does not purchase all of the Shares so offered
during foregoing option period, Grantee shall be under no obligation to
sell any of the offered Shares to the Company, but may dispose of such
Shares in any lawful manner during a period of one hundred and eighty
(180) days following the end of such notice period, except that Grantee
shall not sell any such Shares to any other person at a lower price or
upon more favorable terms than those offered to the Company.
(e) Acceptance of Restrictions. Acceptance of the Shares shall
constitute the Grantee's agreement to such restrictions and the
legending of his certificates with respect thereto. Notwithstanding such
restrictions, however, so long as the Grantee is the holder of the
Shares, or any portion thereof, he shall be entitled to receive all
dividends declared on and to vote the Shares and to all other rights of
a shareholder with respect thereto.
(f) Permitted Transfers. Notwithstanding any provisions in this
Section 5 to the contrary, the Grantee may transfer Shares subject to
this Agreement to his or her parents, spouse, children, or
grandchildren, or a trust for the benefit of the Grantee or any such
transferee(s); provided, that such permitted transferee(s) shall hold
the Shares subject to all the provisions of this Agreement (all
references to the Grantee herein shall in such cases refer mutatis
mutandis to the permitted transferee, except in the case of clause (iv)
of Section 5(a) wherein the permitted transfer shall be deemed to be
rescinded); and provided further, that notwithstanding any other
provisions in this Agreement, a permitted transferee may not, in turn,
make permitted transfers without the written consent of the Grantee and
the Company.
(g) Release of Restrictions on Shares. All rights and
restrictions under this Section 5 shall terminate five (5) years
following the date upon which the Company receives the full Price as set
forth in Section 3, or when the Company's securities are publicly
traded, whichever occurs earlier.
3
<PAGE> 18
5. Representations and Warranties of the Grantee. This Agreement and the
issuance and grant of the Shares hereunder is made by the Company in reliance
upon the express representations and warranties of the Grantee, which by
acceptance hereof the Grantee confirms that:
(a) The Shares granted to him pursuant to this Agreement are
being acquired by him for his own account, for investment purposes, and
not with a view to, or for sale in connection with, any distribution of
the Shares. It is understood that the Shares have not been registered
under the Act by reason of a specific exemption from the registration
provisions of the Act which depends, among other things, upon the bona
fide nature of his representations as expressed herein;
(b) The Shares must be held by him indefinitely unless they are
subsequently registered under the Act and any applicable state
securities laws, or an exemption from such registration is available.
The Company is under no obligation to register the Shares or to make
available any such exemption; and
(c) Grantee further represents that Grantee has had access to
the financial statements or books and records of the Company, has had
the opportunity to ask questions of the Company concerning its business,
operations and financial condition and to obtain additional information
reasonably necessary to verify the accuracy of such information;
(d) Unless and until the Shares represented by this Grant are
registered under the Securities Act, all certificates representing the
Shares and any certificates subsequently issued in substitution therefor
and any certificate for any securities issued pursuant to any stock
split, share reclassification, stock dividend or other similar capital
event shall bear legends in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER
THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR UNDER THE
APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR
ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR
ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO
EXEMPTIONS THEREFROM.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO
THAT CERTAIN RESTRICTED STOCK PURCHASE AGREEMENT DATED ____________
BETWEEN THE COMPANY AND THE ISSUEE WHICH RESTRICTS THE TRANSFER OF THESE
SHARES WHICH ARE SUBJECT TO REPURCHASE BY THE COMPANY UNDER CERTAIN
CONDITIONS.
4
<PAGE> 19
and/or such other legend or legends as the Company and its counsel deem
necessary or appropriate. Appropriate stop transfer instructions with
respect to the Shares have been placed with the Company's transfer
agent.
(e) Grantee understands that he or she will recognize income,
for income tax purposes, in an amount equal to the amount by which the
fair market value of the Shares, as of the date of Grant, exceeds the
price paid by Grantee. The acceptance of the Shares by Grantee shall
constitute an agreement by Grantee to report such income in accordance
with then applicable law. Withholding for income and employment tax
purposes will be made, if and as required by law, from Grantee's then
current compensation, or, if such current compensation is insufficient
to satisfy withholding tax liability, the Company may require Grantee to
make a cash payment to cover such liability.
7. Stand-off Agreement. Grantee agrees that, in connection with any
registration of the Company's securities under the Securities Act, and upon the
request of the Company or any underwriter managing an underwritten offering of
the Company's securities, Grantee shall not sell, short any sale of, loan, grant
an option for, or otherwise dispose of any of the Shares (other than Shares
included in the offering) without the prior written consent of the Company or
such managing underwriter, as applicable, for a period of at least one year
following the effective date of registration of such offering. This Section 8
shall survive any termination of this Agreement.
8. Termination of Agreement. This Agreement shall terminate on the
occurrence of any one of the following events: (a) written agreement of all
parties to that effect; (b) a proposed dissolution or liquidation of the
Company, a merger or consolidation in which the Company is not the surviving
entity, or a sale of all or substantially all of the assets of the Company; (c)
the closing of any public offering of common stock of the Company pursuant to an
effective registration statement under the Act; or (d) dissolution, bankruptcy,
or insolvency of the Company.
9. Agreement Subject to Plan; Applicable Law. This Grant is made
pursuant to the Plan and shall be interpreted to comply therewith. A copy of
such Plan is available to Grantee, at no charge, at the principal office of the
Company. Any provision of this Agreement inconsistent with the Plan shall be
considered void and replaced with the applicable provision of the Plan. This
Grant shall be governed by the laws of the State of California and subject to
the exclusive jurisdiction of the courts therein.
10. Miscellaneous
(a) Notices. Any notice required to be given pursuant to this
Agreement or the Plan shall be in writing and shall be deemed to have
been duly delivered upon receipt or, in the case of notices by the
Company, five (5) days after deposit in the U.S. or Iceland mail,
postage prepaid, addressed to Grantee at the last address provided by
Grantee for use in the Company's records.
(b) Entire Agreement. This instrument constitutes the sole
agreement of the parties hereto with respect to the Shares. Any prior
agreements, promises or representations concerning the Shares not
included or reference herein shall be of no force or effect. This
Agreement shall be binding on, and shall inure to the benefit of, the
Parties hereto and their respective transferees, heirs, legal
representatives, successors, and assigns.
5
<PAGE> 20
(c) Enforcement. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California and subject
to the exclusive jurisdiction of the courts located in San Francisco
county, state of California. If Grantee attempts to transfer any of the
Shares subject to this Agreement, or any interest in them in violation
of the terms of this Agreement, the Company may apply to any court for
an injunctive order prohibiting such proposed transaction, and the
Company may institute and maintain proceedings against Grantee to compel
specific performance of this Agreement without the necessity of proving
the existence or extent of any damages to the Company. Any such
attempted transaction shares in violation of this Agreement shall be
null and void.
(d) Validity of Agreement. The provisions of this Agreement may
be waived, altered, amended, or repealed, in whole or in part, only on
the written consent of all parties hereto. It is intended that each
Section of this Agreement shall be viewed as separate and divisible, and
in the event that any Section shall be held to be invalid, the remaining
Sections shall continue to be in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
OZ INTERACTIVE, INC.
By:
------------------------------------
---------------------------------------
Grantee
(one of the following, as appropriate, shall be signed)
I certify that as of the date By his or her signature, the
hereof I am unmarried spouse of Optionee hereby agrees
to be bound by the provisions of
the foregoing
- ---------------------------- --------------------------------------
Grantee Spouse of Grantee
6
<PAGE> 1
EXHIBIT 10.3
APPENDIX A
OZ.COM 2000
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of OZ.COM by providing eligible employees with the opportunity to acquire a
proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common Stock which
may be issued over the term of the Plan shall not exceed Two Million Five
Hundred Thousand (2,500,000) shares.
B. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, then appropriate adjustments shall
be made to (i) the maximum number and class of securities issuable under the
Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable in the aggregate on any one Purchase Date and (iv) the
number and class of securities and the price per share in effect under each
outstanding purchase right in order to prevent the dilution or enlargement of
benefits thereunder.
IV. OFFERING PERIODS
A. Shares Of Common Stock shall be offered for purchase under the Plan
through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last payroll day prior to
June 15, 2002. The next offering
<PAGE> 2
period shall commence on the first payroll day on or after June 15, 2002, and
subsequent offering periods shall commence as designated by the Plan
Administrator.
C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
payroll day on or after June 15 of each year to the last payroll day in December
of the same year and from the first payroll day in January of each year to the
last payroll day prior to June 15 of the following year. However, the first
Purchase Interval in effect under the initial offering period shall commence at
the Effective Time and terminate on the last payroll day in December 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next payroll day following such Purchase Date. The new offering
period shall have a duration of twenty (24) months, unless a shorter duration is
established by the Plan Administrator within five (5) business days following
the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of any
offering period under the Plan may enter that offering period on such start date
or on any subsequent Quarterly Entry Date within that offering period, provided
he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Quarterly Entry Date within that offering period on which he or she
is an Eligible Employee.
C. The date an individual enters an offering period shall be designated
his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock during an offering period may be any multiple
of one percent (1%) of the Cash Earnings paid to the Participant during each
Purchase Interval within that offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as soon
as possible
<PAGE> 3
after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction
per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his
or her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the fifteen percent
(15%) maximum) shall become effective on the start date of the first
Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be required
to be held in any segregated account or trust fund and may be commingled with
the general assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of
the Participant's purchase right in accordance with the provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a separate
purchase right for each offering period in which he or she participates. The
purchase right shall be granted on the Participant's Entry Date into the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments over the
remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
<PAGE> 4
C. PURCHASE PRICE. The purchase price per share at which Common Stock
will be purchased on the Participant's behalf on each Purchase Date within the
offering period shall be equal to eighty-five percent (85%) of the lower of (i)
the Fair Market Value per share of Common Stock on the Participant's Entry Date
into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Purchase Interval
ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to the
purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall govern
the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Interval in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into that offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding, then that
purchase right shall immediately terminate, and all of the Participant's
payroll deductions for the Purchase interval in which the purchase right
so terminates shall be immediately refunded. However, should the
Participant cease to remain in active service by reason of an approved
unpaid leave of absence, then the Participant shall have the right,
exercisable up until the last payroll day of the Purchase Interval in
which such leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase Interval or (b)
have such funds held for the purchase of shares on his or her behalf on
the next scheduled Purchase Date. In no event, however, shall any
further payroll deductions be collected on the
<PAGE> 5
Participant's behalf during such leave. Upon the Participant's return to
active service (i) within ninety (90) days following the commencement of
such leave or (ii) the expiration of any longer period for which such
Participant's right to reemployment with the Corporation is guaranteed
by either statute or contract, his or her payroll deductions under the
Plan shall automatically resume at the rate in effect at the time the
leave began, unless the Participant withdraws from the Plan prior to his
or her return.
G. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of
Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by the
Participant during the Participant's lifetime, and shall not be assignable or
transferable by the Participant only by the laws of descent and distribution.
J. SHAREHOLDER RIGHTS. A Participant shall have no shareholder rights
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market value per share on the date or dates
such rights are granted) for each calendar year such rights are at any time
outstanding.
<PAGE> 6
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each
successive Purchase Date during the offering period on which such right
remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock
under one (1) or more other purchase rights at a rate equal to
Twenty-Five Thousand Dollars ($25,000) worth of Common Stock (determined
on the basis of the Fair Market Value per share on the date or dates of
grant) for each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on March 13, 2000 and shall become
effective at the Effective Time, provided no purchase rights granted under the
Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the shareholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any Stock Exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such shareholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate upon
the earliest of (i) the last payroll day prior to June 15, 2010, (ii) the date
on which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Change in Control. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
<PAGE> 7
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any time
to become effective immediately following the close of any Purchase Interval.
However, the Board may not, without the approval of the Corporation's
shareholders, (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify eligibility requirements for participation in the
Plan.
XI. GENERAL PROVISIONS
A. The Corporation shall pay all costs and expenses incurred in the
administration of the Plan; however, each Plan Participant shall bear all costs
and expenses incurred by such individual in the sale or other disposition of any
shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The laws of the State of California shall govern the provisions of
the Plan without resort to that State's conflict-of-laws rules.
D. The Corporation and each Participating Corporation shall have the
right to take whatever steps the Plan Administrator deems necessary or
appropriate to comply with all applicable federal, state, local, employment or
other tax withholding requirements, and the Corporation's obligations to deliver
shares under this Plan shall be conditioned upon compliance with all such
withholding tax requirements. Without limiting the generality of the foregoing,
the Corporation and each Participating Employer shall have the right to withhold
taxes from any other compensation or other amounts which it may owe to the
Participant, or to require the Participant to pay to the Corporation or the
Participating Corporation the amount of any taxes which the Corporation or the
Participating Corporation may be required to withhold with respect to such
shares. In this connection, the Plan Administrator may require the Participant
to notify the Plan Administrator, the Corporation, or a Participating
Corporation before the Participant sells or otherwise disposes of any shares
acquired under the Plan.
E. If the outstanding shares of Common Stock are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Corporation or a successor entity, or for other property (including
without limitation, cash), through reorganization, merger, recapitalization,
reclassification, stock combination, stock dividend, stock split, reverse stock
split, spin off or other similar transaction, an appropriate and proportionate
adjustment will be made in the maximum number and kind of shares as to which
purchase rights may be granted under this Plan. A corresponding adjustment
changing the number or kind of shares allocated to purchase rights that have
been granted prior to any such change will likewise be made. Any such adjustment
in the outstanding purchase rights will be made without change in the aggregate
purchase price applicable to the unexercised portion of the purchase rights but
with a corresponding adjustment in the price for each share or other unit of any
security
<PAGE> 8
covered by the purchase right. Such adjustment will be made by the Plan
Administrator, whose determination in that respect will be final, binding, and
conclusive. Where an adjustment under this Section XI.E is made, the adjustment
will be made in a manner which will not be considered a "modification" under the
provisions of subsection 424(h)(3) of the Code.
<PAGE> 9
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
OZ.COM, a California corporation
OZ, hf, an Icelandic corporation
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) base salary payable to a Participant
by one or more Participating Companies during such individual's period of
participation in one or more offering periods under the Plan plus (ii) all
overtime payments, bonuses, commissions, current profit-sharing distributions
and other incentive-type payments. Such Cash Earnings shall be calculated before
deduction of (A) any income or employment tax withholdings or (B) any pre-tax
contributions made by the Participant to any Code Section 401(k) salary deferral
plan or any Code Section 125 cafeteria benefit program now or hereafter
established by the Corporation or any Corporate Affiliate. However, Cash
Earnings shall NOT include any contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the Participant's behalf by the
Corporation or any Corporate Affiliate to any employee benefit or welfare plan
now or hereafter established.
C. CHANGE IN CONTROL shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule l3d-3 of the Securities Exchange Act of 1934, as
amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's shareholders.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation
of the Corporation (as determined in accordance with Code Section 424), whether
now existing or subsequently established.
G. CORPORATION shall mean OZ.COM, a California corporation, and any
corporate successor to all or substantially all of the assets or voting stock of
OZ.COM which shall by appropriate action adopt the Plan.
<PAGE> 11
H. EFFECTIVE TIME shall mean June 15, 2000. Any Corporate Affiliate that
becomes a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any employee who is employed by a
Participating Corporation for earnings considered wages under Code Section
3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first commences
participation in the offering period in effect under the Plan. The earliest
Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. PLAN shall mean the Corporation's 2000 Employee Stock Purchase Plan,
as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the Board, or a committee designated by
the Board, which committee shall consist solely of two (2) or more persons who
are "non-employee directors" within the meaning of Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended.
Q. PURCHASE DATE shall mean the last payroll day of each Purchase
Interval. The initial Purchase Date shall be the last payroll day of December
2000.
<PAGE> 12
R. PURCHASE INTERVAL shall mean each successive six (6)-month period
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
S. QUARTERLY ENTRY DATE shall mean the first payroll day in January,
April, July and October of each year on which an Eligible Employee may first
enter an offering period.
T. STOCK EXCHANGE shall mean the American Stock Exchange, the New York
Stock Exchange, or the OM Stockholmborsen, AB, commonly known as the Stockholm
Stock Exchange.
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
OF SKULI MOGENSEN
This EMPLOYMENT AGREEMENT (this "AGREEMENT") is made as of October 15,
1998 by and between OZ INTERACTIVE, INC., a California corporation ("EMPLOYER"),
and SKULI MOGENSEN ("EXECUTIVE").
RECITALS
A. EMPLOYER
Employer is a company building a business of developing and selling
software, particularly in the area of interactive, three-dimensional
applications for use on the Internet and on local area networks.
B. EXECUTIVE
Executive has developed substantial expertise in general management,
finance and corporate development and is a substantial shareholder in Employer.
C. 1997 EMPLOYMENT AGREEMENT
Executive and Employer are parties to that certain Employment Agreement
made and entered into as of January 1, 1997 (the "1997 Employment Agreement").
D. ERICSSON
Ericsson Inc. has elected to make a substantial investment in Employer
and has made it a condition of its investment that the Company enter into this
Agreement with Executive for the purpose of securing his services for an
extended period of time, ensuring that he has sufficient incentives to continue
to serve the interests of the Company and to ensure that Executive will not,
during the time of this Agreement enter into competition with the Company, all
on the terms and conditions set forth herein.
D. INTENTIONS
Executive believes that it is in his own personal self interest as a
substantial investor in Employer that Ericsson make its investment, and Employer
and Executive desire to amend and restate the 1997 Employment Agreement as set
forth herein.
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<PAGE> 2
AGREEMENT
In consideration of the foregoing and of the mutual covenants and
conditions herein contained, the parties hereby amend and restate the 1997
Employment Agreement as follows:
1. EMPLOYMENT. Employer hereby employs Executive as Chief Executive
Officer, and Executive accepts such employment, upon the terms and subject to
the conditions set forth in this Agreement.
2. TERM. The term of this Agreement shall be for a period commencing
upon date hereof and ending on January 1, 2002 ("INITIAL TERM"). The term of
this Agreement shall be automatically extended for additional one-year periods
unless either party gives written notice of its desire to terminate this
Agreement to the other party within thirty days prior to the end of the Initial
Term or any one year extension provided for above. The period of time between
the commencement of the term of this Agreement and termination of Executive's
employment shall be referred to herein as the "EMPLOYMENT PERIOD."
3. POSITIONS AND SERVICES
3.1 BEST EFFORTS. Executive will initially occupy the positions
of Director, and Chief Executive Officer of Employer. During the Employment
Period, Executive will devote his best efforts and substantially all of his
business time and attention to the performance of his duties hereunder and to
the business and affairs of Employer, except for vacation periods as set forth
herein and reasonable periods of illness or other incapacities permitted by
Employer's general employment policies.
3.2 DUTIES. Executive shall perform such duties as are
customarily associated with his then current title(s), consistent with the
Bylaws of Employer and as required by Employer's Board of Directors ("BOARD").
Said duties shall be performed at such place or places as Employer shall
reasonably designate or as shall be reasonably appropriate and necessary to the
discharge of Executive's duties in connection with his employment.
3.3 COMPANY POLICIES. The employment relationship between the
parties shall be governed by the general employment policies and practices of
Employer, including but not limited to those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with Employer's general
employment policies or practices, this Agreement shall control. Executive will
duly, punctually and faithfully observe Employer's general employment policies
and practices, including, without limitation, any and all rules, regulations,
policies and/or procedures which Employer may now or hereafter establish
governing the conduct of its business.
4. COMPENSATION
4.1 SALARY. During the Initial Period, Employer shall pay to
Executive base salary at the annual rate of $132,000. Executive's salary shall
be increased annually
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<PAGE> 3
commencing January 1, 1999 and on each subsequent January 1 during the
Employment Period by the sum of (i) an amount equal to no less than five percent
(5%) and (ii) the percentage increase in the general Consumer Price Index for
the geographic area in which Executive is employed from the prior December 1 to
the December 1 immediately preceding the effective date of the salary increase.
Executive's salary shall be payable at the same time and basis as Employer pays
its payroll in general. If, during the term of this Agreement, Executive is
domiciled and his services are rendered substantially in the United States,
payment of Executive's salary shall be paid in U.S. dollars and subject to
deductions for social security, federal and state payroll taxes and unemployment
and other standard deductions and withholdings, otherwise Executive's salary
shall be paid in the currency of the country in which he is domiciled and his
salary shall be subject to all applicable local withholding requirements.
4.2 PARTICIPATION IN BENEFIT PLANS. During the term hereof,
Executive shall be entitled to participate in any profitsharing, group
insurance, hospitalization, medical, dental, health and accident, disability or
similar plan or program of Employer now existing or established hereafter for
executives.
4.3 VACATION. Executive shall be entitled to a period of annual
vacation time equal to that provided to employees of equal position by
Employer's policies and procedures regarding vacation, but in no event less than
three weeks per year (including one week off between Christmas and New Years Day
during which the offices of Employer will be closed). The days selected for
Executive's vacation must be mutually agreeable to Employer and Executive.
4.4 EXECUTIVE BONUS PROGRAM. Executive shall be eligible for an
annual cash bonus, which shall not exceed one hundred percent (100%) of his base
salary for such period. The bonus shall be determined in accordance with the
following formula, which shall be calculated on March 31 of the year following
the year for which the bonus is to be calculated:
1999: 2.5% of any net revenues in excess of 1998 net revenues.
2000: 2.5% of any net revenues in excess of 1999 net revenues.
2001: 2.5% of any net revenues in excess of 2000 net revenues.
4.5 EXPATRIATION BENEFITS. If Executive is required by Employer
to expatriate to any country other than Iceland, the Company will offer a
reasonable expatriation package with the intention of making the relocation
economically neutral to Executive and paying personal expenses (i.e., reasonable
travel for Executive and his family and personal phone expenses) reasonably
related to the displacement of Executive and his family from their home, family
and friends.
5. DEATH OR DISABILITY DURING EMPLOYMENT. If Executive is prevented from
performing duties hereunder by reason of illness or injury for (i) a period of
six (6) or more con-
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<PAGE> 4
secutive months or (ii) more than 180 days in any consecutive twelve month
period (the date of the determination of disability under clause (i) or (ii)
shall be referred to as the "EFFECTIVE DATE OF DISABILITY"), or if Executive
dies during employment hereunder, Employer shall pay to the Executive if
disabled (or in the case of death to the executors under Executive's last will
and testament), the salary that would otherwise be payable to the Executive
under this Agreement through the end of the six (6) month following the month in
which the Executive's Effective Date of Disability or death occurs, as the case
may be. Such payments shall constitute all of Employer's obligations to
Executive in the event of Executive's death or disability, and all compensation
and benefits, except benefits provided by law (e.g., COBRA health insurance
continuation benefits), shall otherwise cease to accrue. The determination
regarding whether Executive is unable to perform duties hereunder shall be made
by Employer's Board of Directors in the reasonable, good faith exercise of its
judgment.
6. TERMINATION. This Agreement does not grant Executive any right or
entitlement to be retained by the Employer, and shall not affect or prejudice
Employer's right to discharge the Executive in accordance herewith with or
without cause.
6.1 TERMINATION WITHOUT CAUSE. Employer's Board may terminate
Executive's employment with Employer at any time, upon thirty days' written
notice, without "CAUSE," as defined below. In the event Executive's employment
is terminated without cause, Executive shall be entitled to a twelve-month
continuation of his salary and benefits that Executive would otherwise have been
entitled to pursuant to Section 4 of this Agreement, including a pro rated
portion of any bonus for which he would have otherwise been eligible under any
executive bonus program. Such salary and benefits shall constitute the entirety
of Employer's obligations to Executive in the event of the termination of
Executive's employment without cause, except benefits provided by law (e.g.,
COBRA health insurance continuation benefits). All salary payable under this
Section shall be paid at the same time and basis as Employer pays its payroll in
general.
6.2 TERMINATION WITH CAUSE. Employer's Board may terminate
Executive's employment with Employer at any time for cause, immediately upon
notice to Executive of the circumstances leading to such termination for cause.
In the event that Executive's employment is terminated for cause, all
compensation and benefits, except benefits provided by law (e.g., COBRA health
insurance continuation benefits), will immediately cease to accrue, and all
compensation and, except as otherwise required by applicable law, benefits
accrued though the date of termination shall be paid to Executive within a
reasonable time thereafter but in no event later than thirty days. The date of
termination shall be the date upon which notice of termination is given.
Employer shall have no further obligation to pay severance of any kind nor to
make any payment in lieu of notice.
6.3 DEFINITION OF CAUSE. For the purposes of this Agreement,
"CAUSE" shall mean: (a) habitual neglect or insubordination (defined as a
refusal to execute or carry out directions from the Board); (b) conviction of
any felony or any crime involving moral turpitude; (c) willful breach of
Executive's duties to Employer and (d) conduct by Executive, which in the good
faith, reasonable determination of the Board demonstrates gross unfitness
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<PAGE> 5
to serve, including but not limited to gross neglect, non-prescription use of
controlled substances, any abuse of controlled substances whether or not by
prescription, or habitual drunkenness, intoxication, or other impaired state
induced by consumption of any drug, including alcohol.
7. BREACH OR VIOLATION OF AGREEMENT. The parties agree that a breach or
violation of this Agreement will result in immediate and irreparable injury and
harm to the innocent party, who shall have, in addition to any and all remedies
of law, the right to an injunction, specific performance or other equitable
relief to prevent the violation of the obligations hereunder, plus reasonable
attorneys' fees and costs incurred in obtaining any such relief.
8. COVENANT NOT TO COMPETE. Executive agrees to the following
restrictions on competition:
8.1 RESTRICTIONS. Executive will not prior to January 1, 2002,
or the later termination of this Agreement, (a) directly or indirectly engage or
have any interest in any beusiness or venture engaged in any business that
develop software and applications that enable real-time collaborative
communications in shared spaces on the Internet or competes with any other
business that the Company may engage in during the term of this Agreement (a
"Competing Business"), whether such engagement is undertaken alone, or together
with, or on behalf of, or through any other person, firm, association, trust,
venture, corporation, or other entity or enterprise, or whether such interest is
as sole proprietor, partner, shareholder, independent contractor, agent,
officer, director, employee, advisor, consultant, trustee, beneficiary, or
otherwise in a Competing Business, (b) assist any other person or entity in
conducting a Competing Business, (c) own any capital stock or any other
securities of or have any other direct or indirect interest in any person,
entity, or other enterprise which owns or operates a Competing Business (except
stock holdings of 1% or less for investment purposes in securities of publicly
traded companies), or (d) directly or indirectly recruit, or induce any party to
recruit any person who is an employee of, or who has entered into an independent
contractor arrangement with the Employer or any Affiliate of the Employer.
8.2 EXECUTIVE'S ACKNOWLEDGEMENTS AND AGREEMENTS. Executive
acknowledges and agrees (a) that the software developed by Employer is or is
intended to be marketed and licensed to customers throughout the world, (b) to
the reasonableness of this covenant not to compete and the reasonableness of the
geographic area and duration of time which are a part of said covenant, (c) that
this covenant will not preclude Executive from becoming gainfully employed
following termination of employment with Employer, (d) that because any remedy
at law for any breach or attempted breach of Section 8.1 may be inadequate,
Employer or Ericsson shall be entitled to specific performance and injunctive
relief or other equitable relief in case of any such breach or attempted breach
of Section 8.1, in addition to any other remedies that the Employer or Ericsson
may seek and which may exist at law (including, without limitation, money
damages) or in equity. The parties to this Agreement waive any requirement for
the securing or posting of any bond in connection with Employer's or Ericsson's
seeking or obtaining any such relief at law or in equity, including, without
limitation, any injunctive or equitable relief. If any provision of Section 8.1
relating to the period of the restrictions, the scope of the activities
restricted and/or the territory to which the
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<PAGE> 6
restriction applies should be declared by a court of competent jurisdiction to
exceed the maximum time period, scope of activity or geographical area that the
court deems to be reasonable and enforceable by that court, then the maximum
time period, scope of activity and/or geographical area deemed to be reasonable
by that court shall become the maximum time period, scope of activity and/or
geographical area of the restrictive covenant set forth in Section 8.1.
9. NOTICES. Any notice required to be given pursuant to the provisions
of this Agreement shall be in writing and, if mailed, sent by registered or
certified mail, postage prepaid, or by an overnight delivery service, to the
party named at the address set forth below, or at such other address as each
party may hereafter designate in writing to the other party:
Employer: OZ Interactive, Inc.
525 Brannan Street, Fourth Floor
San Francisco, California 94107
with a copy to: Robert G. Quinn, Esq.
Quinn & Quinn
18665 Via Torino
Irvine, California 92612
Executive: Skuli Mogensen
--------------------
Reykjavik, Iceland
Any such notices shall be deemed to have been delivered when served personally
(including personal delivery by telecopy), in five business days after being
mailed by registered or certified mail, or in two business days after being
mailed by an overnight delivery service.
10. ENTIRE AGREEMENT. This Agreement and that certain Proprietary
Information and Inventions Agreement by and between Executive and Employer of
even date herewith supersede all prior discussions, negotiations and agreements
between the parties with respect to the subject matter, or otherwise in
consideration hereof, and reflects their entire agreement.
11. CHANGE, MODIFICATION, WAIVER. No change or modification of this
Agreement shall be valid unless it is in writing and signed by each of the
parties hereto. No waiver of any provision of this Agreement shall be valid
unless it is in writing and signed by the party against whom the waiver is
sought to be enforced. The failure of a party to insist upon strict performance
of any provision of this Agreement in any one or more instances shall not be
construed as a waiver or relinquishment of the right to insist upon strict
compliance with such provision in the future.
12. SEVERABILITY OF PROVISIONS. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect
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<PAGE> 7
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provisions had never been contained
herein.
13. SUCCESSORS AND ASSIGNS. The services and duties to be performed by
Executive hereunder are personal and may not be assigned. This Agreement shall
be binding upon and inure to the benefit of Employer its successors and assigns,
and Executive, his heirs and representatives. This Agreement shall be assignable
by Employer to any successor entity to Employer, or any entity controlled by or
under common control with Employer. This Agreement shall also inure to the
benefit of Ericsson Inc., which shall be a third-party beneficiary to this
Agreement.
14. ATTORNEYS FEES. If any legal proceeding is necessary to enforce or
interpret the terms of this Agreement, or to recover damages for breach
therefore, the prevailing party shall be entitled to reasonable attorneys' fees,
as well as costs and disbursements, in addition to any other relief to which he
or it may be entitled.
15. ARBITRATION OF DISPUTES
15.1 CHOICE OF ARBITRATION. Any and all disputes or
controversies, whether of law or fact of any nature whatsoever, arising from or
respecting this Agreement shall be decided in accordance with the then current
arbitration rules of the International Chamber of Commerce ("ICC") or by any
other body mutually agreed upon by the parties. Pre-arbitration discovery shall
be permitted at the request of either party under appropriate protection for
proprietary and confidential business information. If any terms in this Section
15 are inconsistent with the rules of the ICC in effect at the time of the
dispute, then the rules of the ICC shall prevail.
15.2 NOTICE AND ATTEMPTS TO RESOLVE. Before filing a demand for
arbitration, a party must send the other party written notice identifying the
matter in dispute and invoking the procedures in this paragraph. Such written
notice shall be sent promptly after the party knew or reasonably should have
known of an alleged violation of this Agreement. Within fifteen days after such
written notice is given, one or more principals of each party shall meet at a
mutually agreeable location in Reykjavik, Iceland, for the purpose of
determining whether they can resolve the dispute themselves by written
agreement. If the parties fail to resolve the dispute by written agreement
within the fifteen-day period, the complaining party may then initiate the
arbitration process by filing a demand with the ICC or such other body as the
parties may agree upon. Nothing in this paragraph shall prevent a party from
seeking temporary equitable relief, from ICC or such other body as the parties
may mutually agree upon, during the fifteen-day period if necessary to prevent
irreparable harm.
15.3 NUMBER OF ARBITRATORS. There shall be three arbitrators to
be chosen in accordance with the then current ICC rules for selecting
arbitrators. Either party may disqualify any individual arbitrator who is a
present or past employee, owner, or consultant to the opposing party or a
competing organization.
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15.4 LOCATION AND PROCEDURES. The place of arbitration shall be
Reykjavik, Iceland, unless another location is mutually agreed upon by the
parties. At the request of either party, arbitration proceedings will be
conducted in the utmost secrecy and, in such case, all documents, testimony and
records shall be received, heard and maintained by the arbitrators in secrecy
under seal, available for inspection only by Executive and Employer, their
respective attorneys, and their respective experts, consultants or witnesses who
shall agree, in advance and in writing, to receive all such information
confidentially and to maintain such information in secrecy, and make no use of
such information except for the purposes of the arbitration, until such
information shall become generally known.
15.5 POWER OF ARBITRATORS. The arbitrators, who shall act by
majority vote, shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a temporary injunction, or a permanent injunction, and shall also be able
to award damages, with or without an accounting and costs. The decree or
judgment of an award rendered by the arbitrators may be entered in any court
having jurisdiction over the parties.
15.6 RIGHTS OF PREVAILING PARTIES. If any action is necessary to
enforce or interpret the terms of this Section 15, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and necessary disbursements in
addition to any other relief to which that party may be entitled.
16. MISCELLANEOUS
16.1 FORM. As used in this Agreement, the singular form shall
include, if appropriate, the plural.
16.2 HEADINGS. The headings used in this Agreement are solely
for the convenience and reference of the parties and are not intended to be
descriptive of the entire contents of any paragraph and shall not limit or
otherwise affect any of terms, provisions, or constructions thereof.
16.3 DRAFTING AND CONSTRUCTION. This Agreement shall be
interpreted as if the parties jointly and equally drafted it and any doctrine of
law that might operate to construe any ambiguity against the drafter shall be
inapplicable to this Agreement. The section and paragraph headings in this
Agreement are solely for reference purposes and shall not affect in any way the
meaning or interpretation of this Agreement.
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IN WITNESS WHEREOF, this Agreement is executed as of the date first
above written.
OZ INTERACTIVE, INC.
By: /s/ GARRY HARE /s/ SKULI MOGENSEN
-------------------------------- ------------------------------------
For the Board of Directors SKULI MOGENSEN
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EXHIBIT 10.5
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
OF GUDJON MAR GUDJONSSON
This EMPLOYMENT AGREEMENT (this "AGREEMENT") is made as of October 15,
1998 by and between OZ INTERACTIVE, INC., a California corporation ("EMPLOYER"),
and GUDJON MAR GUDJONSSON ("EXECUTIVE").
RECITALS
A. EMPLOYER
Employer is a company building a business of developing and selling
software, particularly in the area of interactive, three-dimensional
applications for use on the Internet and on local area networks.
B. EXECUTIVE
Executive has developed substantial expertise in in computer programming
and general management and is a substantial shareholder in Employer.
C. 1997 EMPLOYMENT AGREEMENT
Executive and Employer are parties to an Employment Agreement made and
entered into as of January 1, 1997 (the "1997 Employment Agreement").
D. ERICSSON
Ericsson Inc. has elected to make a substantial investment in Employer
and has made it a condition of its investment that Employer enter into this
Agreement with Executive for the purpose of securing his services for an
extended period of time, ensuring that he has sufficient incentives to continue
to serve the interests of Employer and to ensure that Executive will not, during
the time of this Agreement enter into competition with Employer, all on the
terms and conditions set forth herein.
E. INTENTIONS
Executive believes that it is in his own personal self interest as a
substantial investor in Employer that Ericsson make its investment, and Employer
and Executive desire to amend and restate the 1997 Employment Agreement as set
forth herein.
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AGREEMENT
In consideration of the foregoing and of the mutual covenants and
conditions herein contained, the parties hereby amend and restate the 1997
Employment Agreement as follows:
1. EMPLOYMENT. Employer hereby employs Executive as Chairman, and
Executive accepts such employment, upon the terms and subject to the conditions
set forth in this Agreement.
2. TERM. The term of this Agreement shall be for a period commencing
upon date hereof and ending on January 1, 2002 ("INITIAL TERM"). The term of
this Agreement shall be automatically extended for additional one-year periods
unless either party gives written notice of its desire to terminate this
Agreement to the other party within thirty days prior to the end of the Initial
Term or any one year extension provided for above. The period of time between
the commencement of the term of this Agreement and termination of Executive's
employment shall be referred to herein as the "EMPLOYMENT PERIOD."
3. POSITIONS AND SERVICES
3.1 BEST EFFORTS. Executive will initially occupy the positions
of Director and Chairman of Employer. During the Employment Period, Executive
will devote his best efforts and substantially all of his business time and
attention to the performance of his duties hereunder and to the business and
affairs of Employer, except for vacation periods as set forth herein and
reasonable periods of illness or other incapacities permitted by Employer's
general employment policies.
3.2 DUTIES. Executive shall perform such duties as are
customarily associated with his then current title(s), consistent with the
Bylaws of Employer and as required by Employer's Board of Directors ("BOARD").
Said duties shall be performed at such place or places as Employer shall
reasonably designate or as shall be reasonably appropriate and necessary to the
discharge of Executive's duties in connection with his employment.
3.3 COMPANY POLICIES. The employment relationship between the
parties shall be governed by the general employment policies and practices of
Employer, including but not limited to those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with Employer's general
employment policies or practices, this Agreement shall control. Executive will
duly, punctually and faithfully observe Employer's general employment policies
and practices, including, without limitation, any and all rules, regulations,
policies and/or procedures which Employer may now or hereafter establish
governing the conduct of its business.
4. COMPENSATION
4.1 SALARY. During the Initial Period, Employer shall pay to
Executive base salary at the annual rate of $132,000. Executive's salary shall
be increased annually
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commencing January 1, 1999 and on each subsequent January 1 during the
Employment Period by the sum of (i) an amount equal to no less than five percent
(5%) and (ii) the percentage increase in the general Consumer Price Index for
the geographic area in which Executive is employed from the prior December 1 to
the December 1 immediately preceding the effective date of the salary increase.
Executive's salary shall be payable at the same time and basis as Employer pays
its payroll in general. If, during the term of this Agreement, Executive is
domiciled and his services are rendered substantially in the United States,
payment of Executive's salary shall be paid in U.S. dollars and subject to
deductions for social security, federal and state payroll taxes and unemployment
and other standard deductions and withholdings, otherwise Executive's salary
shall be paid in the currency of the country in which he is domiciled and his
salary shall be subject to all applicable local withholding requirements.
4.2 PARTICIPATION IN BENEFIT PLANS. During the term hereof,
Executive shall be entitled to participate in any profitsharing, group
insurance, hospitalization, medical, dental, health and accident, disability or
similar plan or program of Employer now existing or established hereafter for
executives.
4.3 VACATION. Executive shall be entitled to a period of annual
vacation time equal to that provided to employees of equal position by
Employer's policies and procedures regarding vacation, but in no event less than
three weeks per year (including one week off between Christmas and New Years Day
during which the offices of Employer will be closed). The days selected for
Executive's vacation must be mutually agreeable to Employer and Executive.
4.4 EXECUTIVE BONUS PROGRAM. Executive shall be eligible for an
annual cash bonus, which shall not exceed one hundred percent (100%) of his base
salary for such period. The bonus shall be determined in accordance with the
following formula, which shall be calculated on March 31 of the year following
the year for which the bonus is to be calculated:
1999: 2.5% of any net revenues in excess of 1998 net revenues.
2000: 2.5% of any net revenues in excess of 1999 net revenues.
2001: 2.5% of any net revenues in excess of 2000 net revenues.
4.5 EXPATRIATION BENEFITS. If Executive is required by Employer
to expatriate to any country other than Iceland, the Company will offer a
reasonable expatriation package with the intention of making the relocation
economically neutral to Executive and paying personal expenses (i.e., reasonable
travel for Executive and his family and personal phone expenses) reasonably
related to the displacement of Executive and his family from their home, family
and friends.
5. DEATH OR DISABILITY DURING EMPLOYMENT. If Executive is prevented from
performing duties hereunder by reason of illness or injury for (i) a period of
six (6) or more con-
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secutive months or (ii) more than 180 days in any consecutive twelve month
period (the date of the determination of disability under clause (i) or (ii)
shall be referred to as the "EFFECTIVE DATE OF DISABILITY"), or if Executive
dies during employment hereunder, Employer shall pay to the Executive if
disabled (or in the case of death to the executors under Executive's last will
and testament), the salary that would otherwise be payable to the Executive
under this Agreement through the end of the six (6) month following the month in
which the Executive's Effective Date of Disability or death occurs, as the case
may be. Such payments shall constitute all of Employer's obligations to
Executive in the event of Executive's death or disability, and all compensation
and benefits, except benefits provided by law (e.g., COBRA health insurance
continuation benefits), shall otherwise cease to accrue. The determination
regarding whether Executive is unable to perform duties hereunder shall be made
by Employer's Board of Directors in the reasonable, good faith exercise of its
judgment.
6. TERMINATION. This Agreement does not grant Executive any right or
entitlement to be retained by the Employer, and shall not affect or prejudice
Employer's right to discharge the Executive in accordance herewith with or
without cause.
6.1 TERMINATION WITHOUT CAUSE. Employer's Board may terminate
Executive's employment with Employer at any time, upon thirty days' written
notice, without "CAUSE," as defined below. In the event Executive's employment
is terminated without cause, Executive shall be entitled to a twelve-month
continuation of his salary and benefits that Executive would otherwise have been
entitled to pursuant to Section 4 of this Agreement, including a pro rated
portion of any bonus for which he would have otherwise been eligible under any
executive bonus program. Such salary and benefits shall constitute the entirety
of Employer's obligations to Executive in the event of the termination of
Executive's employment without cause, except benefits provided by law (e.g.,
COBRA health insurance continuation benefits). All salary payable under this
Section shall be paid at the same time and basis as Employer pays its payroll in
general.
6.2 TERMINATION WITH CAUSE. Employer's Board may terminate
Executive's employment with Employer at any time for cause, immediately upon
notice to Executive of the circumstances leading to such termination for cause.
In the event that Executive's employment is terminated for cause, all
compensation and benefits, except benefits provided by law (e.g., COBRA health
insurance continuation benefits), will immediately cease to accrue, and all
compensation and, except as otherwise required by applicable law, benefits
accrued though the date of termination shall be paid to Executive within a
reasonable time thereafter but in no event later than thirty days. The date of
termination shall be the date upon which notice of termination is given.
Employer shall have no further obligation to pay severance of any kind nor to
make any payment in lieu of notice.
6.3 DEFINITION OF CAUSE. For the purposes of this Agreement,
"CAUSE" shall mean: (a) habitual neglect or insubordination (defined as a
refusal to execute or carry out directions from the Board); (b) conviction of
any felony or any crime involving moral turpitude; (c) willful breach of
Executive's duties to Employer and (d) conduct by Executive, which in the good
faith, reasonable determination of the Board demonstrates gross unfitness to
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serve, including but not limited to gross neglect, non-prescription use of
controlled substances, any abuse of controlled substances whether or not by
prescription, or habitual drunkenness, intoxication, or other impaired state
induced by consumption of any drug, including alcohol.
7. BREACH OR VIOLATION OF AGREEMENT. The parties agree that a breach or
violation of this Agreement will result in immediate and irreparable injury and
harm to the innocent party, who shall have, in addition to any and all remedies
of law, the right to an injunction, specific performance or other equitable
relief to prevent the violation of the obligations hereunder, plus reasonable
attorneys' fees and costs incurred in obtaining any such relief.
8. COVENANT NOT TO COMPETE. Executive agrees to the following
restrictions on competition:
8.1 RESTRICTIONS. Executive will not prior to January 1, 2002,
or the later termination of this Agreement, (a) directly or indirectly engage or
have any interest in any beusiness or venture engaged in any business that
develop software and applications that enable real-time collaborative
communications in shared spaces on the Internet or competes with any other
business that the Company may engage in during the term of this Agreement (a
"Competing Business"), whether such engagement is undertaken alone, or together
with, or on behalf of, or through any other person, firm, association, trust,
venture, corporation, or other entity or enterprise, or whether such interest is
as sole proprietor, partner, shareholder, independent contractor, agent,
officer, director, employee, advisor, consultant, trustee, beneficiary, or
otherwise in a Competing Business, (b) assist any other person or entity in
conducting a Competing Business, (c) own any capital stock or any other
securities of or have any other direct or indirect interest in any person,
entity, or other enterprise which owns or operates a Competing Business (except
stock holdings of 1% or less for investment purposes in securities of publicly
traded companies), or (d) directly or indirectly recruit, or induce any party to
recruit any person who is an employee of, or who has entered into an independent
contractor arrangement with the Employer or any Affiliate of the Employer.
8.2 EXECUTIVE'S ACKNOWLEDGEMENTS AND AGREEMENTS. Executive
acknowledges and agrees (a) that the software developed by Employer is or is
intended to be marketed and licensed to customers throughout the world, (b) to
the reasonableness of this covenant not to compete and the reasonableness of the
geographic area and duration of time which are a part of said covenant, (c) that
this covenant will not preclude Executive from becoming gainfully employed
following termination of employment with Employer, (d) that because any remedy
at law for any breach or attempted breach of Section 8.1 may be inadequate,
Employer or Ericsson shall be entitled to specific performance and injunctive
relief or other equitable relief in case of any such breach or attempted breach
of Section 8.1, in addition to any other remedies that the Employer or Ericsson
may seek and which may exist at law (including, without limitation, money
damages) or in equity. The parties to this Agreement waive any requirement for
the securing or posting of any bond in connection with Employer's or Ericsson's
seeking or obtaining any such relief at law or in equity, including, without
limitation, any injunctive or equitable relief. If any provision of Section 8.1
relating to the period of the restrictions, the scope of the activities
restricted and/or the territory to which the
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restriction applies should be declared by a court of competent jurisdiction to
exceed the maximum time period, scope of activity or geographical area that the
court deems to be reasonable and enforceable by that court, then the maximum
time period, scope of activity and/or geographical area deemed to be reasonable
by that court shall become the maximum time period, scope of activity and/or
geographical area of the restrictive covenant set forth in Section 8.1.
9. NOTICES. Any notice required to be given pursuant to the provisions
of this Agreement shall be in writing and, if mailed, sent by registered or
certified mail, postage prepaid, or by an overnight delivery service, to the
party named at the address set forth below, or at such other address as each
party may hereafter designate in writing to the other party:
Employer: OZ Interactive, Inc.
525 Brannan Street, Fourth Floor
San Francisco, California 94107
with a copy to: Robert G. Quinn, Esq.
Quinn & Quinn
18665 Via Torino
Irvine, California 92612
Executive: Gudjon Mar Gudjonsson
--------------------
Reykjavik, Iceland
Any such notices shall be deemed to have been delivered when served personally
(including personal delivery by telecopy), in five business days after being
mailed by registered or certified mail, or in two business days after being
mailed by an overnight delivery service.
10. ENTIRE AGREEMENT. This Agreement and that certain Proprietary
Information and Inventions Agreement by and between Executive and Employer of
even date herewith supersede all prior discussions, negotiations and agreements
between the parties with respect to the subject matter, or otherwise in
consideration hereof, and reflects their entire agreement.
11. CHANGE, MODIFICATION, WAIVER. No change or modification of this
Agreement shall be valid unless it is in writing and signed by each of the
parties hereto. No waiver of any provision of this Agreement shall be valid
unless it is in writing and signed by the party against whom the waiver is
sought to be enforced. The failure of a party to insist upon strict performance
of any provision of this Agreement in any one or more instances shall not be
construed as a waiver or relinquishment of the right to insist upon strict
compliance with such provision in the future.
12. SEVERABILITY OF PROVISIONS. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect
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under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provisions had never been contained
herein.
13. SUCCESSORS AND ASSIGNS. The services and duties to be performed by
Executive hereunder are personal and may not be assigned. This Agreement shall
be binding upon and inure to the benefit of Employer its successors and assigns,
and Executive, his heirs and representatives. This Agreement shall be assignable
by Employer to any successor entity to Employer, or any entity controlled by or
under common control with Employer. This Agreement shall also inure to the
benefit of Ericsson Inc., which shall be a third-party beneficiary to this
Agreement.
14. ATTORNEYS FEES. If any legal proceeding is necessary to enforce or
interpret the terms of this Agreement, or to recover damages for breach
therefore, the prevailing party shall be entitled to reasonable attorneys' fees,
as well as costs and disbursements, in addition to any other relief to which he
or it may be entitled.
15. ARBITRATION OF DISPUTES
15.1 CHOICE OF ARBITRATION. Any and all disputes or
controversies, whether of law or fact of any nature whatsoever, arising from or
respecting this Agreement shall be decided in accordance with the then current
arbitration rules of the International Chamber of Commerce ("ICC") or by any
other body mutually agreed upon by the parties. Pre-arbitration discovery shall
be permitted at the request of either party under appropriate protection for
proprietary and confidential business information. If any terms in this Section
15 are inconsistent with the rules of the ICC in effect at the time of the
dispute, then the rules of the ICC shall prevail.
15.2 NOTICE AND ATTEMPTS TO RESOLVE. Before filing a demand for
arbitration, a party must send the other party written notice identifying the
matter in dispute and invoking the procedures in this paragraph. Such written
notice shall be sent promptly after the party knew or reasonably should have
known of an alleged violation of this Agreement. Within fifteen days after such
written notice is given, one or more principals of each party shall meet at a
mutually agreeable location in Reykjavik, Iceland, for the purpose of
determining whether they can resolve the dispute themselves by written
agreement. If the parties fail to resolve the dispute by written agreement
within the fifteen-day period, the complaining party may then initiate the
arbitration process by filing a demand with the ICC or such other body as the
parties may agree upon. Nothing in this paragraph shall prevent a party from
seeking temporary equitable relief, from ICC or such other body as the parties
may mutually agree upon, during the fifteen-day period if necessary to prevent
irreparable harm.
15.3 NUMBER OF ARBITRATORS. There shall be three arbitrators to
be chosen in accordance with the then current ICC rules for selecting
arbitrators. Either party may disqualify any individual arbitrator who is a
present or past employee, owner, or consultant to the opposing party or a
competing organization.
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15.4 LOCATION AND PROCEDURES. The place of arbitration shall be
Reykjavik, Iceland, unless another location is mutually agreed upon by the
parties. At the request of either party, arbitration proceedings will be
conducted in the utmost secrecy and, in such case, all documents, testimony and
records shall be received, heard and maintained by the arbitrators in secrecy
under seal, available for inspection only by Executive and Employer, their
respective attorneys, and their respective experts, consultants or witnesses who
shall agree, in advance and in writing, to receive all such information
confidentially and to maintain such information in secrecy, and make no use of
such information except for the purposes of the arbitration, until such
information shall become generally known.
15.5 POWER OF ARBITRATORS. The arbitrators, who shall act by
majority vote, shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a temporary injunction, or a permanent injunction, and shall also be able
to award damages, with or without an accounting and costs. The decree or
judgment of an award rendered by the arbitrators may be entered in any court
having jurisdiction over the parties.
15.6 RIGHTS OF PREVAILING PARTIES. If any action is necessary to
enforce or interpret the terms of this Section 15, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and necessary disbursements in
addition to any other relief to which that party may be entitled.
16. MISCELLANEOUS
16.1 FORM. As used in this Agreement, the singular form shall
include, if appropriate, the plural.
16.2 HEADINGS. The headings used in this Agreement are solely
for the convenience and reference of the parties and are not intended to be
descriptive of the entire contents of any paragraph and shall not limit or
otherwise affect any of terms, provisions, or constructions thereof.
16.3 DRAFTING AND CONSTRUCTION. This Agreement shall be
interpreted as if the parties jointly and equally drafted it and any doctrine of
law that might operate to construe any ambiguity against the drafter shall be
inapplicable to this Agreement. The section and paragraph headings in this
Agreement are solely for reference purposes and shall not affect in any way the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
above written.
OZ INTERACTIVE, INC.
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By: /s/ SKULI MOGENSEN /s/ GUDJON MAR GUDJONSSON
-------------------------------- ------------------------------------
For the Board of Directors GUDJON MAR GUDJONSSON
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
OF ROBERT G. QUINN
This EMPLOYMENT AGREEMENT (this "AGREEMENT") is made as of April 1, 200
by and BETWEEN OZ.COM, a California corporation ("EMPLOYER"), and ROBERT G.
QUINN ("EXECUTIVE").
RECITALS
A. EMPLOYER
Employer is a company building a business of developing and selling
solutions and services relating to mobile Internet applications.
B. EXECUTIVE
Executive has developed substantial expertise in law and finance.
C. INTENTIONS
Employer intends to engage Executive and Executive intends to accept
employment from Employer on the terms and conditions of this Agreement.
AGREEMENT
In consideration of the foregoing and of the mutual covenants and
conditions herein contained, the parties hereby agree as follows:
1. EMPLOYMENT. Employer hereby employs Executive as Chief Financial
Officer, and Executive accepts such employment, upon the terms and subject to
the conditions set forth in this Agreement.
2. TERM. The term of this Agreement shall be for a period commencing
upon date hereof and ending on March 31, 2002 ("INITIAL TERM"). The period of
time between the commencement of the term of this Agreement and termination of
Executive's employment shall be referred to herein as the "EMPLOYMENT PERIOD."
3. POSITION AND SERVICES
3.1 BEST EFFORTS. Executive will occupy the position of Chief
Financial Officer of Employer. During the Employment Period, Executive will
devote his best efforts and substantially all of his business time and attention
to the performance of his duties hereunder and to the business and affairs of
Employer, except for vacation periods as set forth herein and reasonable periods
of illness or other incapacities permitted by Employer's general employment
policies.
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3.2 DUTIES. Executive shall perform such duties as are
customarily associated with his position, consistent with the Bylaws of Employer
and as required by Employer's Board of Directors ("BOARD").
3.3 PLACE OF EMPLOYMENT. For at least the first 3 months of
employment, Executive will be temporarily based at Employees office in
Reykjavik, Iceland. Thereafter, Executive may choose his place of employment
from among Boston, London, Reykjavik, Stockholm, and any additional location
approved by Employer. Employer shall provide Executive with a work authorization
at his place of employment where such authorization is needed. Employer shall
assist Executive in compliance with all immigration laws and shall pay the
reasonable costs of such compliance, specifically including attorneys' fees.
Executive's base salary shall be adjusted upward to reflect any additional
taxation and other cost of living increases associated with the relocation. The
amount of increase will be determined by any applicable CPI (Consumer Price
Index) or other valid indicator generally relied upon by industry or agreed upon
by Employer and Executive.
3.4 COMPANY POLICIES. The employment relationship between the
parties shall be governed by the general employment policies and practices of
Employer, including but not limited to those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with Employer's general
employment policies or practices, this Agreement shall control. Executive will
duly, punctually and faithfully observe Employer's general employment policies
and practices, including, without limitation, any and all rules, regulations,
policies and/or procedures which Employer may now or hereafter establish
governing the conduct of its business.
4. COMPENSATION
4.1 SALARY. During the Initial Period, Employer shall pay to
Executive base salary at the annual rate of $250,000. Executive's salary shall
increase March 31, 2001 by the sum of (i) an amount equal to no less than five
percent (5%) and (ii) the percentage increase in the general Consumer Price
Index for the geographic area in which Executive is employed from January 1,
2000 to January 1, 2001. Executive's salary shall be payable at the same time
and basis as Employer pays its payroll in general. For calendar year 2000, and
for any other period during which Executive is domiciled and his services are
rendered substantially in the United States, payment of Executive's salary shall
be paid in U.S. dollars and subject to deductions for social security, federal
and state payroll taxes and unemployment and other standard deductions and
withholdings, otherwise Executive's salary shall be paid in the currency of the
country in which he is domiciled and his salary shall be subject to all
applicable local withholding requirements.
4.2 STOCK OPTION GRANTS. Executive shall be granted an incentive
stock option to purchase up to 200,000 shares of Employer's common stock under
the terms of the OZ Interactive, Inc. 1995 Stock Option Plan ("Stock Option
Plan"), as amended. These options will be due and exercisable in eight equal
quarterly installments, the first being vested and exercisable June 30, 2000 and
at the end of each calendar quarter thereafter until fully vested.
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4.3 PARTICIPATION IN BENEFIT PLANS. During the term hereof,
Executive shall be entitled to participate in any profitsharing, group
insurance, hospitalization, medical, dental, health and accident, disability or
similar plan or program of Employer now existing or established hereafter for
executives.
4.4 VACATION. Executive shall be entitled to a period of annual
vacation time equal to that provided to employees of equal position by
Employer's policies and procedures regarding vacation, but in no event less than
five weeks per year (including one week off between Christmas and New Years Day
during which the offices of Employer will be closed). The days selected for
Executive's vacation must be mutually agreeable to Employer and Executive.
4.5 EXECUTIVE BONUS PROGRAM. Executive shall be eligible for and
a full participant in an executive and/or personal bonus program that will
reward him for successfully closing an IPO, increasing shareholder value through
increases in the stock price, and successfully closing strategic acquisitions or
other major accomplishments within his full or partial control as Chief
Financial Officer of the Employer. In the event no such plan is adopted,
approved or implemented by the Board of Directors or the Compensation Committee
thereof, Executive shall receive an annual cash bonus, which shall not exceed
one hundred percent (100%) of his base salary for such period. The bonus shall
be determined in accordance with the following formula, which shall be
calculated no later than March 31 of the year following the year for which the
bonus is to be calculated:
2000: 2.5% of any net revenues in excess of 1999 net revenues.
2001: 2.5% of any net revenues in excess of 2000 net revenues.
4.6 EXPATRIATION BENEFITS. Employee will provide an expatriation
package with the intention of making the relocation economically neutral to
Executive from the point of view of cost of living and tax burdens as compared
with Orange County, California, and paying personal expenses (i.e., business
class travel for Executive and his family and personal phone expenses)
reasonably related to the displacement of Executive and his family from their
home, family and friends. Employer understands that this will include require
frequent travel by members of Executive's nuclear family back to California to
visit Executive parents in law and grandmother.
4.7 ACCOMMODATION EXPENSES/CAR ALLOWANCE. Employer will, during
the term of this Agreement, bear reasonable expenses of Executive and his family
for accommodation at the place (or places, if Executive is expected to spend
significant time in more than one location) of employment of Executive.
Reasonable accommodation shall mean housing similar to Executive's home in
California within a reasonable commute from Employer's facilities and/or an
acceptable English-language school in the place of employment of Executive.
Employer will furthermore provide a vehicle for Executive's use equivalent to a
Volvo S-80, T6.
5. DEATH OR DISABILITY DURING EMPLOYMENT. If Executive is prevented from
performing duties hereunder by reason of illness or injury for (i) a period of
six (6) or more consecutive months or (ii) more than 180 days in any consecutive
twelve month period (the date of the determination of disability under clause
(i) or (ii) shall be referred to as the "EFFECTIVE DATE OF DISABILITY"), or if
Executive dies during employment hereunder,
3
<PAGE> 4
Employer shall pay to the Executive if disabled (or in the case of death to the
executors under Executive's last will and testament), the salary that would
otherwise be payable to the Executive under this Agreement through the end of
the six (6) month following the month in which the Executive's Effective Date of
Disability or death occurs, as the case may be. Such payments shall constitute
all of Employer's obligations to Executive in the event of Executive's death or
disability, and all compensation and benefits, except benefits provided by law
(e.g., COBRA health insurance continuation benefits), shall otherwise cease to
accrue. The determination regarding whether Executive is unable to perform
duties hereunder shall be made by Employer's Board of Directors in the
reasonable, good faith exercise of its judgment.
6. TERMINATION. This Agreement does not grant Executive any right or
entitlement to be retained by the Employer, and shall not affect or prejudice
Employer's right to discharge the Executive in accordance herewith with or
without cause.
6.1 TERMINATION WITHOUT CAUSE. Employer's Board may terminate
Executive's employment with Employer at any time, upon thirty days' written
notice, without "CAUSE," as defined below. In the event Executive's employment
is terminated without cause, Executive shall be entitled to the payment in full
of all salary and benefits to which Executive would otherwise have been entitled
pursuant to Section 4 of this Agreement, including a pro rated portion of any
bonus for which he would have otherwise been eligible under any executive bonus
program. Such salary and benefits shall constitute the entirety of Employer's
obligations to Executive in the event of the termination of Executive's
employment without cause, except benefits provided by law (e.g., COBRA health
insurance continuation benefits). All salary payable under this Section shall be
paid at the same time and basis as Employer pays its payroll in general.
6.2 TERMINATION WITH CAUSE. Employer's Board may terminate
Executive's employment with Employer at any time for cause, immediately upon
notice to Executive of the circumstances leading to such termination for cause.
In the event that Executive's employment is terminated for cause, all
compensation and benefits, except benefits provided by law (e.g., COBRA health
insurance continuation benefits), will immediately cease to accrue, and all
compensation and, except as otherwise required by applicable law, benefits
accrued though the date of termination shall be paid to Executive within a
reasonable time thereafter but in no event later than thirty days. The date of
termination shall be the date upon which notice of termination is given.
Employer shall have no further obligation to pay severance of any kind nor to
make any payment in lieu of notice.
6.3 DEFINITION OF CAUSE. For the purposes of this Agreement,
"CAUSE" shall mean: (a) habitual neglect or insubordination (defined as a
refusal to execute or carry out directions from the Board); (b) conviction of
any felony or any crime involving moral turpitude; (c) willful breach of
Executive's duties to Employer and (d) conduct by Executive, which in the good
faith, reasonable determination of the Board demonstrates gross unfitness to
serve, including but not limited to gross neglect, non-prescription use of
controlled substances, any abuse of controlled substances whether or not by
prescription, or habitual drunkenness, intoxication, or other impaired state
induced by consumption of any drug, including alcohol. [My "cause" too.]
4
<PAGE> 5
7. ARBITRATION OF DISPUTES
7.1 CHOICE OF ARBITRATION. Any and all disputes or
controversies, whether of law or fact of any nature whatsoever, arising from or
respecting this Agreement shall be decided in accordance with the then current
arbitration rules of the International Chamber of Commerce ("ICC") or by any
other body mutually agreed upon by the parties. Pre-arbitration discovery shall
be permitted at the request of either party under appropriate protection for
proprietary and confidential business information. If any terms in this Section
15 are inconsistent with the rules of the ICC in effect at the time of the
dispute, then the rules of the ICC shall prevail.
7.2 NOTICE AND ATTEMPTS TO RESOLVE. Before filing a demand for
arbitration, a party must send the other party written notice identifying the
matter in dispute and invoking the procedures in this paragraph. Such written
notice shall be sent promptly after the party knew or reasonably should have
known of an alleged violation of this Agreement. Within fifteen days after such
written notice is given, one or more principals of each party shall meet at a
mutually agreeable location, for the purpose of determining whether they can
resolve the dispute themselves by written agreement. If the parties fail to
resolve the dispute by written agreement within the fifteen-day period, the
complaining party may then initiate the arbitration process by filing a demand
with the ICC or such other body as the parties may agree upon. Nothing in this
paragraph shall prevent a party from seeking temporary equitable relief, from
ICC or such other body as the parties may mutually agree upon, during the
fifteen-day period if necessary to prevent irreparable harm.
7.3 NUMBER OF ARBITRATORS. There shall be three arbitrators to
be chosen in accordance with the then current ICC rules for selecting
arbitrators. Either party may disqualify any individual arbitrator who is a
present or past employee, owner, or consultant to the opposing party or a
competing organization.
7.4 LOCATION AND PROCEDURES. The place of arbitration shall be a
location mutually agreed upon by the parties. At the request of either party,
arbitration proceedings will be conducted in the utmost secrecy and, in such
case, all documents, testimony and records shall be received, heard and
maintained by the arbitrators in secrecy under seal, available for inspection
only by Executive and Employer, their respective attorneys, and their respective
experts, consultants or witnesses who shall agree, in advance and in writing, to
receive all such information confidentially and to maintain such information in
secrecy, and make no use of such information except for the purposes of the
arbitration, until such information shall become generally known.
7.5 POWER OF ARBITRATORS. The arbitrators, who shall act by
majority vote, shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a temporary injunction, or a permanent injunction, and shall also be able
to award damages, with or without an accounting and costs. The decree or
judgment of an award rendered by the arbitrators may be entered in any court
having jurisdiction over the parties.
7.6 RIGHTS OF PREVAILING PARTIES. If any action is necessary to
enforce or interpret the terms of this Section 7, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and necessary disbursements in
addition to any other relief to which that party may be entitled.
5
<PAGE> 6
8. MISCELLANEOUS
8.1 BREACH OR VIOLATION OF AGREEMENT. The parties agree that a
breach or violation of this Agreement will result in immediate and irreparable
injury and harm to the innocent party, who shall have, in addition to any and
all remedies of law, the right to an injunction, specific performance or other
equitable relief to prevent the violation of the obligations hereunder, plus
reasonable attorneys' fees and costs incurred in obtaining any such relief.
8.2 NOTICES. Any notice required to be given pursuant to the
provisions of this Agreement shall be in writing and, if mailed, sent by
registered or certified mail, postage prepaid, or by an overnight delivery
service, to the party named at the address set forth below, or at such other
address as each party may hereafter designate in writing to the other party:
Employer: OZ.COM
Snorrabraut 54
105 Rekjavik, Iceland
with a copy to: Gunnar Thoroddsen, Esq.
Snorrabraut 54
105 Reykjavik, Iceland
Executive: Robert G. Quinn
18665 Via Torino
Irvine, CA 92612
Any such notices shall be deemed to have been delivered when served personally
(including personal delivery by telecopy), in five business days after being
mailed by registered or certified mail, or in two business days after being
mailed by an overnight delivery service.
8.3 ENTIRE AGREEMENT. This Agreement and that certain
Proprietary Information and Inventions Agreement by and between Executive and
Employer of even date herewith supersede all prior discussions, negotiations and
agreements between the parties with respect to the subject matter, or otherwise
in consideration hereof, and reflects their entire agreement.
8.4 CHANGE, MODIFICATION, WAIVER. No change or modification of
this Agreement shall be valid unless it is in writing and signed by each of the
parties hereto. No waiver of any provision of this Agreement shall be valid
unless it is in writing and signed by the party against whom the waiver is
sought to be enforced. The failure of a party to insist upon strict performance
of any provision of this Agreement in any one or more instances shall not be
construed as a waiver or relinquishment of the right to insist upon strict
compliance with such provision in the future.
8.5 SEVERABILITY OF PROVISIONS. Whenever possible, each
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
is held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision, but this Agreement will be
reformed,
6
<PAGE> 7
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provisions had never been contained herein.
8.6 SUCCESSORS AND ASSIGNS. The services and duties to be
performed by Executive hereunder are personal and may not be assigned. This
Agreement shall be binding upon and inure to the benefit of Employer its
successors and assigns, and Executive, his heirs and representatives. This
Agreement shall be assignable by Employer to any successor entity to Employer,
or any entity controlled by or under common control with Employer. This
Agreement shall also inure to the benefit of Ericsson Inc., which shall be a
third-party beneficiary to this Agreement.
8.7 ATTORNEYS FEES. If any legal proceeding is necessary to
enforce or interpret the terms of this Agreement, or to recover damages for
breach therefore, the prevailing party shall be entitled to reasonable
attorneys' fees, as well as costs and disbursements, in addition to any other
relief to which he or it may be entitled.
8.8 FORM. As used in this Agreement, the singular form shall
include, if appropriate, the plural.
8.9 HEADINGS. The headings used in this Agreement are solely for
the convenience and reference of the parties and are not intended to be
descriptive of the entire contents of any paragraph and shall not limit or
otherwise affect any of terms, provisions, or constructions thereof.
8.10 DRAFTING AND CONSTRUCTION. This Agreement shall be
interpreted as if the parties jointly and equally drafted it and any doctrine of
law that might operate to construe any ambiguity against the drafter shall be
inapplicable to this Agreement. The section and paragraph headings in this
Agreement are solely for reference purposes and shall not affect in any way the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
above written.
OZ.COM
By: /s/ GARRY HARE
--------------------------------
/s/ ROBERT G. QUINN
-------------------------------- ---------------------------
For the Board of Directors ROBERT G. QUINN
7
<PAGE> 1
EXHIBIT 10.7
[OZ LOGO]
OZ hf.
Snorrabraut 54
105 Reykjavik
EMPLOYMENT CONTRACT
OZ hf., Snorrabraut 54 Reykjavik, identification number 591291-3009 and Skuli
Valberg Olafsson, Miohusum 7, Kt. 010766-4519, hereinafter referred to as
employee, have agreed to the following employment contract:
A. SPECIAL TERMS
OZ hf. hereby employs employee as Managing Director of OZ hf in Iceland and
Chief Operating Officer (COO) of OZ.COM in a full time 100% position. Employees
supervisor is the CEO of OZ.COM.
Monthly compensation will be ISK 750.000.
Employee has the right to purchase 200.000 shares of OZ.COM for the next 3 years
according to the Company's Employee Stock Option Plan.
Employee receives an automobile for personal use valued at ca. ISK 3.000.000 to
be leased by the Company.
In case of termination by the Company employee receives 6 months base salary.
All other benefits under this contract terminate as of date of termination.
The special terms of this chapter supersede the general terms of chapter B.
<PAGE> 2
Employment Contract
1. KAUP
Manaoarlaun starfsmanns eru fost heildarlaun fyrir starfio og er pvi ekki
greitt serstaklega fyrir yfirvinnu eoa veittar serstakar uppbaetur, svo sem
orlofs- eoa desemberuppbot.
Laun skulu tekin til endurskoounar a 6 manaoa fresti, i januar og juli hvert ar,
og skal vio pa endurskooun taka mio af almennum launabreytingum svo sem
vegna kjarasamninga stettarfelaga eoa breytinga a visitolu.
Se einhverra hluta vegna, svo sem vio upphaf starfs, starfslok eoa vegna
launalauss leyfis, aoeins unnio hluta ur manuoi er greitt hlutfallslega mioao
vio fjolda unninna daga sem hlutfall af fjolda virkra daga i viokomandi manuoi.
Laun greioast manaoarlega eftir a, fyrsta virkan dag naesta manaoar. Starfsmaour
skal gefa OZ hf upplysingar um vioskiptareikning i bankastofnun sem laun skulu
leggjast inn a.
2. Vinnutimi
Vinnuskylda er ao lagmarki 40 klukkustundir a viku mioao vio 5 virka daga i
viku. Hlutfallslega par af beri almennan fridag upp a virkum degi.
Almennir fridagar eru allir helgidagarpjookirkjunnar, sumardagurinn fyrsti,
1. mai, 17. juni og fyrsti manudagur i agust. Beri aofangadag og gamlarsdag upp
a virkan dag teljastpeir sem halfur fridagur hvor.
Vinnudagur skal hefjast fyrir kl. 10:00 ardegis og standa ao lagmarki til kl.
16:00 siodegis, enda se ekki serstaklega um annao samio vio yfirmann. A
timabilinu fra kl. 10:00 til 16:00 eru vioveruskylda a vinnustao ogpvi
porf a sampykki yfirmanns seporf a fjarveru apessum tima.
Oski yfirmaour eftir ao starfsmaour vinni lengur en til kl. 23 pannig ao
ekki naist ao lagmarki 11 stunda hvild fyrir upphaf naesta vinnudags, ma
starfsmaour fresta pvi ao hefja storf naesta dag par til 11 stunda hvild
er nao.
Oski yfirmaour eftir ao starfsmaour vinni yfirvinnu, skal starfsmanni veittur
launaour fridagur fyrir hverjar 6 klukkustundir sem unnar eru umfram 50 stunda
vinnuviku eoa hlutfallslega par af beri fridag upp a virkum degi. pessir
fridagar skulu teknir i samraoi vio yfirmann.
Starfsmanni er skylt ao fylla skilmerkilega ut vinnuskyrslu fyrir hverja viku og
senda yfirmanni til staofestingar i upphafi naestu vinnuviku.
3. Matartimar
Matartimi i hadegi skal vera 1/2 klukkustund a timabilinu 12:00 til 13:00 og
telst hann til venjulegs vinnutima.
Vinni starfsmaour yfirvinnu fra kl. 18:00 til kl. 21:00 a hann rett
a 1/2 klukkustund i kvoldmat a timabilinu 19:00 til 20:00 og skal maturpa vera
tiltaekur a vinnustao.
4. Orlof
Orlof skal vera tveir dagar fyrir hvern unninn manuo a sioasta orlofsari og
reiknast halfur manuour eoa meira heill manuour, en skemmri timi telst ekki meo
Orlof skal avallt tekio i samraoi vio yfirmann.
Veikist starfsmaour i orlofi pao alvarlega ao hann geti ekki notio
orlofsins, skal hann a fyrsta degi, tilkynna OZ hf. um veikindin og hja hvaoa
laekni hann hyggst fa laeknisvottoro. Geri hann pao og standi veikindin
samfellt lengur en prja solarhringa, a starfsmaour rett a uppbotarorlofi
jafn langan tima og veikindin sannanlega voruou. Undir framangreindum
kringumstaeoum skal starfsmaour avallt faera sonnur a veikindi sin meo
laeknisvottoroi. OZ hf. a rett a ao lata laekni vitja starfsmanns er veikst
hefur i orlofi.
Faeoingarorlof allt ao 6 manuoum telst til unnins tima vio utreikning
orlofsrettar.
<PAGE> 3
Employment Contract
Ao ooru leyti fer um orlof skv. logum um orlof nr. 30/1987.
5. Serstakar skyldur
Starfsmaour skal sinna peim storfum sem yfirmaour felur honum.
An fyrirfram gefins sampykkis OZ hf skal starfsmanni i oheimilt ao starfa
hja oorum vinnuveitanda eoa ao oorum launuoum verkefnum.
I 6 manuoi frapvi ao raoningarsambandi vio OZ hf lykur er starfsmanni
oheimilt ao leita eftir vioskiptum vio vioskiptavini OZ hf. eoa bjooa oorum
starfsmonnum OZ hf. storf annarsstaoar.
Oll gogn og upplysingar, i hvaoa formi sempaer kunna ao vera, svo sem
baekur, skyrslur, spjaldskrar, vinnugogn ofl., hvort sem eru a tolvutaeku formi
eoa ekki og vioskiptasambond sem starfsmaour aflar eoa kemst yfir i starfi sinu
hja OZ hf. eoa fyrirtaekjum i eigu OZ hf., eru eign OZ hf. eoa fyrirtaekja OZ
hf. og skulu skilinpar eftir ef starfsmaourinn haettir storfum. Starfsmenn
vio grafiska honnun skulupo eiga rett til eignareintaka af myndverkum sem
peir skapa i storfum sinum fyrir OZ hf. Notkun slikra eignareintaka skal
takmarkast vio einkasyningar og notkun til kynningar a eigin haefni,p.e. til
geymslu i ferilskra.
Starfsmaour skal gaeta fyllstu pagmaelsku um hvaoeina er hann verour askynja
um starfsemi OZ hf i starfi sinu. Pagnarskyldan gildir eins pott
raoningarsamband se ekki lengur fyrir hendi. Starfsmanni er oheimilt ao tja sig
um malefni OZ hf., starfsmenn eoa eigendur, i fjolmiolum eoa a annan opinberan
mata eftir ao hann laetur af storfum hja OZ hf. OZ hf. skal bundinn sams konar
skyldu gagnvart starfsmanni.
Starfmanni er ljost ao allar upplysingar, hugmyndir, vinnuaoferoir,
vinnuskipulag, oll verkefni, lokio og olokio, aaetlanir eoa framtioarmarkmio og
hvaoeina annao sem felur i ser veromaeti fyrir OZ hf. er atvinnuleyndarmal og
eign OZ hf. Ipvi felst ao starfsmanni er meo ollu oheimilt ao ljostra upp
eoa hagnyta a nokkurn hatt, i hverjum tilgangi sem pao kann ao vera slik
atvinnuleyndarmal eoa aora serstaka vitneskju um starfsemi eoa vioskipti OZ. hf.
eoa fyrirtaekja i eigu OZ. hf., sem hann hefur oolast i starfi sinu fyrir OZ.
hf. og brotio getur i baga vio hagsmuni OZ hf.
Ao ooru leyti fer um meofero trunaoarupplysinga eftir reglum OZ hf. a hverjum
tima.
Brjoti starfsmaour paer serstoku skyldur sem her er lyst meoan
vinnusambandio er i gildi, skal teljast um verulega vanefnd ao raeoa sem heimili
OZ hf riftun a samningnum.
6. Hugverkarettur
Verk starfsmanns ipagu OZ hf. samkvaemt samningipessum eru eign OZ hf.
Gildirpao jafnt hvort um er ao raeoa verk sem hofundarettur naer til, sbr.
b-lio 42.gr. hofundarlaga nr. 73/1972, uppfinningu sem vernduo verour meo
einkaleyfi, hugmynd, aofero, atvinnuleyndarmal eoa hvers konar hugverk sem
starfsmaourproar eoa vinnur ao samkvaemt samningipessum. Starfsmanni er
ljost ao oll slik verk veroa orjufanlegur hluti annarrar framleioslu OZ hf.
Starfsmanni skal skylt ao veita OZ hf pa aostoo sem yfirmaour starfsmanns
eoa stjornendur OZ hf kjosa til verndar hofundaretti hvar sem er i heiminum,
hvort sem er meo skraningu einkaleyfa eoa a annan hatt. OZ hf er samkvaemt
pessu heimil hver su nyting a afuroum starfsmanns i vinnu fyrir OZ hf sem
stjornendur pess meta retta, p. a m. til breytinga.
Starfsmanni skal, ao osk yfirmanns, skylt ao aostooa vio breytingar a forriti
eoa annarri afuro starfa sinna fyrir OZ hf.
7. Vinna utan vinnustaoar
Se vinna unnin utan vinnustaoar greioir OZ hf. feroakostnao fra vinnustao til
afangastaoar og til baka, hotelkostnao og dagpeninga fyrir hvern dag
feroarinnar. Dagpeningar eru til greioslu faeois og feroakostnaoar a vioverustao
og fer upphaeo dagpeninga eftir reglum OZ hf. hverju sinni.
Starfsmaour skal sjukra-, slysa-, feroa-, og farangurstryggour a feroum sinum a
vegum OZ hf. skv. reglum OZ hf. hverju sinni.
<PAGE> 4
Employment Contract
8. Greioslur launa i slysa- og veikindatilfellum
Forfallist starfsmaour fra vinnu vegna slysa vio vinnuna, a beinni leio til eoa
fra vinnu, eoa vegna atvinnusjukdoma, sem orsakast af henni, skal hann fa greidd
laun fyrir dagvinnu i allt ao 3 manuoi samkvaemt peim samningi sem
viokomandi tok laun eftir.
Launagreioslum til starfsmanns i veikindaforfollum hans skal a 1. ari haga
pannig ao tveir dagar greioast fyrir hvern unnin manuo. Eftir eitt ar i
starfi skal haga launagreioslum til starfsmanns i veikindaforfollum hans
pannig, ao tveir manuoir greioast a hverjum 12 manuoum. Eftir fimm ar i
starfi skal haga launagreioslum til starfsmanns i veikindaforfollum hans
pannig, ao 4 manuoir greioast a hverjum 12 manuoum. Eftir 10 ar i starfi
skulu launagreioslur vera i 6 manuoi a hverjum 12 manuoum.
Ef starfsmaour veikist og getur af peim sokum ekki sott vinnu, skal hann
pegar tilkynna pao yfirmanni sinum sem akveour hvort laeknisvottoros
skuli krafist. OZ hf. greioir laeknisvottoro i pessu tilviki.
Starfsmaour a rett a faeoingarorlofi samkvaemt logum nr. 57 fra 1987 um
faeoingarorlof asamt sioari breytingum. Um greioslur i faeoingarorlofi fer
samkvaemt akvaeoum laga um almannatryggingar.
Eftir 2 ara starf teljast fjarvistir vegna faeoingarorlofs allt ao 6 manuoum til
starfstima vio mat a veikindarretti.
Foreldri, eoa forraoamaour barns, skal eftir fyrsta starfsmanuo heimilt ao verja
samtals 7 vinnudogum a hverju tolf manaoa timabili, til aohlynningar sjukum
bornum sinum undir 13 ara aldri og halda dagvinnulaunum sinum, enda veroi
annarri umonnun ekki komio vio.
9. Lifeyrissjooir
Um lagmarksiogjald til lifeyrissjoos fer samkvaemt akvaeoum laga um
skyldutryggingu lifeyrisrettinda og starfsemi lifeyrissjooa, nr. 129 fra 1997.
Lifeyrissjoosiogjald starfsmanns, sem dregio er af launum hans og
lifeyrissjoosiogald sem greitt er af OZ hf., skal greitt til pess
lifeyrissjoos sem starfsmaourinn kys, enda starfi sjoourinn samvkaemt reglugero
staofestri af fjarmalaraouneytinu og starfsmaour eigi ekki skylduaoild ao oorum
lifeyrissjooi.
10. Uppsagnarfrestur
Uppsogn skal vera skrifleg og se uppsagnarfrestur einn manuour eoa lengri skal
hann bundinn vio manaoamot.
Eftir 2 ara starf teljast fjarvistir vegna faeoingarorlofs allt ao 6 manuoum til
starfstima vio mat a uppsagnarfresti
Pessi uppsagnarakvaeoi gildapo ekki ef starfsmaour synir vitaveroa
vanraekslu i starfi sinu eoa OZ hf. gerist brotlegt gagnvart starfsmanni.
11. Annao
Efni pessa samnings eru trunaoarmal. OZ hf. leggur aherslu a aopeir seu
ekki raeddir vio aora, hvorki innan fyrirtaekis ne utan.
Risi agreiningur um samning pennan ma bera hann undir Heraosdom Reykjavikur.
Reykjavik, ___________________.
Fyrir hond OZ hf. Starfsmaour
____________________________________ ______________________________________
<PAGE> 5
[OZ LOGO]
OZ hf.
Snorrabraut 54
105 Reykjavik
EMPLOYMENT CONTRACT
OZ hf., Snorrabraut 54 Reykjavik, identification number 591291-3009 and
Skuli Valberg Olafsson, Miohusum 7, Kt. 010766-4519, hereinafter referred to as
employee,
have agreed to the following employment contract:
A. SPECIAL TERMS
OZ hf. hereby employs employee as Managing Director of OZ hf in Iceland and
Chief Operating Officer (COO) of OZ.COM in a full time 100% position. Employees
supervisor is the CEO of OZ.COM.
Monthly compensation will be ISK 750.000.
Employee has the right to purchase 200.000 shares of OZ.COM for the next 3 years
according to the Company's Employee Stock Option Plan.
Employee receives an automobile for personal use valued at ca. ISK 3.000.000 to
be leased by the Company.
In case of termination by the Company employee receives 6 months base salary.
All other benefits under this contract terminate as of date of termination.
The special terms of this chapter supersede the general terms of chapter B.
OZ hf. Confidential page 1
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Employment Contract
B. GENERAL TERMS
1. Wages
Employee's monthly compensation as stated above will be considered the total
compensation for such position and no further wages or bonuses will be paid.
Wages will be reevaluated every six months, in January and July of each year.
Such reevaluation shall be based upon general changes in salaries due to new
agreements made by labor unions or due to changes in price indexes.
If, due to any reason, such as at the beginning or termination of employment or
due to unpaid leave of absence, the employee works only a part of a month, the
employee will receive relative compensation based on the number of days worked
in proportion to the number of work days in the month in question.
Wages will be paid monthly on the first work day of the succeeding month. The
employee shall give OZ hf. information about the bank and account, which the
compensation shall be paid into.
2. Workdays and working hours
The employee shall work a minimum of 40 hours per week based on 5 workdays per
week, Monday through Friday, less any general holidays occurring on a workday.
General holidays are all legal holidays, The First Day of Summer, 1st of May,
17th of June and the First Monday of August. If the 24th of December and the
31st of December occur on a workday each will be considered as half a working
day.
If not otherwise approved by a supervisor, the employee shall work from 10 AM
the latest each workday morning and remain on site at least until 4 PM. The
employee's supervisor must approve any absence during this time.
The employee shall in the beginning of each week file a detailed work-report
accounting for the hours worked during the previous week. The employee shall
directly turn such work-report in to his supervisor for confirmation purposes.
3. Lunch and dinner breaks
Lunchtime will be 1/2 an hour, any time between 12 PM and 1 PM. Lunchtime is
included in the calculation of working hours.
The employee has the right to a dinner break, included in the calculation of
working hours, if he works overtime between 6 PM and 9 PM. Meals will in such
case be provided at the work site between 7 PM and 8 PM.
4. Vacation
Vacation shall be two days for every full month worked during the previous year.
Half a month or more shall be considered as a full month but less than half a
month will not be considered at all.
Use of vacation days shall always subject to prior approval by supervisor.
The employee shall, if he can not enjoy his vacation due to serious illness,
notify OZ hf. of his sickness and inform the corporation of the name of the
doctor, which he intends to ask for a health certificate to certify
OZ hf. Confidential page 2
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Employment Contract
his illness. If the employee remains sick continuously for 72 hours following
such notification, the employee has the right to extra vacation days
corresponding to the consecutive days of illness. Under these conditions the
employee must always prove his illness by referring to a health certificate. If
the employee becomes ill during vacation, OZ hf. has the right to have a doctor
verify the employee's condition.
Leave of absence due to childbirth, up to a maximum of six months, will be
considered as workdays when vacation rights are calculated.
Vacation rights will otherwise depend on the Vacation Act no. 30/1987.
5. Special duties and obligations
The employee shall fulfill his duties as instructed by his supervisor at all
times. OZ hf. has the right to direct the employee from one project to another
and/or transfer the employee from one department to another as considered
necessary by the corporation's supervisors.
Without OZ's hf. approval, the employee shall not work for other employers or
receive any compensation for work elsewhere.
During the period of six months following the termination or completion of this
contract, the employee shall not seek the business of OZ's clients or offer
employment elsewhere to any current employees of OZ hf.
Any data, material, papers or information, in any form whatsoever, such as
books, reports, data sheets, working material, and so forth, that have been
stored digitally, printed, or are kept in any other form, or business
relationships that the employee obtains or comes by during his employment by OZ
hf., are exclusive possessions of OZ hf. Employee must under all conditions
leave such material in the possession of OZ at the completion or termination of
his employment. However, employees working as graphical designers, have the
right to withhold a copy of their own work of authorship, for the sole purpose
of demonstrating to others their prior work as designers.
The employee is bound to secrecy as regards everything he learns about OZ hf.'s
operations during his employment for OZ hf. Such obligation of secrecy remains
also after the termination or completion of the employee's employment with OZ
hf. The employee is prohibited to discuss, divulge, or disclose any matters
affecting or relating to the business OZ hf., its employees or owners, publicly
or to any member of the mass media after the termination or completion of this
contract. OZ hf. shall be bound to the same kind of secrecy towards the
employee.
The employee agrees that all information, ideas, work methods, work processes,
all projects whether in process or completed, plans or future goals, and
everything else which has any value for OZ hf., is a trade secret and the sole
property of OZ hf. For that reason the employee is strictly prohibited to
disclose or use in any way, for any purpose whatsoever, such trade secrets or
any other specific knowledge of OZ hf.'s trade or operations or any businesses
owned by OZ hf., which he has learned of during his employment for OZ hf.
In addition to the terms stated in this contract the special policies and
procedures issued by OZ hf. regarding the treatment of confidential information
bind the employee.
Violation of the terms set out above will be considered a material breach of
this contract and will, not exclusive of other sanctions, entitle OZ hf. to
immediate termination of this contract.
OZ hf. Confidential page 3
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Employment Contract
6. Intellectual property rights
Any intellectual property made by the employee for OZ hf. under the duration of
this contract is and shall be the sole property of OZ hf. That applies to any
copyright in correspondence and according to Article b-42 of the Copyright Act
no. 73/1972, any invention which can be protected by patent, ideas, methods,
trade secrets, or any other intellectual property rights that the employee works
with under this contract. The employee agrees that any such work will be an
undivided part of OZ hf.'s production and its exclusive property.
The employee shall assist OZ hf. in any way OZ hf. sees fit and necessary to
protect any intellectual property rights, such as copyrights or patent rights,
anywhere in the world. Accordingly OZ hf. has the right to use in any way OZ
chooses, including changing or adding to, any product or idea produced by the
employee during the course of employment.
Employee shall, pursuant to OZ hf.'s request, assist with all changes made to
software or any other product made by the employee during his employment for OZ
hf.
7. Travel expenses
OZ hf. will reimburse employee for any and all necessary, customary, and usual
expenses incurred by him while traveling for and on behalf of OZ hf. pursuant to
OZ hf.'s directions. The amount of expenses paid is subject to policy rules
issued by OZ hf.
Employee shall receive health-, accident- and travel insurance while traveling
on behalf of OZ hf., subject to policy rules issued by OZ hf.
8. Accident or illness. Compensation
If employee can not work, as result of an accident that occurred while he was
performing his duties as employee, on his way to or from work, or because of a
occupational hazard, he shall receive compensation in the form of normal months
wages according to this contract for the maximum time period of three months.
Employee's compensation during time of illness shall be; during the first year
of employment: two days wages for every one month of work; after one year of
employment: two months wages for every 12 months of work after five years of
employment: four months for every 12 months of work; and after ten years of
employment: 6 months for every 12 months of work.
Employee shall notify OZ hf. if he becomes ill and can not perform his duties
according to this contract. OZ hf. then decides if employee must provide a
health certificate, which in such case will be paid by OZ hf.
Employee has the right to leave in case of childbirth in accordance with Act no.
57/1987 on Leave Due to Childbirth as amended. In such case employee has the
right to payments in accordance with the Social Security Act.
After two years of employment, leave due to childbirth up to the time period of
six months, will be considered as time of employment with respect to rights to
compensation during time of illness.
If the employee is a parent or a custodian of a child, he has the right to leave
up to a total of seven working days for every twelve months of employment with
full compensation as stated above, if necessary to nurse his sick child of
twelve years old or younger.
OZ hf. Confidential page 4
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Employment Contract
9. Pension Fund
Payments to a pension fund will be made in accordance with law no. 129/1997. The
employee's premium, deducted from the compensation stated above in Article 1,
and the premium paid by OZ hf., shall be paid to the pension fund chosen by the
employee, provided that the pension fund operates in accordance with a directive
approved by the Ministry of Finance and the employee is not obliged to pay to
another pension fund.
10. Option to terminate
During the first three months of employment, both parties have the option to
terminate this contract with one week's prior notice. After the first three
months of employment and for the next three months thereafter both parties have
the right to terminate this contract with one month's prior notice. After six
months of employment, both parties have the right to terminate this contract
with three month's prior notice.
Notice of termination shall be in writing. After six months of employment,
notice of termination shall be effective as of the beginning of the next month
following OZ's receipt of the notice of termination.
After two years of employment, leave due to childbirth up to a maximum of six
months, will be counted as workdays in determining the necessary notice for
termination of employment.
These provisions, concerning the option to terminate will not be binding in case
of serious misconduct on behalf of the employee while performing his duties as
employee or in case of misconduct by OZ hf. towards the employee.
11. Miscellaneous
This contract shall remain confidential. OZ hf. emphasizes that no subject
matter of this contract shall be disclosed or discussed with others, whether
within the company or elsewhere.
The City Court of Reykjavik may resolve any controversy arising under this
contract.
Reykjavik, Iceland.
On behalf of OZ hf.: Employee:
SKULI MOGENSEN /s/ SKULI VOLBERG OLAFSSON
- ----------------------------------- --------------------------------------
OZ hf. Confidential page 5
<PAGE> 1
EXHIBIT 10.8
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into as of the ______ day of
___________, 2000 by and between OZ.COM (formerly known as OZ Interactive,
Inc.), a California corporation (the "CORPORATION"), and [AGENT] ("AGENT").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as [OFFICE] of the Corporation;
WHEREAS, the shareholders of the Corporation have adopted bylaws (the
"BYLAWS") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the California General Corporation Law, as amended
(the "CODE");
WHEREAS, the Bylaws and the Code, by their nonexclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to serve as [OFFICE] of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's service as [OFFICE] after
the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as officer
or director of the Corporation or as a director, officer or other fiduciary of
an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. DEFINITIONS. As used in this Agreement
2.1 Expenses. The term "Expenses" includes expenses actually and
reasonably incurred by or on behalf of Agent, attorneys' fees and disbursements,
and any expenses actually and reasonably incurred by or on behalf of Agent in
connection with establishing a right to indemnification under this Agreement,
but shall not include (i) any judgments and fines and
1.
<PAGE> 2
similar penalties against Agent or (ii) any expenses, amounts paid in
settlement, attorneys' fees or disbursements, judgments, fines and similar
penalties or any other costs whatsoever incurred in connection with any
Proceeding (as defined in Section 2.2, below) insofar as such Proceeding is
based on a violation by Agent of Section 16 of the Securities Exchange Act of
1934, as amended.
2.2 Proceeding. The term "Proceeding" includes any threatened,
pending or completed action, suit or proceeding, any appeal therefrom and any
inquiry or investigation, whether conducted by the Corporation or otherwise,
that Agent in good faith believes might lead to the institution of any such
action, suit or proceeding, whether brought by or in the right of the
Corporation to procure a judgment in its favor or brought by any third party or
otherwise and whether civil, criminal, administrative or investigative, in which
Agent is or may be or may have been involved as a party or otherwise by reason
of any action taken by him or of any inaction on his part while acting as a
director or officer of the Corporation, or while acting at the request of the
Corporation as a director, officer, employee, partner, trustee or agent of any
other corporation, partnership, joint venture, trust or other enterprise (as
defined in Section 2.3, below), regardless of whether he is acting or serving in
any such capacity at the time any Expense is incurred for which indemnification
may be provided under this Agreement. Proceedings shall not include any action,
suit or proceeding initiated or brought voluntarily by Agent and not by way of
defense, except with respect to Proceedings brought to establish or enforce a
right to indemnification under this Agreement or any other statute or law or
otherwise as required under Section 317 of the California Corporation Law.
2.3 Other Terms. The term "other enterprise" includes employee
benefit plans; the term "fines" includes any excise tax assessed with respect to
any employee benefit plan; the term "serving at the request of the Corporation"
includes any service as a director, officer, employee or agent of the
Corporation or any of its subsidiaries that imposes duties on, or involves
services by such director, officer, employee or agent with respect to an
employee benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the interests of
the participants and beneficiaries of any employee benefit plan shall be deemed
to have acted in a manner "he reasonably believed to be in the best interests"
of the Corporation or any of its subsidiaries as such term is used in this
Agreement.
3. INDEMNITY OF AGENT. The Corporation shall indemnify Agent against
Expenses, judgments and fines and other amounts actually and reasonably incurred
in connection with any Proceedings to the full extent permitted by the laws of
the State of California and any applicable Federal laws as from time to time in
effect. Without limiting the generality of the foregoing, the Corporation shall
also indemnify Agent in accordance with the provisions set forth below:
3.1 Proceedings Other Than by or in the Right of the
Corporation. If Agent was or is a party or is threatened to be made a party to
any Proceeding (other than an action by or in the right of the Corporation to
procure a judgment in its favor), the Corporation shall indemnify him against
all Expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such Proceeding if Agent acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any Proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
2.
<PAGE> 3
contendere or its equivalent shall not, of itself, create a presumption that
Agent did not act in good faith and in a manner Agent reasonably believed to be
in the best interests of the Corporation or that Agent had reasonable cause to
believe that his conduct was unlawful.
3.2 Proceedings by or in the Right of the Corporation. If Agent
was or is a party or is threatened to be made a party to any Proceeding by or in
the right of the Corporation to procure a judgment in its favor, the Corporation
shall indemnify him against all Expenses relating to the Proceeding if Agent
acted in good faith in a manner he reasonably believed to be in the best
interests of the Corporation and its shareholders; however, no indemnification
shall be made with respect to any claim, issue or matter as to which Agent shall
have been adjudged to be liable to the Corporation in the performance of Agent's
duty to the Corporation and its shareholders unless the court in which such
Proceeding is or was pending shall determine upon application that in view of
all the circumstances of the case, Agent is fairly and reasonably entitled to
indemnity for Expenses, and then only to the extent that the court shall
determine. In addition, no indemnification shall be made (i) with respect to
amounts paid in settling or otherwise disposing of a pending action without
court approval and (ii) with respect to Expenses incurred in defending a pending
action which is settled or otherwise disposed of without court approval.
3.3 Indemnification for Expenses of Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent that Agent
has been successful on the merits in defense of any Proceeding or of any claim,
issue or matter forming part of any Proceeding, the Corporation shall indemnify
Agent against Expenses actually and reasonably incurred by him in connection
therewith.
4. STANDARD OF CONDUCT
4.1 Adverse Determination. Any indemnification under Section 3
hereof shall be paid by the Corporation unless (i) a determination is made that
indemnification is not proper because Agent has not met the applicable standard
of conduct set forth in Section 3, such determination being made by any of the
following:
(a) a majority vote of a quorum consisting of directors
who are not parties to such Proceeding,
(b) if such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion,
(c) approval of the shareholders with the shares owned
by Agent not being entitled to vote thereon or
(d) the court in which such Proceeding is or was
pending, if such is the case, upon application made by the Corporation or Agent
or the attorney or other person rendering services in connection with the
defense, whether or not such application by Agent, attorney or other person is
opposed by the Corporation; or
3.
<PAGE> 4
(ii) with respect to indemnification under Section 3.2, Agent shall have been
adjudged to be liable to the Corporation, and the court in which such Proceeding
is or was pending has determined upon application that, in view of all the
circumstances of the case, Agent is not entitled to indemnity.
4.2 Reliance on Books, Records and Other Information. Agent
shall be deemed to have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation, or,
with respect to any criminal action or proceeding, to have had no reasonable
cause to believe his conduct was unlawful, if his action is or was based on the
records or books of account of the Corporation or of any other enterprise with
respect to which Agent may be affected by a Proceeding, including financial
statements, or on information supplied to him by officers of the Corporation or
of any other enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or for any such other enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or by such other enterprise. The provisions
of this Section 4.2 shall not be deemed exclusive or to limit in any way the
other circumstances in which Agent may be deemed to have met any applicable
standard of conduct.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
Proceeding by reason of the fact that Agent was serving in the capacity referred
to herein.
6. PARTIAL INDEMNIFICATION. In the event that Agent is entitled under
this Agreement to indemnification by the Corporation for a portion of the
Expenses that Agent incurs or becomes legally obligated to pay in connection
with any Proceeding referred to in Section 3 hereof even if not entitled
hereunder to indemnification for the total amount thereof, then the Corporation
shall indemnify Agent for the portion thereof to which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any Proceeding, Agent
will, if a claim in respect thereof is to be made against the Corporation under
this Agreement, notify the Corporation of the commencement thereof; but the
omission so to notify the Corporation will not relieve it from any liability
which it may have to Agent otherwise than under this Agreement. With respect to
any such Proceeding as to which Agent notifies the Corporation of the
commencement thereof:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
4.
<PAGE> 5
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and Agent in the conduct of the defense of such
Proceeding or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such Proceeding, in each of which cases the fees and
expenses of Agent's separate counsel shall be at the expense of the Corporation.
The Corporation shall not be entitled to assume the defense of any Proceeding
brought by or on behalf of the Corporation or as to which Agent shall have made
the conclusion provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any Proceeding effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any Proceeding except that it shall not
settle any Proceeding in any manner which would impose any penalty or limitation
on Agent without Agent's written consent, which may be given or withheld in
Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any Proceeding, promptly following request therefor, all Expenses
incurred by Agent in connection with such Proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. In any action by Agent to enforce this Agreement, the
Corporation shall bear the burden of proving that any applicable standard of
conduct has not been met by Agent. Neither the failure of the Corporation to
have made the determination required pursuant to Section 4.1, nor any
determination made pursuant to Section 4.1 shall create a presumption that Agent
has or has not met any applicable standard of conduct.
10. SUBROGATION; NO DUPLICATION OF PAYMENTS. In the event of payment
under this Agreement, the Corporation shall be subrogated to the extent of such
payment to all of the rights of recovery of Agent, who shall execute all
documents required and shall do all acts that may be necessary to secure such
rights and to enable the Corporation effectively to bring suit to enforce such
rights. The Corporation shall not be liable under this Agreement to make any
payment in connection with any claim made against Agent to the extent that Agent
has otherwise received payment (under any insurance policy, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5.
<PAGE> 6
11. NONEXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Articles of
Incorporation or Bylaws, agreement, vote of shareholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand or by confirmed facsimile transmission to the
party to whom such communication was
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directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to
OZ.COM
Snorrabraut 54
IS-105 Reykjavik, Iceland
Attn: Chief Financial Officer
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
OZ.COM
By
---------------------------------
AGENT
------------------------------
(Signature)
Agent Print Name and Address:
------------------------------------
------------------------------------
------------------------------------
7
<PAGE> 1
Exhibit 10.9
1(22)
GENERAL CO-OPERATION AND DEVELOPMENT AGREEMENT
between
ERICSSON TELECOM AB
and
OZ.COM
<PAGE> 2
2(22)
TABLE OF CONTENTS
1. Background 3
2. Definitions 3
3. Cooperation objectives 4
4. Ownership, licenses and market rights 5
5. Escrow 8
6. Marketing and branding 9
7. Development and test of a solution 9
8. Development conditions 9
9. Infringements 15
10. Damage to person or property 15
11. Duty of notification 15
12. Termination 16
13. Insurance 17
14. Assignment 17
15. Access to Information 17
16. Use and confidentiality 18
17. Training, installation, maintenance and support 18
18. Announcements 19
19. Term 19
20. General provisions 19
APPENDICES
Appendix 1 Technology Definitions
<PAGE> 3
3(22)
This General Co-operation and Development Agreement is made between
Ericsson Telecom AB ("Ericsson"), registration number 556261-3258, a limited
liability company duly incorporated under the laws of Sweden and having its
principal place of business at Telefonplan, S-126 25 Stockholm, Sweden,
and
OZ.COM ("OZ"), U.S. tax identification number 95-4560875, a corporation duly
incorporated under the laws of California and having its principal place of
business at 525 Brannan Street, Fourth Floor, San Francisco, CA 94107, U.S.A.
Ericsson and OZ are hereinafter also referred to as individually the "Party" or
collectively the "Parties".
1. BACKGROUND
1.1 Ericsson is primarily engaged in the business of developing, marketing
and sale of products, systems and services for public and private
communication, including Datacom Networks and IP Services.
1.2 OZ is primarily engaged in the business of development and design of
advanced internet technologies and a world leader within multi-user
Internet applications.
1.3 The Parties have agreed to create a long-term strategic partnership
and to cooperate in the area of Internet based technologies,
applications and services including but not limited to development,
testing, integration, marketing, sales, distribution, support and
maintenance of solutions based on relevant technologies and services
such as publishing or knowledge transfer from each Party. This
Agreement sets forth the general terms and conditions for such
co-operation.
1.4 The Parties' co-operation shall, unless otherwise specifically agreed,
be on a non-exclusive basis and participation shall be based on
individual evaluation by each Party of expected benefits and
commercial viability.
1.5 The Parties will initially concentrate the Development Work on
Solutions for LINK, Communities and Customer Support, followed by
Distance Learning, as defined in Appendix 1, Section B. The general
application technologies to be used in the Solutions are defined in
Appendix 1, Section A.
2. DEFINITIONS
2.1 "Agreement" shall mean this General Co-operation and Development
Agreement
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2.2 "Development Work" means any development undertaking or any other
project executed by OZ for Ericsson under any Specific Co-operation
and Development Agreement.
2.3 "OZ Application Technology" means such OZ and third-party proprietary
technology as is further defined in Appendix 1, Section C.
2.4 "Purchase Order" means a written request for Development Work.
2.5 "Solution(s)" means the products and/or services that result from a
Development Work.
3. COOPERATION OBJECTIVES
3.1 This General Co-operation and Development Agreement sets forth the
general terms and conditions that will be applicable to the future
co-operation between the Parties in the area of internet based
technologies and applications, unless otherwise agreed in writing.
3.2 When the parties agree to co-operate in the design, programming,
development, production, marketing, sales and distribution of specific
products and/or services under the general terms of this Agreement, the
specific terms and conditions therefor shall be set out in a Specific
Co-operation and Development Agreement.
3.3 A Specific Co-operation and Development Agreement and a Purchase Order
may include, but not be limited to, the following specific terms and
conditions:
a) Detailed description of the targeted Solution and objectives
b) Each Party's contribution and responsibility
c) Project team members and contact persons
d) Time table
e) Technical specification and documentation
f) Business model
g) Fees and other compensation
h) Distribution of costs, expenses and revenues
i) Support and services
j) Marketing and advertising
k) Warranties
l) Term
m) Any other relevant provision
3.4 In case of any discrepancy between this Agreement and a Specific
Co-operation and Development Agreement the terms of the latter shall
prevail.
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4 OWNERSHIP, LICENSE AND MARKET RIGHTS
Ownership to Background IPR
4.1 Each Party will remain the owner of any know-how, patent, copyright, design
right, right to circuit patterns in semiconductor products, technical
document and any other industrial and intellectual property rights owned by
that Party prior to the signing of this Agreement, unless otherwise agreed.
License of OZ Application Technology
4.2 OZ will under Specific Co-operation and Development Agreements perform
Development Work for the purpose of creating Solutions. The Solutions will
or may include the OZ Application Technology, which shall be provided to
Ericsson in object code form unless otherwise agreed. OZ hereby grants to
Ericsson a fully paid-up, perpetual, non-exclusive, world-wide license to
a) use, modify (or have modified) and make extracts from the OZ
Application Technology for the purpose of use, maintenance, sale and
other distribution of the Solutions;
b) incorporate or merge the OZ Application Technology or modifications
thereof or extracts therefrom into any equipment or other software for
the purpose set out in a) above;
c) sublicense the OZ Application Technology as part of Solutions to
customers;
d) make as many copies of the OZ Application Technology as are required
for exercise of the licenses granted in this Subarticle 4.2; and
e) sublicense the above in c) and d) stated rights to Ericsson market
channels (whether in the form of agent, distributor or similar entity)
designated by Ericsson to be a market channel for Solutions.
4.3 Right of First Refusal
During the term of this Agreement or as long as Ericsson owns shares of
OZ's preferred and/or common stock representing five percent (5%) or more
in the aggregate of the issued and outstanding shares of OZ, whichever is
longer, OZ shall give written notice to Ericsson of all the relevant terms
and conditions of any proposal to enter into any transaction involving a
sale or license (exclusive or non-exclusive) of any related OZ Application
Technology in the areas of LINK, Communities, Customer Support and Distance
Learning for the Telecommunication Sector or with any prime competitor of
Ericsson. If OZ gives such a notice to Ericsson, then for thirty (30) days
following receipt of the notice, Ericsson shall have the option to enter
into the proposed transaction on the terms and conditions set forth in the
notice. In the event
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Ericsson elects to enter into the proposed transaction, Ericsson shall
give written notice to OZ of its decision. In the event Ericsson does
not elect to enter into the proposed transaction or fails to give notice
of its decision within the specified period, OZ may enter into the
proposed transaction in accordance with the terms and conditions set
forth in the notice. This process shall be repeated if OZ proposes to
enter into the proposed transaction on terms more favorable to the third
party than those first offered to Ericsson hereunder, except that the
subsequent option period(s) shall then be only fifteen (15) days.
4.4 OZ may also, on a case-by-case basis and on terms to be agreed upon in
separate License Agreement(s), grant to Ericsson the rights set out in
4.2 above regarding the OZ Application Technologies for the purpose of
developing (or having developed) Ericsson branded applications and
products that are not competing with current or planned OZ products.
4.5 All rights granted to Ericsson above in Subarticles 4.2 and 4.4 are
also granted any other Ericsson company (whether wholly or majority
owned or controlled by Ericsson or the parent company of Ericsson,
Telefonaktiebolaget LM Ericsson).
Ownership and license to LINK
4.6 Subject to payment by Ericsson to OZ of the license fee set out below
an exclusive, non-restricted, perpetual, non-revocable, world-wide
license to test, use, modify, make extract from, sub-license and
otherwise distribute the existing developments results, in whatever form
or media, of LINK (as defined in Appendix 1) shall be granted to
Ericsson as from the execution of this GCDA.
4.6.1 The license fee for LINK shall be an aggregate of USD 1.500.000, which
shall be paid:
(a) USD 500.000 at the execution of this GCDA,
(b) USD 500.000 upon the delivery of version 1 of the LINK and
acceptance thereof by Ericsson, and
(c) USD 500.000 when Ericsson has received binding orders equivalent to
100.000 customer licensees of LINK.
4.6.2 The Parties anticipate that LINK shall be further developed into a
Solution on terms to be set out in a Specific Co-operation and
Development Agreement. However, the Parties agree that OZ shall have a
perpetual, non-exclusive right to use and modify the existing results of
LINK as well as the LINK-Solution and to distribute an OZ branded
version of LINK directly to its end-user customers and to host such
version of the LINK-Solution as a complimentary service to the LINK
offering of Ericsson without any charge by Ericsson.
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Ownership of Results from Development Work
4.7 Subject to its obligation to make the payments set forth in Subarticle
8.16.3, as soon as they appear, Ericsson shall be entitled to the full
right of ownership (and right to use) all the results of the Development
Work, and eventually the Solutions, whatever form they have. The ownership
of results include the right to industrial and intellectual property
rights including any patent rights, copyrights, rights to photographs,
design rights, rights to circuit patterns in semiconductor products,
technical documentation and any other industrial and intellectual property
rights included therein which have been produced by OZ (or its
subcontractors) for Ericsson, or have been acquired on Ericsson's behalf
in connection with the Development Work.
4.8 Cross-License
Subject to any OZ's obligation to make agreed payments of royalties or
profit shares to Ericsson, as stated below, Ericsson hereby grants to OZ a
non-exclusive license to use, modify (or have modified) and make extracts
from the results of each Development Work for the purpose of making, using,
selling and sublicensing for applications that are not competitive with any
Ericsson product or planned Ericsson product, or are targeted to the
Telecommunications Sector. In consideration for each such license, OZ shall
pay to Ericsson royalties or profit sharing payments on terms to which the
Parties shall, in good faith, agree.
4.9 Assistance in Registration of Industrial and Intellectual Property Rights
OZ undertakes to assist in preparing and signing such documents as may be
necessary to enable Ericsson's parent company, Telefonaktiebolaget LM
Ericsson, to be registered as holder of patents or other industrial and
intellectual property rights. Reasonable compensation shall be paid for
such assistance.
As regards inventions and innovations that have come into existence as part
of the Development Work, OZ undertakes to enter into such agreements with
its employees - or other personnel that OZ has hired for the Development
Work - as are necessary to allow patents or other industrial and
intellectual property rights to be assigned to Ericsson or to
Telefonaktiebolaget LM Ericsson without other compensation than stipulated
and agreed in relation to the Development Work except for the bonus to the
inventing employee according to Ericsson or OZ patent reward program -
whichever is more favourable to the employee.
4.10 Modification and Assignment
Ericsson may not modify photographs or artistic works in such way as to
infringe the literary or artistic integrity of the artist or photographer.
OZ undertakes to ensure that the artist or photographer waives all rights
to be mentioned as creator or photographer or be mentioned as source, and
OZ
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furthermore undertakes to have entered into such agreements with its
employees - or other personnel that OZ has hired for the Development Work -
as are necessary to allow Ericsson to acquire the rights that are
mentioned in this Subarticle.
5. ESCROW
OZ agrees to deliver, within four (4) weeks from signing of this Agreement,
a sealed package containing the relevant source code and related
documentation for the OZ Application Technology for deposition with an
agreed Escrow Agent in accordance with the terms and conditions of a
separate Escrow Agreement. OZ shall, from time to time, deposit with the
Escrow Agent any and all updates and upgrades and related documentation in
accordance with said agreement.
Ericsson will be entitled to request release and delivery of the deposited
source code if one or more of the following circumstances (the "Events of
Release") have occurred:
a) if Ericsson is entitled to terminate this Agreement pursuant to
Subarticle 12.1
b) if OZ is in material breach of the maintenance and support obligations
applicable under this Agreement or any Specific Cooperation and
Development Agreement or discontinues to generally make available
maintenance and support for the OZ Application Technology; or
c) timely completion of the Development Work is essentially prevented due
to a circumstance referred to in Article 21.2 (Force Majeure) for a
period exceeding three (3) months.
The source code shall be released and delivered to Ericsson in accordance
with the terms and conditions of the Escrow Agreement.
Upon the source code being released to Ericsson pursuant to the Escrow
Agreement, Ericsson is automatically granted, free of charge, a
non-exclusive, irrevocable, non-transferable license to use, copy,
sublicense, modify and develop the source code and the OZ Application
Technology for the purpose of supporting customers of the Solutions,
maintaining the Solutions or completing Development Work in progress.
Upon the delivery of the source code to Ericsson, OZ undertakes, at the
request and expense of Ericsson, to provide Ericsson with reasonable
support in order to enable Ericsson to successfully use the source code for
the purposes stated in this Agreement and relevant Specific Co-operation
and Development Agreements.
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8.9 Quality assurance system
OZ undertakes to commit reasonable commercial efforts to establish and
maintain a quality assurance system conforming with the requirements
set out in ISO (International Organisation for Standardisation) 9000
and any other applicable quality assurance system within Ericsson for
the relevant Development Work, if not otherwise agreed to in a
Specific Co-operation and Development Agreement.
8.10 Deliveries
Development Work shall be performed in accordance with the timetable
specified in the Specific Co-operation and Development Agreement. In
the case the Development Work is subdivided in specific phases
according to an implementation plan, OZ shall obtain permission to
continue its work before starting on a new phase. The Parties will
endeavour to implement processes that will permit OZ to maintain
project momentum and to efficiently utilise its development staff
without undue delays pending permission to continue its work.
8.11 Development Work reports
When the Development Work has been completed, or if approval is to be
given after a specific phase in accordance with an implementation
plan, a report of the final result or the interim result of each phase
in question shall be submitted to Ericsson for approval.
8.12 Approval
8.12.1 Approval procedure
Ericsson shall as soon as possible, but not later than fifteen (15)
working days following receipt of the report on the final or interim
result, as set forth in Subarticle 8.11, approve or reject the result
in writing, in which case Ericsson shall notify OZ of any deviations
from the specifications given in the Specific Co-operation and
Development Agreement which have caused rejection.
If Ericsson has not rejected the result in a written notice to OZ
within fifteen (15) working days following receipt of the relevant
report in accordance with Subarticle 8.11, the result shall be
considered as approved.
At Ericsson's request OZ shall assist with demonstration of the result
on-site, or at Ericsson's expense (including travel expenses), at a
location other than the development location.
8.12.2 Deviations from specifications
In the event there are deviations from specifications in accordance
with Subarticle 8.12.1 above, the responsible Party shall be obliged
to undertake the necessary corrective measures immediately and at its
own risk and
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expense. In case the deviation has caused rejection of reported final
or interim results, OZ shall without undue delay submit a report on
the final or interim result to Ericsson for a new evaluation and
possible approval in accordance with Subarticle 8.12.1. Minor
deviations from the specification may not be a cause for rejection of
the result.
8.13 Delays in delivery
Ericsson shall, in the event of a delay in delivery under Ericsson's
control, promptly and as soon as the delay is identified, notify OZ
thereof and provide OZ with a revised time table including a list of
any and all actions to remedy the delay. When a delay in delivery has
been caused by Ericsson, Ericsson shall pay to OZ all actual
project-related damages caused by the delay up to a maximum amount of
two (2) month's cost of the relevant Development Work. OZ shall use
its best efforts to mitigate the project-related damages caused by the
delay.
OZ shall, in the event of a delay in delivery under OZ' control,
promptly and as soon as the delay is identified, notify Ericsson
thereof and provide Ericsson with a revised time table including a
list of any and all actions to remedy the delay. When a delay in
delivery has been caused entirely by OZ and has continued for eight
(8) weeks, Ericsson shall be entitled, regardless of the time-limit
referred to in Article 8.23, to cancel the Development Work, wholly or
in part, in which case the Development Work report and related
documents shall be handed over in accordance with Article 8.23 below.
8.14 Guarantees
OZ guarantees that its contribution to the Development Work will be
executed with a high degree of care and in a professional manner. To
the extent defects or shortcomings are the result of OZ's conduct, OZ
undertakes, at its own expense and without delay, to rectify any
defects or shortcomings in the results of the Development Work in
relation to the agreed specifications and defects or shortcomings in
documents produced upon such Development Work. OZ's liability in this
respect shall, however, only extend to defects of which notification
is given within twelve (12) months from first customer commercial
installation.
8.15 Remuneration
8.15.1 Revenues and costs from the sales and licensing of Solutions
incorporating OZ Application Technology, will be shared as defined in
each Specific Co-operation and Development Agreement.
8.15.2 Instead of or in addition to the revenue sharing set out in Subarticle
8.15.1 above, Development Work may be paid for based on fixed prices
or on a current account. The Specific Co-operation and Development
Agreement shall specify whether the Development Work is to be executed
at a fixed price or on a current account.
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8.15.3 If the Development Work is delayed due to non-provision of a resource
which Ericsson is under a contractual obligation to provide, and if
this is not rectified following a written demand to that effect by OZ,
OZ shall be entitled to compensation for extra expenses. OZ shall,
however, take the necessary steps to keep such expenses to a minimum.
8.15.4 If Ericsson is obliged by law or regulation or by order from relevant
authority to pay taxes, social security and/or other expense in
relation to an agreed or executed payment, such payments shall be
reduced by the amount of expense which Ericsson is obliged to pay in
relation thereto. OZ shall be obliged to repay the amount of executed
payments corresponding to such reductions immediately on demand.
8.15.5 Fixed prices
Payment to OZ at a fixed price shall represent the total price,
including any fees, travelling expenses, allowances, disbursement etc.
and the fixed price shall be specified in the Purchase Order.
8.15.6 Current accounts
When payment to OZ shall be made on a current account, the price and
costs for fees, travelling expenses, allowances and disbursements
shall be specified and agreed in advance.
Any Development Work payable on a current account shall be limited by
Ericsson in the Specific Co-operation and Development Agreement to a
maximum amount ("Maximum Amount") which must not be exceeded without
Ericsson's prior written permission. The Maximum Amount shall include
all payments to OZ in accordance with Subarticle 8.15.7 through 8.15.9
below except additional overtime requested by Ericsson and unexpected
travel expenses.
OZ shall be able to confirm the reported hours of its work by means of
time records and unexpected travel expenses in an adequate manner.
8.15.7 Fees
Fees shall be specified as fixed daily or hourly fees.
OZ's fees shall include salaries and salary-related costs, taxes,
overtime, allowances and travelling expenses to the place where the
Development Work is mainly to be executed. However, where an agreement
has been concluded to that effect, overtime compensation shall be
payable for overtime work explicitly requested by Ericsson.
8.15.8 Travelling Expenses and Allowances
For travelling to places other than the place where the Development
Work is mainly to be executed, travelling expenses and allowances
shall, if approved
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in writing by Ericsson, be payable in accordance with the traveling
compensation regulations of Ericsson. Ericsson shall provide OZ with
such regulations at the commencement of the Development Work and they
shall be subject to change during the balance of the term of this
Agreement. Such changes will be effective upon receipt by OZ of notice
thereof. Compensation for travelling time shall, however, not be
payable.
8.15.9 Compensation for other expenses
OZ shall receive compensation for verified disbursements agreed to in
advance.
8.16 Invoicing and payment
8.16.1 Fixed price invoices
Development Work at a fixed price shall be invoiced as agreed in a
payment plan. If no such payment plan has been agreed upon, an invoice
may be forwarded earliest on submission for approval of the report on
the final or interim result.
Invoices shall contain the following particulars:
- reference to a Specific Co-operation and Development Agreement
and Purchase Order;
- OZ's name/company and address; and
- specification of the work performed.
8.16.2 Current account invoices
Unless a specific payment plan has been agreed upon, Development Work
on a current account shall be invoiced monthly in arrears.
Invoices shall contain the following particulars:
- reference to a Specific Co-operation and Development Agreement;
- OZ's name/company and address;
- specification of the work performed;
- time consumed (hours/days) and hourly or daily fee in respect of
each of OZ's personnel taking part in Development Work.
8.16.3 Payments
Payment shall be made not later than sixty (60) days after receipt of
each invoice. Invoicing shall be made according to the Specific
Co-operation and Development Agreement.
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9. INFRINGEMENTS
9.1 OZ represents and warrants that it has all rights and licenses necessary to
grant the rights and licenses set out herein and in any Specific
Co-operation and Development Agreement and that the use of the results
developed, procured or supplied in the Development Work for Ericsson shall
not constitute an infringement of any patents or any other industrial and
intellectual property rights belonging to OZ or any third party.
9.2 OZ shall indemnify and hold Ericsson harmless with respect to all
liabilities or losses, including, without limitation, reasonable attorneys'
fees arising out of any proved claim, lawsuit or judgement from third
parties in respect of any breach of the representation and warranty in
Subarticle 9.1.
9.3 Ericsson shall indemnify, defend and hold OZ harmless with respect to all
liabilities or losses, including, without limitation, reasonable attorneys'
fees arising out of any proved claim, lawsuit or judgement from third
parties based on a claim that the specifications provided by Ericsson (as
opposed to the manner of implementation) of any product developed under
this Agreement or any Specific Co-operation and Development Agreement
infringes the patents or any other industrial or intellectual property
right belonging to any third party.
9.4 Each Party shall notify the other Party without delay if such a claim is
made and, provided that the other Party agrees to reimburse the notifying
Party for any reasonable costs and expenses arising as a direct result
thereof, fully co-operate in the defence of such claim. All settlements
between the defending Party and third parties concerning such claims shall
be approved by the other Party where such approval may not be reasonably
withheld.
10 DAMAGE TO PERSON OR PROPERTY
Each Party will be liable for any damage to person or property caused to
the other by wilfulness or gross negligence during the Development Work.
If damage for which compensation is payable has occurred, the damaged Party
shall take steps to limit the damage, provided always that such steps do
not involve unreasonable expense or are unreasonably burdensome.
11 DUTY OF NOTIFICATION
OZ shall notify Ericsson without delay and in writing if any of the
following events is likely to occur, or has already occurred:
- material changes in the conditions of ownership with respect to OZ or
that part of OZ's business which is engaged in the Development Work;
- OZ's bankruptcy, suspension of payments, composition proceedings or
liquidation;
- infringement of a third party's rights; or
- defects or shortcomings in a specification.
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This duty of notification does not entail any discharge from liability
from any other effects herein described.
12 TERMINATION
12.1 Ericsson shall be entitled to terminate this Agreement and/or any
Specific Co-operation and Development Agreement forthwith if:
a) if any agreement is concluded under which OZ's business, or
part thereof, is transferred to a company which is in
competition with Ericsson where OZ loses its ability to
control or fulfil its obligations under this Agreement and or
any Specific Co-operation and Development Agreement:
b) timely completion of the Development Work is essentially
prevented due to a circumstance referred to in Subarticle
21.2 (Force Majeure) for a period exceeding three (3) months;
or
c) OZ becomes insolvent or a petition under any laws of or
relating to bankruptcy, insolvency, reorganisation or relief
of debtors will be filed by OZ or if OZ executes an assignment
for the benefit of creditors, or if a receiver, custodian,
liquidator or trustee is appointed for OZ, or if OZ seeks or
requests any such appointment, or if OZ takes any corporate
action to authorise any of the foregoing actions, or if any
case, proceeding or other action against OZ is commenced and
not dismissed within ninety (90) days seeking to have an order
entered against it as a debtor under any law of or relating to
bankruptcy, insolvency, reorganisation or relief of debtors or
seeking appointment of a receiver, trustee, custodian or
similar official for it or for any substantial part of its
property.
If Ericsson terminates a Specific Co-operation and Development
Agreement for the reasons stipulated in Subarticle 12.1 b) or c)
above, OZ shall still be entitled to receive royalties and/or profit
sharing payments in proportion to the value added by OZ to the
Development Work prior to termination. The Parties agree that such
value added shall be calculated as follows: (A) one-third of the
agreed upon royalty or profit sharing percentage, plus (B) (x)
two-thirds of the agreed upon royalty or profit sharing percentage
times (y) a fraction, the numerator of which is the aggregate amount
of payments made or due up to and including the date of termination
and the denominator of which is the Maximum Amount in the case of a
current account Development Work or the agreed fixed price.
12.2 OZ shall be entitled to terminate a Specific Co-operation and
Development Agreement forthwith if Ericsson develops a product
directly competing with the Solution defined under the said agreement.
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If OZ terminates a Specific Co-operation and Development Agreement for
this reason or Ericsson terminates a Specific Co-operation and
Development Agreement for any other reason than stated in 12.1 and
12.3, OZ shall, at its option, (i) be entitled to payment of all
amounts due up to and including the date of termination, provided
Ericsson receives all results of the Development Work or (ii) retain
all rights in the industrial and intellectual property rights in
connection with the Development Work under such agreement.
12.3 Either Party shall be entitled to cancel any agreement concluded
hereunder, wholly or in part, if the other Party commits a material
breach of such agreement and neglects to remedy the same within thirty
(30) days of receipt of a written demand to that effect (including a
description of the alleged breach of agreement);
12.4 If OZ terminates any agreement concluded hereunder for the reason
stated in Subarticle 12.3, OZ shall, at its option, (i) be entitled to
payment of all amounts due up to and including the date of
termination, provided that Ericsson receives all results of the
Development Work or (ii) retain all rights in the industrial and
intellectual property rights in connection with the Development Work
under such agreement.
12.5 If Ericsson terminates any agreement concluded hereunder for the
reason stated in Subarticle 12.3, payment shall be made of all amounts
due up to and including the date of termination and OZ shall be
obliged, immediately and without further compensation, to report on
the Development Work to which the cancellation relates and to deliver
to Ericsson all the documents prepared in connection with the
Development Work.
13 INSURANCE
OZ shall maintain sufficient insurance for any liability arising out
of the Development Work and out of acts or omissions for which OZ is
responsible hereunder. The minimum amount for such insurance shall be
ten million (10,000,000) SEK.
OZ shall upon request by Ericsson be able to present a certificate of
insurance.
14 ASSIGNMENT
Neither Party shall be entitled without the written consent of the
other Party to assign its rights or obligations under this Agreement,
which consent shall not be unreasonably withheld. Ericsson shall,
however, be entitled to assign its rights to another company within
the Ericsson group of companies.
15 ACCESS TO INFORMATION
During the term of this Agreement, each Party will upon request
furnish the other Party with such information and material as is
reasonably necessary for the purpose of evaluating whether to enter
into or review a project or contract.
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All such information and material received by a Party from the other will
be subject to the provisions concerning use and confidentiality as set
forth in Article 16 below, and will be promptly returned if the Parties do
not enter into the contemplated agreement.
16 USE AND CONFIDENTIALITY
16.1 All information and material disclosed by one Party to the other during
the term of this Agreement, including the terms and conditions of this
Agreement and all further discussions between the Parties with respect
hereto (hereinafter the "Confidential Information"), shall be used solely
for the purposes of this Agreement and will be treated on a confidential
basis, subject to appropriate disclosure as may be required by applicable
law or judicial process.
16.2 Confidential Information received by a Party shall not be disclosed
directly or indirectly to any other person, corporation or entity for any
purpose whatsoever, nor shall it be used or copied except for the purposes
of this Agreement. Confidential Information may, however, be disclosed to
such employees, subcontractors and professional advisors of the receiving
Party who reasonably require the information for a purpose permitted
herein and who have a secrecy obligation to the receiving Party not less
strict than set out in this Article 16.
16.3 The obligations under Subarticles 16.1 and 16.2 shall not apply to such
information that the receiving party can prove, with substantial evidence:
(a) is now or which (through no act of failure on the part of the
receiving Party) becomes generally available to the public;
(b) is supplied by a third party who the receiving Party in good faith
believes is free to make such disclosure without restriction;
(c) is disclosed by the disclosing Party to third parties generally
without restriction on disclosure; or
(d) is independently developed by the receiving Party without use of any
confidential information from the other Party.
16.4 The obligations of this Article 16 shall survive the expiration or
termination of this Agreement for a period of five (5) years.
17 TRAINING, INSTALLATION, MAINTENANCE AND SUPPORT
Ericsson will use its existing support channels and maintenance procedures
for first and second line support and maintenance. OZ will establish its
own third line support complying with written Ericsson support and
maintenance standards and processes.
OZ shall provide Ericsson with training as specified in each SCDA.
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18 ANNOUNCEMENTS
All announcements to news media or third parties pertaining to this
Agreement or any Specific Co-operation and Development Agreement will be
subject to review and approval of Ericsson before any public disclosure. If
either Party believes on advice of counsel that the making of a statement,
public announcement or disclosure in Securities and Exchange Commissions
filings is necessary to comply with the requirements of any law,
governmental order or regulation, it shall give the other Party prior
notice of such advice and its intention to make such statement, public
announcement or disclosure, and a text of such statement or announcement.
Notwithstanding any other provision of this Agreement, if either party
determines that any agreement between the Parties is sufficiently material
to such party as to require inclusion as an exhibit to Securities and
Exchange Commission filings, such Party (a) shall notify the other Party of
such determination, (b) shall consult with the other Party as to those
terms and provisions deemed to be particularly confidential or sensitive,
(c) shall use all reasonable efforts to obtain confidential treatment of
these confidential or sensitive terms and provisions and (d) may include
such agreement or agreements as an exhibit to such filings, redacting such
portions thereof as to which confidential treatment is obtained.
19 TERM
19.1 This Agreement shall be effective from the date of its execution until
December 31, 2001. Unless terminated by either Party's written notice, the
term of the Agreement shall be extended one (1) year at the time.
Notwithstanding the aforementioned, the terms and conditions of this
Agreement shall remain in force as long as a Specific Co-operation and
Development Agreement is in force between the Parties.
19.2 In the event of termination, the Parties shall co-operate in an orderly
fashion with a view toward protecting any proprietary or confidential
information they may have exchanged as well as to dissolve any projects
which may have to be discontinued due to termination of this Agreement.
20 GENERAL PROVISIONS
20.1 Relationship between the Parties.
The relationship of the Parties is that of independent contractors. Neither
Party may act as an agent for or make a commitment on behalf of the other.
20.2 Force Majeure
If fulfilment of either of the Parties' obligations under this Agreement or
any Specific Co-operation and Development Agreement is prevented by
unforeseen circumstances beyond their control, such as fire, explosion,
acts of God, war, embargo, intervention of any governmental authority,
major industrial disputes, mobilisation, requisitions, currency
restrictions, rebellions or riots, shortage of motor fuel, general shortage
of means of transport,
<PAGE> 18
20(22)
commodities and energy, or defects and delays in deliveries from a supplier due
to any of the aforementioned circumstances, this shall constitute a ground for
discharge from liability for delays in approval or delivery and for relevant
liquidated damages and other damages, provided that the Party suffering the
delay immediately notifies the other Party of such delay.
20.3 Expenses
Each Party will cover its own costs and expenses incurred in the
negotiation and preparation of this Agreement and the Specific Co-operation
and Development Agreements.
20.4 Further documents
Each Party agrees to execute, deliver and/or file any and all further
instruments that the other Party may reasonably deem necessary to carry out
the purposes of this Agreement.
20.5 Notices
All notices between the Parties shall be in writing and given by mall,
telefax, e-mail or express courier service to the recipient Party's address
set forth below, until a Party provides written notice of a change of such
address. Notices shall be deemed received in the ordinary course of the
method of transmittal.
Ericsson OZ
Name: Michael Thurk Name: Jon L. Arnason
Title: Executive Vice Title: Financial Controller
President
Address: 56 Hammond Road Address: 54 Snorrabraut
Acton IS-105 Reykjavik
MA, 01720 Island
USA
Fax: +1 (978) 635 1215 Fax: +1 (354) 535-0055
E-mail: [email protected] E-mail: [email protected]
20.6 Governing Law
This Agreement shall be governed by and interpreted under the substantive
laws of Sweden, excluding its rules on conflicts of law.
20.7 Arbitration
Any dispute arising under this Agreement, which the Parties cannot resolve
through the efforts of their good officers working together, shall be
finally settled by arbitration by a panel of three (3) arbitrators in
accordance with the
<PAGE> 19
21(22)
Rules of Arbitration of the Stockholm Chamber of Commerce then in
effect. The place of arbitration shall be Stockholm but the Parties
agree to request the arbitrators to consider alternating hearings
between Stockholm, Sweden and Reykjavik, Iceland. The language of the
proceedings shall be English.
Any court or authority of competent jurisdiction may enforce the
resulting award.
20.8 Mutual Efforts
This Agreement has been prepared and drafted through the mutual
efforts of the Parties.
20.9 Amendments
This Agreement may be modified or amended only by a written instrument
duly signed by the Parties.
20.10 Entire Agreement
This Agreement, together with any applicable Specific Co-operation and
Development Agreement, is the complete and exclusive agreement of the
Parties regarding its subject matter, and shall supersede any previous
communications, representations, negotiations, or agreements between
the Parties, whether oral or written.
20.11 Severability
If any provision of this Agreement is held illegal or unenforceable by
any court of competent jurisdiction, such provision shall be deemed
separable from the remaining provisions of this Agreement and shall
not affect or impair the validity or enforceability of the remaining
provisions of this Agreement.
20.12 Language
All correspondence under this Agreement shall be given or made in the
English language unless the Parties agree otherwise.
20.13 Non-Waiver
A waiver by either Party of any breach of any provision of this
Agreement by the other Party shall not be construed as a continuing
waiver of other breaches of the same or other provisions hereof by
such other Party.
20.14 Warranties
OZ warrants that it has sufficient right and interest to grant the
rights and licenses granted in this Agreement and in any Specific
Co-operation and Development Agreement.
<PAGE> 20
22(22)
Notwithstanding anything to the contrary in this Agreement, OZ
warrants that the entering into year 2000 will not lead to
detraction of functionality or performance of the Solutions. In
case of breach of this warranty, OZ shall immediately remedy the
breach and indemnify and hold Ericsson harmless.
20.15 General Limitation of Liability
Notwithstanding anything contained in this Agreement to the
contrary, neither Party shall be liable to the other on account
of a breach of any provision of this Agreement for any loss of
revenue, profits or business opportunity or similar consequential
or indirect damages.
20.16 Headings
The headings of the Articles are for convenience only and shall
not affect their interpretation.
The Parties have caused this Agreement to be executed in two (2) identical
originals as of the date written below
ERICSSON TELECOM AB OZ.COM
By: /s/ ROLF ERIKSSON By: /s/ SKULI MOGENSEN
--------------------------- --------------------------
Rolf Eriksson Skuli Mogensen
Vice President Chief Executive Officer
Stockholm Feb. 4, 1999 4/2/99 Stockholm
- ----------------------------- -----------------------------
Date and place Date and place
<PAGE> 21
Appendix 1 to GCDA
TECHNOLOGY DEFINITIONS
A. Application Technology Definitions
1. LINK client application and server side components excluding the user
interface ("LINK") -- provided by OZ, Ericsson and third party.
2. LINK client application user interface -- provided by OZ; This is the
specific design and look and feel of the client application.
3. Specific Applications -- provided by OZ, Ericsson and third parties (see
section B).
4. OZ Application Technology -- provided by OZ (see section C). This consists
of existing core technology from OZ, as well as upgrades and possible
additions to it.
5. Ericsson Products & Technology -- provided by Ericsson. This consists of
products such as IP@service, IPTC, etc.
6. Infrastructure Products & Technology -- provided by Ericsson.
B. Solutions
Following are the initially targeted applications, involving some or all of
above technologies and products:
LINK
A client-server application merging secure Internet messaging, message
routing, IP telephony and traditional phone systems in one simple and easy
to use application.
Through a plug-in architecture, both the client-and server-side
functionality can be extended by Ericsson, OZ or third parties. The LINK
back-end can also, through an API, be accessed by applications other than
LINK.
For the first release, planned for June '99, the focus is on time to
market, reliability and security rather than a full-fledged service
offering. The released back-end client products shall have been fully
tested, productified and ready to be taken into commercial use by a
customer.
<PAGE> 22
For the second version, planned release 6 months after the release of
version 1, tight integration with IP telephony and other telco services is
added, as well as sophisticated user customizable routing functionality.
For the third version, client software is released for other platforms,
e.g. speech technology interface, handheld devices, etc.
Communities
Services allowing the definition of user subsets according to arbitrary
grouping criteria, within which specific services that only make sense in
the context of a group of users can be deployed. Specific services include
conferencing and transactions. Communities typically make use of both LINK-
and Web-technology.
To create "LINK-aware" Web content, developer tools are needed. Such are
planned to be available by October '99.
Customer Support
Services to route customers through call centers and/or expert systems
using artificial agents as initial user interface.
Ericsson and OZ will work together on Customer Support up until the first
customer is obtained, then the specific Customer Support cooperation will
be reviewed.
Distance Learning (including Training)
Services to provide shared communication spaces as well as visualisation of
learning material in virtual class rooms.
C. OZ Application Technology
The OZ Application Technology is based on a hierarchy of components, ranging
from low-level modules to high-level application building-blocks. Set out below
is a high-level listing of the current OZ Application Technologies. A more
detailed description of the listed items can be found in the handout document
"Technical Due Diligence, Reykjavik, Iceland, September 29th - 30th, 1998",
delivered to Ericsson during the Technical Due Diligence session, September
29th, 1998. In three serial-numbered copies, registered at Ericsson as document
no. ETX/DN/C-99-006.
Multi-user Server
A scaleable implementation of a reliable multicast network over IP. Also
implements a framework for server side services.
User Service
A server side service implementing a lookup and authentication of users.
Registry Service
A server-side service implementing a distributed registry of information.
<PAGE> 23
3
Object System
Client- and server-side components that implement a distributed object
database that permits to alter and share a dynamical state between many
clients. Includes a basic set of objects to implement shared spaces.
World Editor
An administration tool to browse ad change an object system database.
CPIUM
A client-side framework to distribute, install, layout and connect
individual client-side OZ components, as well as 3rd-party components to
create an application that can interchangeably by stand-alone or Web-based.
Agents
Client- and server-side components to create and operate intelligent
software agents. Consist of an authoring tool to create knowledge bases,
an agent server to run the agent logic and various input/output interfaces.
OZ Intelligence Engine
An Artificial intelligence (AI) engine controlling the logic of the Agents
running in the Agents Server application.
Chat
Client- and server-side components to initiate and manage communication
channels between 2 or more users. These include components to conduct text
and audio conversations.
Whiteboard
A client component that implements a simple shared whiteboard.
Audio conferencing
Client side H.323 based audio conferencing components. Based on a H.323
stack from Ericsson, with limited admittance of usage.
Sound Engine
A client-side genaric audio mixer.
Audio Chat
Peer-to-peer audio communication based on codecs such as GSM and Voxware.
Media Filters
A set of media conversion components that convert various input media types
into internal data types. These include amongst others components to input
streamed media types from RealNetworks, such RealAudio and RealVideo.
LINK back-end
The distributed server part of the LINK solution.
LINK client
The client part of the LINK solution.
<PAGE> 24
1(3)
Amendment Number 1
to
General Co-operation and Development Agreement
by and between
Ericsson Telecom AB and OZ.COM
This Amendment Number 1 to General Co-operation and Development Agreement
(this "Amendment") is made by and between Ericsson Telecom AB ("Ericsson")
and OZ.COM ("OZ") as of September, 24th 1999, in reference to that certain
General Co-operation and Development Agreement (the "Agreement") made and
entered to by Ericsson and OZ.COM as of February 4, 1999. Unless the
context otherwise requires, capitalized terms shall have the meanings
ascribed to them in the Agreement.
1 BACKGROUND
1.1 IPulse
The Agreement and the Specific Co-operation and Development Agreement made
and entered into by the Parties as of February 4, 1999 describe, among
other things, the ownership and development of LINK. A version of LINK has
been introduced to the market by Ericsson and OZ under the tradename
"iPulse".
1.2 Intentions
OZ intends to market and distribute an OZ branded version of the iPulse
client software to customers outside of the Telecommunications sector and
to provide services to, and operate an iPulse server solution for the
benefit of, customers. OZ will offer services to all iPulse end-user
customers through a Global Cluster. The Parties wish to amend the Agreement
in order to conform and clarify OZ's rights and obligations in regard to
the marketing and distribution of its version of the iPulse client and the
provision of additional services related hereto.
2 AMENDMENTS
2.1 A new Section 2.6 shall be added to the Agreement as follows:
"'iPulse' means LINK and the LINK Solution."
2.2 Section 4.6.2 of the Agreement shall be replaced by the following:
"The Development Work in relation to iPulse has been made and will continue
to be made as set out in the Purchase Orders issued by Ericsson according
to the specific Co-operation and Development Agreement.
<PAGE> 25
2(3)
The parties hereby agrees that OZ has the perpetual, irrevocable and
non-exclusive right, free of any charge by Ericsson, to modify, use, market
and distribute an OZ branded version of the iPulse client software to
end-user customers and/or in cooperation with internet companies to provide
services to, and use, modify and operate an iPulse server solution, for the
benefit of such end-user customers, always provided that;
a) OZ does not offer services that compete with products resulting from
the Development Work,
b) if OZ receives any revenues from or because of the operation of its
iPulse server solution, parties will negotiate a reasonable license
fee to be paid to Ericsson.
c) any such iPulse server solution or iPulse client software shall, as
with Ericsson's customers, display that iPulse is jointly developed
between Ericsson and OZ, even if the service or software is provided
under another trademark or tradename than iPulse,
d) the use of Ericsson's registered trademark iPulse or any other of
Ericsson's trademarks by OZ shall only be made as, from time to time,
directed by Ericsson, and
e) any such server solution shall be of a quality corresponding to the
quality offered by Ericsson's customers.
The above license does not include any right for OZ to develop a version of
the iPulse server software that is not compatible with the iPulse server
solution resulting from the Development Work, if not otherwise is agreed in
writing by Ericsson on each specific occasion and the Parties have agreed
on a road-map for any such developments. OZ will not develop an iPulse
server solution that directly or indirectly competes with the iPulse server
solution resulting from the Development Work.
If an internet company with which OZ co-operates to provide iPulse services
as set out above wishes to co-brand iPulse with OZ and Ericsson, then such
co-branding will be permitted provided the use of Ericsson and any of its
trademarks or tradenames are made in accordance with the instructions of
Ericsson.
The iPulse client and server solution marketed by Ericsson will include
connectivity features that enables licensed iPulse clients and servers to
connect to a single iPulse registry and services (Global Cluster) operated
by OZ.
The General License Agreement (GLA) to license the iPulse client and server
technology to Ericsson customers shall be presented to Ericsson customers
with terms expressing OZ.COM's right and obligation under such agreement to
provide and operate the Global Cluster registry and services. Ericsson will
use its reasonable endeavours to conclude the GLA
<PAGE> 26
3(3)
on such terms. The terms of the GLA terms regarding OZ.COM will read or
have the same meaning as;
"The Licensed Software includes connectivity features
that enable Licensee's customers to connect to a single
iPulse registry and services operated by OZ.COM. These
services are optional to both Licensee and its
customers. OZ.COM will have the sole responsibility
under this Agreement to operate a Global Services
Network that provides iPulse end-users access to a Find
User Service, that enables iPulse end-users to locate
other iPulse end-users situated outside of the
Licensee's iPulse system. Other services may be agreed
to on case to case bases. Further details of the verity
and terms of the OZ.COM Global Services Network services
available to iPulse end-users will be defined in a
separate Agreement between OZ.COM and Licensee."
Ericsson will include information regarding OZ in press announcements
regarding licensing or sale of iPulse solutions to its customers, provided
that Ericsson's customers agree to this. OZ will include information
regarding Ericsson in press announcements regarding licensing or sale of
iPulse to its customers, provided that OZ's customers agree to this.
A Value Added Reseller License Agreement will be made between OZ and
Ericsson to establish the right for OZ to sublicense iPulse server
solution directly to customers on terms to be defined.
2.3 Section 4.8 shall be amended by replacing "Subject" at the beginning of
this Section with the following:
"Except as provided in Section 4.6.2 and subject"
3 NO FURTHER AMENDMENTS
All other terms of the Agreement remain unchanged.
The Parties have caused this Amendment to be executed in two (2) original
counterparts as of the date first written above.
ERICSSON TELECOM AB OZ.COM
/s/ [SIG] /s/ SKULI MOGENSEN
--------------------------------- ---------------------------------
Skuli Mogensen
Chief Executive Officer
Stockholm Oct. 18, 1999 Stockholm Oct. 21, 1999
--------------------------------- ---------------------------------
Date and place Date and place
<PAGE> 1
Exhibit 10.10
SPECIFIC CO-OPERATION AND DEVELOPMENT AGREEMENT
between
ERICSSON TELECOM AB
and
OZ.COM
For COMMUNITIES and LINK
<PAGE> 2
[TABLE OF CONTENTS TO BE UPDATED]
1 Background 3
2 Virtual company 3
3 Ordering procedures/Revenues and costs 4
4 Contact persons 5
5 Amendment of the development work 7
6 Insurance 7
7 Term 7
8 Copies of the Agreement 7
Appendix 1: Frame Purchase Order
<PAGE> 3
3(7)
This Specific Co-operation and Development Agreement is made between:
Ericsson Telecom AB ("Ericsson"), registration number 556251-3258, a
limited liability company duly incorporated under the laws of Sweden
and having its principal place of business at Telefonplan, S-126 25
Stockholm, Sweden,
and
OZ.COM ("OZ"), U.S. tax identification number 95-4560875, a
corporation duly incorporated under the laws of California and having
its principal place of business at 525 Brannan Street, Fourth Floor,
San Francisco, CA 94107, U.S.A.
Ericsson and OZ are hereinafter also referred to as individually the
"Party" or collectively the "Parties".
1 BACKGROUND
1.1 This Specific Co-operation and Development Agreement (the "SCDA") is
an agreement under the General Co-operation and Development Agreement
(the "GCDA") between the Parties entered into on even date herewith,
and the terms and conditions set out therein shall form an integral
part of this SCDA.
1.2 The defined terms used in the GCDA shall have the same meaning in this
SCDA, unless the context would obviously require otherwise.
1.3 The conditions specified herein shall apply to any Development Work
executed by OZ for Ericsson according to Appendix 1, unless otherwise
agreed in writing in a Purchase Order issued by Ericsson and confirmed
by OZ in writing. Ericsson's General Purchasing Conditions, even if
enclosed to the Purchase Order, shall not apply to any Development
Work.
2 VIRTUAL COMPANY
2.1 The Development Work around the Community/LINK will be organised in a
form that shall resemble a real small company, i.e. a virtual company
(hereinafter the "Company"). The Company will, however, not be a legal
entity of its own and will not be deemed to be a partnership in the
legal sense of that term.
2.2 Each Party will contribute personnel both at the management and board
level and in the day-to-day Development Work as further specified
herein. However, Ericsson will be the ordering Party and OZ shall
perform the Development Work on assignment from Ericsson.
2.3 The Product Unit IP Services within Ericsson's business unit Datacom
Networks & IP Services will be the Ericsson representative delivering
the assignments, unless Ericsson decides otherwise and informs OZ of
such change.
2.4 A board of directors (the "Board") will be responsible for management
of the Company. Ericsson shall appoint the majority number of the
Board members. OZ will have at least one member of the Board. In case
of different opinions of the Board, each Board member shall discuss
internally with its respective company and then the Board shall
reconvene within fifteen (15) days to resolve the issue. In case
Ericsson and OZ have different opinions the opinion of Ericsson shall
prevail.
<PAGE> 4
4(7)
2.5 The Company will be headed by a Managing Director ("MD"), who shall
report on a regular basis to the Board. The MD will be responsible for
operating the business on a daily basis, following the guidelines and
directives set out by the board of directors.
2.6 Initially, the Company's organisation will be project driven, focusing
on the defined Solution and marketing strategies and timely delivery of
the first functional Solution prototype.
2.7 All Development Work shall be performed by teams that would normally
consist of personnel from both Ericsson and OZ. The teams will have the
main responsibility in the areas of product provisioning, marketing and
customer support.
2.8 Decision making shall be delegated to the different teams in order to
avoid bottlenecks in the decision making process and to create commitment
by the team members and a speedy process. The teams shall be encouraged
to decide on e.g. distribution of work and technical solutions.
2.9 The teams shall be manned with the most appropriate personnel, regardless
of which Party they represent. Mixed teams with personnel from both
Ericsson and OZ shall be encouraged.
3 ORDERING PROCEDURES/REVENUES AND COSTS
3.1 Ericsson shall order Development Work by issuing Purchase Order(s)
consistent with this SCDA and the Frame Purchase Order attached hereto,
Appendix 1.
3.2.1 Revenues from sales under this SCDA shall be shared between the Parties
as set out below.
<TABLE>
<CAPTION>
Ericsson OZ
<S> <C>
85% 15%
</TABLE>
3.2.2 The Parties have agreed on the following levels and distribution of
costs:
OPERATING COSTS.
<TABLE>
<CAPTION>
Ericsson OZ
<S> <C> <C>
Sales and marketing
32% of sales 95% 5%
General and Admin.
20% of sales 95% 5%
Development (improved platform,
made by OZ)
2% of sales 0% 100%
Customer support ("give away")
3% of sales 66% 34%
</TABLE>
3.3 The hourly fee shall cover actual costs related to personnel, including
salaries and salary-related costs, compensation for overtime and taxes
and costs for work places including PC/workstation, furniture and office
equipment, related to the design and
<PAGE> 5
5(7)
test personnel that work on the project. Such price shall also cover
assignment specific costs for methods and tools. The hourly fee shall not
include a profit margin.
3.4 The hourly fee shall not cover costs for travelling. Travelling expenses
and allowances shall, If such travel is approved in writing by Ericsson, be
payable in accordance with the travelling compensation regulations of
Ericsson. Compensation for travelling time shall however, not be payable.
OZ shall receive compensation for verified disbursements agreed to in
advance.
3.5 The hourly fee shall not cover assignment specific costs for test
equipment. Costs for specific test equipment shall, if such equipment is
approved in writing by Ericsson, be born by Ericsson.
3.6 The hourly fee shall not cover costs for general administration. OZ' costs
for general administration related to development work performed for
Ericsson shall be invoiced to Ericsson as additional man hours, with the
same cost per man hour as agreed for development work. Such cost shall be
calculated as 10% of the invoiced fee for development work.
3.7 The hourly fee shall not cover project related costs for project
management, product management, product marketing, quality control,
demonstration assistance, etc. Such costs shall be invoiced to Ericsson as
payment for actually worked man hours, with the same cost per man hour as
agreed for design hours.
3.8 When either Party's personnel are stationed in the other Party's premises,
appropriate workstations, furniture and office equipment shall be provided
free of charge by the hosting Party.
3.9 Ericsson is responsible for supplying OZ with a forecast of how many hours
of work that is expected to be ordered each year, as detailed in Appendix
1. A quarterly review of the resource planning and possible impacts on this
SCDA shall be made, and the result thereof shall be reported to the Board.
3.10 When ordering Development Work, Ericsson shall issue a Purchase Order that
includes:
a) the number of man hours that are ordered;
b) any specific requirements on personnel;
c) any specific requirements on reporting routines; and
d) any other specific requirements related to the assignment
4 CONTACT PERSONS
4.1 Any notice required or permitted to be given by either Party shall be in
writing and may be sent by registered airmail letter, by telefax, by
electronic mail confirmed by registered airmail letter, or by personal
delivery.
Such notice shall be deemed to be given
- if sent by registered airmail letter -- five days after the day of
dispatch,
- if sent by telex, telefax or electronic mail -- on the day of dispatch
of the letter of confirmation,
- if sent by personal delivery -- on the day of delivery.
<PAGE> 6
6(7)
4.2 Any notices shall be delivered to the Parties contact person set out
below.
Commercial matters
Ericsson
Name: Fred Skogli
Address: Ericsson Telecom AB
Product Unit IP Services
S-126 25 Stockholm
Sweden
Telephone: +46 (0) 8 7190000
E-mail: [email protected]
OZ
Name: Skuli Mogensen
Address: OZ.COM
Snorrabraut 54
105 Reykjavik
Iceland
Telephone: +354 535 0000
E-mail: [email protected]
Technical matters
Ericsson
Name: Peter Lindberg
Address: Ericsson Telecom AB
Product Unit IP Services
S-126 25 Stockholm
Sweden
Telephone: +46 (0) 8 7190000
E-mail: [email protected]
OZ
Name: Kjartan Emilsson
Address: OZ.COM
Snorrabraut 54
105 Reykjavik
Iceland
Telephone: +354 535 0000
E-mail: [email protected]
<PAGE> 7
7(7)
5 AMENDMENTS OF THE DEVELOPMENT WORK
Amendments, additions to or limitations of the Development Work must be in
writing and executed by the Parties to be valid. However, amendments of
fixed prices or of Frame Purchase Order limits must, to be valid, be made
through a decision by the Board of the Company. Each Party undertakes to
propose such alterations of the Development Work that it considers would
improve the result with respect to technical features, costs or otherwise
in favour of any Party.
6 INSURANCE
6.1 OZ shall ensure that it is insured against accidents, torts and third-party
liability for adequate amounts, however not less than SEK ten million
(10.000.000), during each calendar year. This insurance shall also cover
Ericsson's documents in OZ's possession and resources provided by Ericsson
that are in OZ's custody.
6.2 OZ shall upon request by Ericsson be able to present a certificate of
insurance.
7 TERM
This SCDA shall be effective from the date of its execution until December
31, 2001. Unless terminated by either Party's written notice, the term of
this SCDA shall be extended one (1) year at the time.
8 COPIES OF THE AGREEMENT
This SCDA has been made in two (2) original copies, of which Ericsson and
OZ have received one each.
IN WITNESS WHEREOF, this SCDA has been duly signed by the Parties hereto,
at the places and on the days written below.
ERICSSON TELECOM AB OZ.COM
By: /s/ Rolf Eriksson By: /s/ Skuli Mogensen
------------------- -------------------
Rolf Eriksson Skuli Mogensen
Vice President Chief Executive Officer
Stockholm, Feb 4, 1999 Feb 4th 99 Stockholm, 1994
====================== ==========================
Date and place Date and place
<PAGE> 8
Appendix 1 to SCDA
FRAME PURCHASE ORDER FOR FOR DEVELOPMENT WORK ORDERED BY ERICSSON FROM
OZ FOR COMMUNITIES/LINK.
1 PARTIES
Ericsson Telecom AB, Stockholm, Sweden ("Ericsson") oz.com inc, San
Francisco, USA ("OZ")
2 GENERAL
This Frame Purchase Order sets forth specific terms applicable when
development work is ordered by Ericsson from OZ under the Special
Cooperation and Development Agreement.
3 RESOURCE PLANNING
Ericsson shall quarterly by means of a resource planning process
submit a rolling forecast for new assignments planned according to
this Frame Purchase Order for the next six to twelve months.
The board of the virtual company may decide to change and update this
Frame Purchase Order, based on the result of the quarterly review of
the resource planning.
OZ shall maintain and quarterly submit to the Ericsson an overview
plan of committed assignments according to this Frame Purchase Order,
of available resources and competence and resource limits.
The resource planning will be used as a basis for financial estimates.
Consequently the invoicing of current account assignments shall
correspond to the resource plan submitted. In case of significant
deviations from the resource plan it is the obligations of OZ to
promptly notify Ericsson in advance.
4 FRAME
The following design frame is estimated to be handled by OZ during
1999:
<TABLE>
<CAPTION>
Orderer
Design Area Maximum Volume Receiver
----------- -------------- --------
<S> <C> <C>
Community/LINK 30.000 man-hours * Fred Skogli (ETX)
** Birgir Thrainsson (OZ)
</TABLE>
<PAGE> 9
2
* Person authorised to sign orders within the defined Maximum
Volume
** Person authorised to receive and confirm orders within the
defined Maximum Volume
Note: Maximum Volume shall be indicated in orders and invoices.
The special competence of the persons performing the
development work, if any, shall be stated by Ericsson in
each order.
Should any party to this Frame Purchase Order fail to meet
the undertaking specified in an order, the failing party has
to carry the extra costs, if any, necessary to remedy such
failure (e.g. procure replacement resources/assignments).
5 PRICE
For current account assignments during 1999 the price will be 72 USD
per man hour.
The costs to be covered by the manhour price is specified in Special
Cooperation and Development Agreement.
<PAGE> 1
EXHIBIT 10.11
VALUE ADDED RESELLER AGREEMENT
THIS VALUE ADDED RESELLER AGREEMENT (this "Agreement") is effective as of the
25 day of February, 2000, by and between Ericsson Telecom AB (hereinafter
"Owner"), a Sweden corporation, having an address for purposes of this
Agreement at Telefonplan, S-126 25, Stockholm, Sweden, and OZ.COM and its
subsidiaries, (hereinafter "VAR"), a California corporation, having an address
for purposes of this Agreement at 77 South Bedford Street, Burlington, MA
01803, USA:
WITNESSETH:
WHEREAS, Owner and VAR have jointly developed certain computer programs (the
"Code") in accordance with that certain General Co-Operation And Development
Agreement by and between parties as of 4th of February 1999 ("GCDA") as amended
on October 18 and October 21, 1999 ("Amendment") and that certain Specific
Co-Operation And Development Agreement For Communities and Link, by and between
the parties dated 4th of February 1999 (hereinafter collectively referred to as
"Development Agreements");
WHEREAS, by the terms of the said General Co-Operation And Development
Agreement, Owner is the owner of certain results of the joint development work
and has been granted certain exclusive rights to proprietary technology and
solutions owned by VAR;
WHEREAS, VAR now desires (i) to market, sublicense and distribute the Code
directly to its customers and use the Code in order to develop and market
certain further computer programs and related documentation (hereinafter
defined as the "Products") and (ii) to provide certain services related to the
Code (hereinafter defined as "Hosting Services") to its customers; and
WHEREAS, each party hereto represents that it is ready, willing, and able to
undertake the responsibilities and obligations set forth in this Agreement, and
that it possesses the rights, resources, and capabilities to perform its
responsibilities under this Agreement;
NOW, THEREFORE, in consideration of the premises, and of the obligations herein
made and undertaken, the parties hereto do hereby covenant and agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the definitions set forth in this Section
shall apply to the respective capitalized terms:
"CODE." Computer programming code consisting of both Client Code and Server
Code, including source code (i.e., human-readable), object code (i.e.,
machine-readable), and associated procedural code, as more fully described in
the Development Agreements.
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"CLIENT CODE." A client software application to be used on a personal computer,
mobile phone or any other device, intended to connect to Server Code, as more
fully described in the Development Agreements.
"DERIVATIVE WORK." A work that is based upon one or more preexisting works, such
as a revision, modification, translation, abridgement, condensation, expansion,
or any other form in which a preexisting work may be recast, transformed, or
adapted, and that, if prepared without the authorization of the owner of the
preexisting work, would constitute a copyright infringement.
"DOCUMENTATION." The printed material relating to the Code, including, without
being limited to the description of the principles of operation.
"ENHANCEMENT." A change or addition to the Code or Documentation, other than an
Error Correction, that improves its function, adds new function, or
substantially enhances its performance. Enhancements shall not include programs
that have a value and utility separate from the use of the Code and that, as a
practical matter, may be priced and offered separately from the Code.
"ERROR." A defect in the Code or a mistake in the Documentation that prevents
the Code from functioning in material conformity with the Specifications.
"ERROR CORRECTION." A change to the Code or the Documentation that is in a
form that allows its application to the Code or inclusion in the Documentation
to reestablish material conformity with the Specifications. All Error
Correction shall be considered part of Code and Documentation for all purposes
under this Agreement.
"HOSTING SERVICE." A service offering whereby VAR provides hosting of the Code
and related maintenance services to its customers.
"PRODUCT(S)." Computer programs that are developed entirely by VAR, including
its third party licensees and contractors and (i) contain, or are Derivative
Works of, the Code or any subset thereof, or (ii) are aimed to operate in
connection with the Code to enhance its usability or add to its features, and
that are completed in marketable form (with appropriate end-user Documentation)
by VAR and are offered by VAR to its customers or potential customers, in
object code form, under the terms of the VAR License.
"SERVER CODE." A server software application allowing connections with and
between Client Code applications, as more fully described in the Specifications
attached hereto as Exhibit A.
"VAR LICENSE." A license agreement between VAR and each of VAR's customers
under which copies of the Code or Product will be provided to such customers.
The VAR License shall contain terms limiting the use of Code or Products to
designated central processing units (CPUs), limiting further copying and/or
transfer of the Products by such customers, and prohibiting reverse assembly,
reverse compiling, or reverse engineering of the Code or Products.
2. VAR RESPONSIBILITIES
2.1 Development of Products. VAR shall use all reasonable efforts to develop
the Products. Upon completion of development of the Products, VAR shall
test and evaluate the Products and assess their usefulness, performance,
and marketability.
2.2 Marketing. If such assessment is positive, VAR shall use all reasonable
efforts to market the Products in accordance with this Agreement. VAR shall
use all reasonable efforts to package Products that VAR determines to be
commercially reasonable offerings and to market such Products to potential
customers under the VAR License.
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2.3. Non-compete. VAR and Owner shall continuously discuss how to approach the
market and to use market opportunities for the best benefit of both
Parties. In relation to a pure sublicensing of the Server Code, VAR shall
continuously disclose to Owner its business prospects and shall not without
the prior consent of Owner approach a wireline or wireless telecom operator
for marketing activities in relation to such sub-licensing of the Server
Code. However, the above shall not in any way restrict VAR's right to offer
and sell Hosting Services to any third party.
2.4. Responsibilities Toward Customers. Except as otherwise provided in this
Agreement, VAR shall assume all responsibility and liability to its
customers with respect to the Products and shall assume all responsibility
and liability for related customer support and assistance.
2.5. Royalties. VAR shall pay royalties to Owner in accordance with Section 4.
3. GRANT OF LICENSE
3.1. Owner hereby grants to VAR a nonexclusive right and license to:
- Use, and reproduce the Code and Documentation in object code form, for
the purposes of the development, technical support, maintenance, and
warranty service of Products;
- Use, reproduce, sublicense and distribute copies of the Code (in
object code form only) and Documentation;
- Use, the Code and Documentation in conjunction with Products in order
to market and sell Hosting Services to VAR's customers and for the
benefit of end-users of such customers;
- Use, reproduce, distribute, market and sell copies of the Code (in
object code form only) and Documentation as Products or parts of
Products, to customers of VAR under the terms of a VAR License; and
- Use and display the trademarks, service marks, and logos related to
the Code and as specified in Ericsson's Corporate Visual Language
Manual;
- Use and copy the Code and Documentation thereof, for marketing,
training, and demonstration purposes with respect to the Products.
3.2. For the avoidance of doubt; all changes, modifications, Enhancement or
Derivative Works in relation to the Code shall be made in accordance with
the terms and conditions of the Development Agreements.
4. ROYALTIES AND PAYMENTS
4.1. Royalties. VAR shall pay royalties in accordance with Exhibit A.
4.2. Most Favored Customer. Owner agrees that the charges established under this
Agreement and specified in Exhibit A shall not exceed those offered or
imposed with respect to similar value added reseller arrangement(s) with
other customers or partners of Owner. If, during the term of this
Agreement, Owner offers or accepts lower charges for similar value added
reseller arrangement involving other customers or partners under similar
terms and conditions, Owner shall so notify VAR and remit as a credit to
VAR the difference between the amount of the payments theretofore
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made by VAR for such similar arrangement and the amount that would have
been payable if such lower charges been in effect.
4.3. Royalties Payable. Royalties are payable quarterly, with payment due
within 30 days after the last day of each calendar quarter (March 31, June
30, September 30, December 31).
4.4. Audit. Upon Owner's request, at mutually agreeable times no more
frequently than twice annually, Owner or an agent or accounting firm
chosen by Owner shall be provided reasonable access during normal business
hours to the relevant records of VAR for purposes of audit of royalties
due. Records sufficient to verify the revenue received, copies of Products
authorized to be made, copies of Products made, and authorized end-user
copies sold, leased, or otherwise distributed or transferred shall be
maintained by VAR and made available for audit. Persons conducting the
audit shall be provided a reasonable opportunity to interview any
employees of VAR who have engaged in the development and/or marketing of
Products in order to corroborate the information contained in such records.
5. AVAILABILITY OF ENHANCEMENTS AND PRODUCTS
5.1. Owner shall, to the extent developed or acquired by Owner and/or jointly
developed by Owner and VAR under the General Co-Operation And Development
Agreement of 4th of February 1999, offer VAR Enhancements for inclusion in
the Code and Documentation as soon as they become available. Unless the
parties agree otherwise, such Enhancements shall become part of the Code
and Documentation for purposes of this Agreement.
5.2. VAR shall, to the extent developed or acquired by VAR, offer to license or
sell Products to Owner on terms to which the parties shall, in good faith,
agree.
6. LIMITED WARRANTY AND LIMITATION OF LIABILITY
6.1. Ownership and Authority. To the extent and with limitations produced by
the Development Agreements, Owner warrants that it is the owner of certain
U.S. and international copyrights in the Code and Documentation and that
it has all rights necessary for the grant of the right and license granted
by this Agreement.
6.2. Disclaimer. The Code is provided "as is" for VAR's evaluation and, as
between the parties, VAR assumes responsibility for determining the
suitability of the Code, for its use in Products, and for results
obtained. Owner makes no warranty that all Errors have been or can be
eliminated from the Code or Documentation, except as expressly stated
above, and Owner shall in no event be responsible for losses of any kind
resulting from the use of the Code or the Documentation in Products,
including, without limitation, any liability for business expense, machine
downtime, or damages caused to VAR or VAR's customers by any deficiency,
defect, error, or malfunction. EXCEPT AS SPECIFICALLY SET FORTH HEREIN,
OWNER DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, ARISING OUT OF OR
RELATING TO THE CODE OR DOCUMENTATION OR ANY USE THEREOF, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY WHATSOEVER AS TO THE FITNESS FOR A
PARTICULAR USE OR THE MERCHANTABILITY OF THE CODE OR DOCUMENTATION.
6.3. Limitation of Liability. In no event shall Owner be liable to VAR or VAR's
customers for any indirect, special, incidental, or consequential damages,
including lost profits.
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7. OBLIGATION FOR EXPENSES
7.1. Owner shall have no obligation or requirement whatsoever to reimburse VAR
for any expenses or costs incurred by VAR in the performance of, or
otherwise by reason of, this Agreement. VAR's incursion of costs or
expenses under this Agreement is at its sole risk and upon its independent
business judgment that such costs and expenses are appropriate.
8. MARKING OF PRODUCTS
8.1. All Code and Documentation, including any Enhancements, shall be marked
with Owner's copyright notice. All Products offered by VAR shall display
Owner's copyright notice and the Code shall otherwise be presented as set
out in the Development Agreements. VAR may mark the Code included in
Products with its own trademark and copyright notice as set out in the
Development Agreements.
9. TERM OF AGREEMENT, TERMINATION
9.1. Term. Unless terminated earlier as provided herein, this Agreement shall
have a term of two (2) years commencing from the Effective Date.
9.2. Automatic renewal. This Agreement shall be renewed automatically for
additional successive one (1) year periods, unless notice of non-renewal
is given to the other no later than thirty (30) days prior to the
expiration of the initial term or then current renewal term.
9.3. Breach. Should either party commit a material breach in its obligations
hereunder, or should any of the representations of either party prove to
be untrue in any material respect, the other party may, at its option,
terminate this Agreement by 60 days' written notice to the other party.
Such notice shall identify and describe the default upon which termination
is based. The defaulting party shall have 30 days to cure such default,
which, if effected, shall prevent termination by virtue of such default.
9.4. Consequences. Upon the termination of this Agreement, VAR shall
immediately cease all use of the Code and Documentation granted by this
Agreement, and any Derivative Works thereof, and shall make no further
copies of any of the foregoing. VAR shall also discontinue all promotion,
marketing, support, training, licensing, or other activities, except with
respect to authorized end-user copies to the extent they have been placed
in use by customers pursuant to the VAR License prior to the effective
date of termination.
9.5. Survival. Notwithstanding the foregoing, and notwithstanding termination
of this Agreement, VAR shall retain the right to continue to support
Authorized End-User Copies that have been completed, marketed, and
installed pursuant to the VAR License prior to the effective date of
termination, subject to continued payment of applicable royalties to Owner.
9.6. Continuation of Payment. Owner shall continue to be entitled to fees and
charges set forth in Section 5 that have accrued or shall accrue and
become due and owing to Owner with respect to Products for a period of 3
years next following the effective date of this Agreement. At the end of
such 3-year period, providing all royalties due have been paid, all
licenses granted by Owner hereunder shall be deemed fully paid up and this
Agreement shall not thereafter be subject to termination by Owner.
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10. INDEMNIFICATION
10.1. Owner Indemnification. Owner agrees to, and does hereby, indemnify and
hold harmless VAR from any and all claims, demands, or actions alleging
that the Code or Documentation, including any Enhancements, in the form
delivered by Owner, infringes or abridges any third-party rights in
copyright, trade secret, or other intellectual property rights.
10.2. VAR Indemnification. VAR agrees to, and does hereby, indemnify and hold
harmless Owner from any and all claims, demands, or actions from or
relating to Products, or use by customers of Products, and based on or
related to VAR's performance, nonperformance, infringement of third-party
intellectual property rights, representations or statements made, or
other actions with respect to Products.
10.3. Conditions. The foregoing indemnities shall be contingent upon the party
seeking to enforce the indemnity against the other party (1) giving
written notice to the other party of any claim, demand, or action for
which indemnity is sought; (2) fully cooperating in the defense or
settlement of any such claim, demand, or action; and (3) obtaining the
prior written agreement of the indemnifying party to any settlement or
proposal of settlement.
11. MISCELLANEOUS
11.1. No Assertion of Rights. It is expressly understood and agreed that, as
between Owner and VAR, all right, title, and interest in and to the Code
and Documentation, including any other material furnished to VAR under
this agreement vests solely and exclusively in the Owner, and VAR shall
neither derive nor assert any title or interest in or to such materials
except for the rights of use or licenses granted under this Agreement.
11.2. Independent Contractor Status. VAR is an independent contractor under
this Agreement, and this Agreement shall not be construed as to create a
partnership, joint venture, or agency relationship between the parties
hereto. VAR shall have no authority to enter into agreements of any kind
on behalf of Owner and shall not have the power or authority to bind or
obligate Owner in any manner to any third party.
11.3. No Conflict of Interest. VAR represents and warrants that it has full
power and authority to undertake the obligations set forth in this
Agreement and that it has not entered into any other agreements that
would render it incapable of satisfactorily performing its obligations
hereunder, or that would place it in a position of conflict of interest
or be inconsistent or in conflict with its obligations hereunder.
11.4. No Assignment. VAR represents that it is acting on its own behalf and is
not acting as an agent for or on behalf of any third party and further
agrees that it may not assign its rights or obligations under this
Agreement without the prior written consent of Owner.
11.5. Notices. Any notices required or permitted to be sent shall be delivered
personally, by overnight delivery service (such as Federal Express or
DHL), or mailed certified mail, postage prepaid, return receipt
requested, to the party's at the address noted above, unless by such
notice a different address shall have been designated. Such notice shall
be deemed to have been received upon actual delivery in the case of
personal or overnight delivery and within three (3) business days after
such mailing.
11.6. Governing Laws. All questions concerning the validity, operation,
interpretation, and construction of this Agreement will be governed by
and determined in accordance with the laws of Sweden.
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11.7. No Waiver. Neither party shall by mere lapse of time, without giving
notice or taking other action hereunder, be deemed to have waived any
breach by the other party of any of the provisions of this Agreement.
Further, the waiver by either party of a particular breach of this
Agreement by the other shall not be construed or constitute a continuing
waiver of such breach or of other breaches of the same or other
provisions of this Agreement.
11.8. Force Majeure. Neither party shall be in default if failure to perform
any obligation hereunder is caused solely by supervening conditions
beyond that party's control, including acts of God, civil commotion,
strikes, labor disputes, and governmental demands or requirements.
11.9. Entire understanding. The parties hereto acknowledge that each has read
this Agreement, understands it, and agrees to be bound by its terms. This
Agreement sets for the entire understanding between the parties as to the
subject matter hereof. This Agreement may be amended only by a subsequent
writing that specifically refers to this Agreement and is signed by both
parties, and no other act, document, usage, or custom shall be deemed to
amend this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized representatives as set forth below.
ERICSSON TELECOM AB
By: /s/ ROLF ERIKSSON
-------------------------------
Title: V.P.
----------------------------
Date: February 25, 2000
OZ.COM
By: /s/ SKULI MOGENSEN
-------------------------------
Title: CEO
----------------------------
Date: February 25, 2000
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EXHIBIT A
ROYALTIES AND PAYMENTS . . .
Final pricing model for the licensing of Code has not been set by the parties.
The parties intend to structure a pricing model and a marginal fee structure in
the situations where;
a. VAR licenses Server Code
b. VAR provides Hosting Services to telecom operators
c. VAR provides Hosting Services to internet companies
d. VAR contributes to the sale or license of the Server Code
e. VAR initiates the upgrade and transfer of End-Users from a basic free
internet version of the Code into a more fully featured version.
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EXHIBIT 21.1
OZ.COM
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of Incorporation Names Under Which
Name or Organization Subsidiary Does Business
- ---- ----------------------------- ------------------------
<S> <C> <C>
OZ hf Iceland OZ.COM
OZ.COM AB Sweden OZ.COM
SmartVR, Inc. Delaware OZ.COM
SmartVR hf Iceland OZ.COM
OZMO.COM, Inc. California OZ.COM
</TABLE>
* OZMO.COM, Inc. is in the process of changing its name to Propheus.com, Inc.
