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Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ARISTOTLE INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
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<TABLE>
<S> <C> <C>
Delaware 7372 061022613
<CAPTION>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
50 E Street, S.E., Suite 300
Washington, DC 20003
(202) 543-8345
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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John A. Phillips
Chief Executive Officer
2266 Union Street
San Francisco, California 94123
(415) 440-1102
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
David R. Snyder, Esq. Kristian E. Wiggert, Esq.
Christopher M. Forrester, Esq. Melissa L. Mong, Esq.
Christine K. Besnard, Esq. Craig M. Glantz, Esq.
Pillsbury Madison & Sutro LLP Morrison & Foerster LLP 425 Market Street
11975 El Camino Real, Suite 200 San Francisco, California 94105
San Diego, California 92120 Phone: (415) 268-7000 Fax: (415) 268-7522
Phone: (858) 509-4052 Counsel to the Underwriter
Fax: (858) 509-4010
Counsel to the Registrant
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered be Registered Per Unit Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, par value $0.001 per
share................................. $30,000,000 $7,920
</TABLE>
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(1)Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+ not sell these securities until the registration statement filed with the +
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting offers to buy these +
+ securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 15, 2000
Aristotle
International, Inc.
Shares
of Common Stock
[LOGO OF
ARISTOTLE]
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This is our initial public
offering and no public market
currently exists for our shares.
We expect that the public offering
price will be between $ and $
per share. The price may not
reflect the market price of our
shares after this offering.
<TABLE>
<CAPTION>
THE OFFERING PER SHARE TOTAL
-----------------------------------
<S> <C> <C>
Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Aristotle International,
Inc. $ $
</TABLE>
We have granted the underwriters
the right to purchase up to
additional shares within 30 days
to cover any overallotments. The
underwriters expect to deliver the
shares of common stock to
purchasers on , 2000.
The proposed Nasdaq National
Market symbol is .
The method of
distribution being
used by the
underwriters in
this offering
differs somewhat
from that
traditionally
employed in firm
commitment
underwritten
public offerings.
The public
offering price and
allocation of
shares will be
determined
primarily by an
auction process
conducted by the
underwriters and
other securities
dealers
participating in
this offering. A
more detailed
description of
this process,
known as OpenIPO,
is included in
Plan of
Distribution.
[Open IPO Logo]
This offering involves a high degree of risk. You should purchase
shares only if you can afford a complete loss of your investment.
See Risk Factors beginning on page 7.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
[WR HAMBRECHT + CO'S LOGO APPEARS HERE]
The date of this prospectus is , 2000
<PAGE>
[INSIDE FRONT COVER]
[DESCRIPTION OF GRAPHICS TO COME ON AMENDMENT]
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary....................................................... 3
The Offering............................................................. 5
Summary Financial Data................................................... 6
Risk Factors............................................................. 7
Cautionary Note on Forward-Looking Statements............................ 21
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 24
Selected Financial Data.................................................. 25
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 26
Business................................................................. 32
Management............................................................... 42
Certain Relationships and Related Transactions........................... 49
Principal Stockholders................................................... 51
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 55
Plan of Distribution..................................................... 57
Legal Matters............................................................ 63
Experts.................................................................. 63
Where You Can Find More Information...................................... 63
Index to Financial Statements............................................ F-1
</TABLE>
----------------
We have one registered trademark application pending for the name Aristotle
and no registered trademarks. Further, we have no registered or pending
copyright or patent applications. We rely principally on common law for
protection of our tradenames and proprietary rights. All service marks,
trademarks or tradenames used in this prospectus are the property of the
respective owners.
i
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information about us, our common stock being sold in this offering and our
financial statements and notes appearing elsewhere in this prospectus before
making a decision to invest in our common stock. In this prospectus, unless the
context indicates otherwise, the terms Aristotle, we, our or us refer to
Aristotle International, Inc.
Aristotle
We are a technology company that provides information, products and services
to political campaigns, advocacy organizations and commercial enterprises. Over
the past ten years, we have compiled a large database of over 145 million
registered voters in the United States. This database is our core strategic
asset. We believe this database would be very difficult to replicate because
many voter jurisdictions have different authorization requirements and
restrictions on gathering and disclosure of voter records. We use our database
to facilitate campaign management, Internet marketing and online fundraising.
We also have created a database that contains records of over 37 million voters
in the United Kingdom and a database that contains records from departments of
motor vehicles throughout the United States. We believe that we are an industry
leader in providing campaign management products and services and that we have
significant knowledge and expertise in this field.
Our products and services are designed to service the following three broad
markets:
. political campaigns or parties on the federal, state and local level;
. advocacy organizations, including political action committees, non-
profit organizations and issue-oriented organizations; and
. commercial enterprises.
As of April 30, 2000, our clients include over 50 U. S. Senators, over 200
members of the U.S. House of Representatives, approximately 46 Democratic and
Republican state parties and numerous national advocacy groups and consulting
firms. Furthermore, of the top 50 Senate and top 50 House of Representatives
fundraisers for the 1999-2000 election cycle, as recorded by the Federal
Election Commission, or FEC, as of May 2000 72% of the Senate candidates and
66% of the House candidates use at least one of our products or services.
Our clients use our products and services to reach their audiences based on
demographic, geographic or political criteria. Our campaign and advocacy
clients use our software products to maintain lists of voters, contributors,
prospective contributors, volunteers, members of the press and community
organizers, and to comply with the reporting regulations of the FEC and state
government agencies. Our targeted marketing clients use our products and
services to combine our databases and software to reach potential constituents
and supporters, generate campaign awareness and solicit contributions through
the Internet, telephone, mail or door-to-door efforts.
Our goal is to become a leading provider of targeted Internet marketing
solutions and to expand our position within the campaign and advocacy
industries. Key elements of our strategy are to:
. continue to enhance the size and quality of our databases;
. increase applications for our databases;
. expand the scope of our comprehensive fundraising solutions;
. extend international databases; and
. broaden our sales and marketing efforts.
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Our principal executive offices are located at 50 E Street, S.E., Suite 300,
Washington, D.C. 20003. We also have a regional office in San Francisco, a
sales office in Atlanta and sales representatives in Chicago, Dallas,
Nashville, Seattle and London, England. Our phone number is (202) 543-8345. Our
principal website is www.aristotle.com. The information on our website does not
constitute part of this prospectus.
Our business was originally founded by John A. Phillips and Dean A. Phillips
under the laws of the State of Connecticut in 1983. In 1987, we incorporated
under the laws of the District of Columbia under the name Aristotle Industries,
Inc. In 1995, we changed our name to Aristotle Publishing, Inc. In March 1999,
Aristotle Publishing, Inc. merged into its wholly-owned subsidiary, Aristotle
Publishing, Inc., a corporation incorporated under the laws of the State of
Delaware, with the Delaware corporation being the surviving corporation. On May
15, 2000, Aristotle Publishing, Inc. filed an amendment to its certificate of
incorporation to change its name to Aristotle International, Inc.
4
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THE OFFERING
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<S> <C>
Common stock offered............. shares
Common stock to be outstanding
after this offering............. shares
Use of proceeds:................. We expect to use the net proceeds from this offering for:
.acquiring domestic and international voter records;
.increasing our sales and marketing efforts;
.increasing our product development efforts; and
.working capital and general corporate purposes.
Proposed Nasdaq National Market
symbol..........................
</TABLE>
The common stock to be outstanding after this offering is based on 4,384,777
shares outstanding as of April 30, 2000, after giving effect to:
. the conversion of our outstanding shares of Series A Preferred Stock
into 1,272,727 shares of common stock; and
. the issuance of 112,050 shares of common stock from the conversion of
our Notes payable-related parties into 112,050 shares of Series A
Preferred Stock, which will convert into common stock upon the closing
of this offering.
The common stock to be outstanding after this offering excludes 543,194
shares of common stock issuable as of April 30, 2000 upon the exercise of
outstanding stock options issued under our 1999 Stock Option Plan at a weighted
average price of $2.26 per share.
This offering will be made through the OpenIPO process, in which the
allocation of shares and the public offering price are based primarily on an
auction in which prospective purchasers are required to bid for the shares.
This process is described under Plan of Distribution. Except as otherwise
indicated, the information in this prospectus assumes no exercise of the
underwriters' overallotment option.
5
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SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
(In thousands, except
share and per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue...................................... $ 1,718 $ 2,528 $ 3,913
Gross profit................................. 1,327 1,849 2,662
Loss from operations......................... (464) (692) (2,023)
Net loss..................................... (249) (81) (1,915)
========= ========= =========
Basic and diluted loss per common share...... $ (0.08) $ (0.03) $ (0.64)
========= ========= =========
Shares used to compute basic and diluted net
loss per common share....................... 3,000,000 3,000,000 3,000,000
========= ========= =========
Pro forma unaudited basic and diluted net
loss per common share....................... $
=========
Shares used to compute pro forma unaudited
basic and diluted net loss per common
share.......................................
=========
</TABLE>
The following table sets forth a summary of our balance sheet at December 31,
1999:
. on an actual basis;
. on an as adjusted basis giving effect to:
. issuance of 1,272,727 shares of common stock upon conversion of all
of our preferred stock outstanding as of December 31, 1999 into
common stock at the closing of this offering,
. issuance of 112,050 shares of common stock from the conversion of our
Notes payable-related parties into 112,050 shares of Series A
Preferred Stock, which will convert into common stock upon the
closing of this offering; and
. sale of shares of our common stock in this offering, assuming
an offering price of $ per share after deducting underwriting
discounts and commissions and our estimated offering expenses of
$ million.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------
Actual As Adjusted
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(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $ 2,405
Working capital................................. 1,296
Total assets.................................... 3,802
Total liabilities............................... 2,318
Deferred revenue................................ 772
Convertible preferred stock..................... 3,500
Stockholders' equity (deficit).................. (2,016)
</TABLE>
6
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RISK FACTORS
You should carefully consider the following risks and all other information
contained in this prospectus before you decide to buy our common stock. If any
of the following risks occur, our business, financial condition or operating
results could suffer. If this occurs, the trading price of our common stock
could decline, and you could lose all or part of your investment.
Risks Relating to our Business
We have a history of losses and expect to incur substantial losses in the
future.
We incurred net losses of approximately $401,000 for the year ended December
31, 1996, $249,000 for the year ended December 31, 1997, $81,000 for the year
ended December 31, 1998 and $1.9 million for the year ended December 31, 1999.
We have incurred significant expenses since September 1999 and expect to
continue to expend substantial financial and other resources on developing and
enhancing our products and services and expanding our sales, marketing and
customer support organizations and infrastructure. We expect that our operating
expenses will continue to increase in absolute dollars and may increase as a
percentage of revenue. If our revenue does not increase to keep pace with our
current and expected expenses, or is insufficient to achieve profitability, our
business and operating results will be harmed. Further, even if our revenue
does increase, failure to become profitable within the time frame expected by
securities analysts or investors will likely cause our stock price to decline.
Our entrance into new lines of business makes financial forecasting and
evaluation of our business difficult.
Although we have been offering products and services to campaign and advocacy
organizations since 1983, we are shifting the emphasis of our product and
service offerings towards a mixture of campaign, advocacy and commercial
applications, with an increasing focus on advocacy and commercial applications.
Our year-end operating results presented in this prospectus reflect only our
historical business model and do not reflect our first quarter revenue or
results of operations from our mixture of campaign, advocacy and commercial
applications. Our revenue and income potential under this new business model is
unproven and, therefore, it is difficult to evaluate our business and
prospects. Further, because we have no operating results for our new commercial
applications, we must forecast a portion of our expenses based on projected
future activity.
We will depend on the development of targeted Internet marketing for the growth
of our Internet advertising operations.
Although we have not received any significant revenue to date from targeted
Internet marketing, we intend to increase our targeted Internet marketing
efforts substantially in the next 12 months. The Internet advertising market is
new and rapidly evolving, and it cannot yet be compared with traditional
advertising media to gauge its effectiveness. As a result, demand and market
acceptance for targeted Internet marketing solutions are uncertain. Most of our
current or potential marketing clients have little or no experience using the
Internet for marketing purposes and have allocated only a limited portion of
their advertising budgets to Internet marketing. The adoption of Internet
marketing, particularly by those entities that have historically relied upon
traditional media for marketing, requires the acceptance of a new type of
service. These potential clients may find Internet marketing to be less
effective for promoting their products and services relative to traditional
marketing media. If the market for Internet marketing fails to develop or
develops more slowly than we expect, we will be unable to meet our forecasted
revenues.
Information in our databases may contain inaccuracies that could render
advertising campaigns ineffective, which would in turn harm our ability to
promote our Internet marketing efforts and could also subject us to liability.
Further, filter software programs used by Internet users may limit or prevent
advertising from being
7
<PAGE>
delivered to a user's computer. Widespread acceptance of filter software would
harm the commercial viability of Internet marketing, and in particular, banner
advertising, and thus harm our business.
We rely on access to advertising space from third parties to sell our targeted
banner advertisements.
As we increase our efforts to build our targeted advertising business, we
expect to rely on contracts with third parties to provide us with advertising
space for our targeted banner advertisements. We currently place advertisements
with third-party ad-servers. If we were unable to continue to place
advertisements with these entities, and were unable to replace the advertising
space to be provided from these entities with advertising space from other ad-
servers, Web portals or Internet Service Providers, or ISPs, we would be unable
to deliver our targeted banner advertisements, which would preclude us from
recognizing revenue.
We may need additional financing.
We may need to raise additional funds to develop or enhance our databases and
our software and services, to fund our continued operations or to respond to
competitive pressures. We may need to raise additional funds through the public
or private sale of our debt or equity securities or by borrowing funds from an
institution. We may not be able borrow money on commercially reasonable terms,
or at all, and any sale of our equity securities may result in dilution to our
stockholders.
The price of our common stock may decline if our revenue and operating results
fluctuate or we fail to meet market expectations.
Variations in our quarterly operating results are difficult to predict and
may fluctuate significantly from period to period, particularly because our
operating results under our new business model are uncertain. Therefore, our
quarter-to-quarter operating results may not be a good indication of our future
performance. Our quarterly revenue or operating results may fall below the
expectations of investors or public market analysts. In addition to other
factors discussed in these Risk Factors, specific factors that may cause
fluctuations in our revenue or operating results include:
. timing of releases of new products and services by us or our
competitors, in particular, the timing and release of new commercial
applications;
. seasonality of campaign products and services;
. seasonality of advertising products, including our new targeted banner
marketing products;
. discretionary nature of our clients' purchasing and budgetary cycles;
. changes in our pricing policies or those of our competitors;
. changes in advertising rates;
. timing or execution of large contracts that materially affect our
operating results;
. mixture of our domestic and international sales;
. delayed receipt of accounts receivable from clients relying on federal
matching funds; and
. our ability to expand our operations and the amount and timing of
expenditures related to this expansion.
We depend significantly on sales of our Campaign Manager software and voter
records and expect to depend significantly on sales of our PAC Manager software
and targeted marketing services.
For the years ended December 31, 1997, 1998 and 1999, we derived revenue of
approximately 47%, 43% and 39% from the sale of our Campaign Manager and PAC
Manager software and related services and
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approximately 18%, 24% and 47% from the sale of our voter records. We
anticipate that revenue related to these products will continue to constitute a
substantial portion of our revenue in the future. Further, we have recently
made significant investments in marketing and infrastructure to increase sales
of our Campaign Manager and PAC Manager software, voter records and targeted
marketing services, including targeted banner advertisements. Our results from
operations would be adversely affected if we were unable to sell or increase
sales of our Campaign Manager software, PAC Manager software and targeted
marketing services.
Our online fundraising service may be subject to complex regulations that could
inhibit our ability to market the service.
We have recently developed our online fundraising service
CampaignContribution.com. Online fundraising is a new and evolving field and
collection and processing of campaign contributions through the Internet is
subject to state and federal laws, including the Federal Matching Act and the
Federal Election Campaign Act, and subject to regulation by government
agencies, including the FEC. Although we believe that our products and services
comply with safe harbors established by FEC advisory opinions, we could be
subject to liability under FEC regulations if we were found to have
participated in a prohibited campaign fundraising effort. Any liability could:
. cause us to incur losses as a result of fines or civil liabilities;
. increase governmental scrutiny of our products and services;
. decrease the use of the Internet for campaign or fundraising efforts;
and
. decrease the demand for our products and services.
Use of CampaignContribution.com for non-profit fundraising online is also
subject to complex federal and state regulations. We are currently in the
process of becoming registered to conduct online fundraising activities in
states that require registration for these activities. Further, additional
states may begin to regulate non-profit fundraising online, which may increase
our compliance expense and decrease the desirability of our services.
As a result of the expense of complying with the numerous federal, state and
local laws and the resulting impact on demand for our services, we may
ultimately determine that offering our contribution services are not practical
in all jurisdictions, in which case we may elect to discontinue these services.
We may face increased governmental regulation on our collection and use of
personal information from commercial and public records.
Our collection and use of the information in our databases are governed by
federal, state, local and foreign regulations. Specifically, our voter records
are limited in use and access in approximately one half of the states, and
there is a prohibition on the use of the information collected from the FEC
contributor lists for soliciting contributions or for commercial purposes.
Further, information collected from departments of motor vehicle records is
regulated by the Drivers Privacy Protection Act of 1994 and the laws of the
states from which the information is obtained, and the information collected
from the U.S. Postal Service relating to change of address notifications is
regulated by the Privacy Act of 1974. Future regulations may preclude access
to, resale of and use of the information obtained from the commercial or public
records in our databases, which in turn would limit our ability to market and
sell our products and services.
A failure to manage our growth could lead to inefficiencies in conducting our
business and subject us to increased expenses.
From December 31, 1999 to April 30, 2000, we expanded our operations from 69
to 96 employees. This growth has placed a significant strain on our management,
financial and personnel resources. Our technical, data acquisition, sales,
marketing and customer support organizations may be unable to effectively
compete with larger and more established organizations because of their limited
experience working together. We expect
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<PAGE>
to continue to hire employees at an accelerated pace and any additional growth
will further strain our management, financial, personnel, internal training and
other resources. To manage any additional growth effectively, we must improve
our financial and accounting systems, controls, reporting systems and
procedures, integrate new personnel and manage expanded operations. Our failure
to manage our growth could adversely affect the quality of our products and
services, our ability to respond to clients and our ability to retain key
personnel.
We derived 21% of our revenue from a single client in the year ended December
31, 1999.
For the year ended December 31, 1999, we derived approximately 21% of our
revenue from a contract with the National Rifle Association. Since we have
completed this contract with the NRA, we do not expect to derive substantial
revenue from this client in the current fiscal year. If we do not replace the
revenue we received from this client, our revenue in the current fiscal year
will be substantially reduced.
We rely on a third-party database program to store our voter and departments of
motor vehicle records, and our ability to deliver our products would be
impaired if we were unable to use that database program.
Our voter and departments of motor vehicle records are stored on a database
program that we license from a third party. Our license agreement with this
third party provides that if we breach a material provision of the agreement,
the third party could terminate our use of the database program immediately. If
we were required to obtain alternative software as a result of an immediate
termination, our ability to offer our voter and departments of motor vehicle
records and our products and services associated with these records could be
adversely impacted, which could in turn lead to dissatisfied clients, potential
liability to clients, damage to our reputation and loss of any competitive
advantage we enjoy.
Our reputation and results of operations may be harmed if information contained
in our databases is incorrect, out of date or incomplete.
We regard our databases as our most significant assets. Several of our
software products and services are built on providing information about
individuals to our clients. We collect the data for our databases from
registered voter records through the United States and the United Kingdom, and
from departments of motor vehicle records throughout the United States and FEC
contributor lists. We enhance this data by contracting with third-party data
collection services, which provide additional information about the individuals
in our database. We rely on federal, state and local government agencies to
provide this data, and on our relationships with third-party data collection
services. If these relationships were to deteriorate, our ability to maintain
and update our databases on a timely basis could be harmed. The information in
our databases will become stale if we are unable to update it. In addition, the
information that we obtain from voter records, departments of motor vehicle
records or our third-party data collection services may be inaccurate or
incomplete. As a result, our clients may no longer be willing to pay us for
access to and use of the information and we may be unable to attract or retain
additional clients.
Our Internet-based products and services could be interrupted as a result of
technical problems with our computer and communications systems.
Our clients rely on the Internet to use features in many of our products and
services. Although we host our own servers, we rely on PSINet as our ISP to
provide interconnectivity to our clients. From time to time, our clients have
experienced technical problems communicating with our website. These technical
difficulties have resulted from failures in our servers and computer systems
and in the servers and computer systems of our ISP. We believe these
interruptions will continue to occur from time to time. Substantially all of
our computer and communications systems are located in our offices in
Washington, D.C. and substantially all of PSINet's systems are located in
Northern Virginia. These systems and operations are vulnerable to damage or
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interruption from human error, natural disasters, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and
similar adverse events. Given our reliance on our servers and computer systems
and those of PSINet, delivery of our products and services to our clients could
be delayed if:
. our servers and computer systems were to experience significant and
continuing technical problems; or
. PSINet were unable to continue to provide us with uninterrupted access
to the Internet for any of the reasons described above, and we were
unable to secure a replacement ISP in a timely and cost-effective
manner.
We have a limited disaster recovery plan, and in the event of damage or
interruption our insurance policies may not adequately compensate us for any
loss that we may incur. Any system failure could harm our relationships with
our clients and result in reduced revenue.
We may not be able to use the Aristotle brand name for our Internet activities.
We have received a letter from a third party engaged in website design, Web
hosting and Internet access service requesting that we cease and desist from
using the name Aristotle in connection with our online activities. If this
third party is able to prove that it has superior rights to use the Aristotle
name, we may be unable to use the name Aristotle for our activities on the
Internet. If we are unable to use our brand name for these activities, we will
be required to develop and build a new brand name.
We intend to expand our operations into international markets, which could
subject us to foreign regulations and litigation regarding collection and use
of personal information.
We have collected voter records in the United Kingdom, and we plan to collect
voter data and expand our sales efforts in other countries as well. Use of our
products and services in foreign jurisdictions may be heavily regulated. For
example, in order to collect campaign contributions online in the United
Kingdom, a website operator may have to comply with the legislative
requirements contained in the Political Parties, Elections and Referendums
Bill, which has not yet been finally approved by the British Parliament.
Although we believe that this legislation will place restrictions on access to
and use of information about registered voters in the United Kingdom, we cannot
foresee its ultimate impact on our operations since the legislation has not yet
become law. If our collection and use of voter records were ultimately too
heavily restricted to make our products commercially viable, our investment in
acquiring this data would be lost. Similarly, other countries into which we
intend to expand our operations may enact their own privacy regulations that
may result in limits on the collection and use of voter information, which, if
applied to the sale of our software, could negatively impact our results of
operations.
Expanding our operations into international markets will increase our
exposure to risks of foreign litigation. If we do not comply with foreign laws
and regulations, which are often complex and subject to variation and
unexpected changes, we could incur unexpected costs and potential litigation.
The governments of foreign countries might also attempt to regulate our
products and services or levy sales or other taxes relating to our activities.
In addition, foreign countries may impose tariffs, duties, price controls or
other restrictions on foreign currencies or trade barriers, any of which could
make it more difficult to conduct our business.
We have limited experience in international operations and our international
expansion efforts could divert our management's attention.
The expansion of our international operations will require significant
management attention and financial resources. We have very limited experience
in marketing, selling and supporting our products and services abroad and we
may face difficulties in accomplishing our expansion plans, including funding,
adequate staffing and management resources for our international operations. We
have limited experience in developing customized versions of our software for
international markets and in marketing our software internationally.
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Customizing our software for international markets may take longer than we
anticipate due to difficulties in translation and delays we may experience in
recruiting and training international staff. In addition to these requirements,
to successfully expand our operations into international markets, we will need
to, among other things:
. establish and expand international voter data acquisition channels,
sales channels and management and support organizations; and
. develop relationships with international service providers and
additional distributors and systems integrators.
Our investment in acquiring records of voters and residents of, and
establishing operations in, other countries may not become profitable. Even if
we do establish and expand our international operations successfully, we may
not be able to maintain or increase international market sales of our products
and services.
We rely on limited common law rights to protect our intellectual property.
Our success and ability to compete depend, in part, upon the protection of
our proprietary rights. We rely on a combination of common law rights and
contractual restrictions, including confidentiality agreements and licenses, to
establish and protect these rights. We currently have one registered trademark
application pending and no registered trademarks. Further, we have no
copyrights or patents and no copyright or patent applications pending. Despite
any precautions that we may take to protect our proprietary rights:
. laws and contractual restrictions may not be sufficient to prevent
inappropriate use of our technology or deter others from developing
similar technologies;
. current federal laws that prohibit software copying provide only limited
protection from software infringement, and effective trademark,
copyright and trade secret protection may be unavailable or limited in
foreign countries;
. other companies may claim common law trademark rights based upon state
or foreign laws that precede our claim to our marks; and
. policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of the unauthorized use.
Also, the laws of other countries in which we market our products may offer
little or no effective protection of our technology. Reverse engineering,
unauthorized copying or misappropriation of our technology could enable third
parties to benefit from our technology without paying us for it, which would
significantly harm our business.
We may become subject to expensive and time-consuming litigation over
proprietary rights.
Substantial litigation regarding intellectual property rights exists in our
industry. We expect that software in our industry may be increasingly subject
to third-party infringement claims as the number of competitors grows and the
functionality of products in different industry segments overlaps. Our products
and services or other technology we use could infringe on patents currently
held by, or which may be issued to, third parties. Any of these third parties
might make a claim of infringement against us. Many of our customer agreements
require that we indemnify our clients from any claim or finding of intellectual
property infringement. Any litigation, brought by us or others, could result in
the expenditure of significant financial resources and the diversion of our
management's time and efforts. In addition, any litigation in which we could be
accused of infringement might delay our delivery of our products and services,
require us to develop non-infringing technology or require us to enter into
royalty or license agreements, which might not be available on acceptable
terms, or at all. Our business would be harmed if a successful claim of
infringement were made against us and we could not develop non-infringing
technology or license the infringed or similar technology on a timely and cost-
effective basis.
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We may be subject to privacy claims if our security system is breached.
Our databases contain sensitive information about individuals that we make
available to our clients, including over the Internet. A fundamental
requirement for online communications and transactions is the secure
transmission of confidential information over public networks. Although we have
implemented network security measures, our servers are vulnerable to computer
viruses, physical and electronic break-ins and similar disruptions, which could
lead to theft or misuse of the information contained in our databases.
Individuals about whom our databases contain information or entities from which
we collect information could assert claims of invasion of privacy,
inappropriate disclosure or use or loss of information against us or our
clients. We may be liable to these individuals or entities or to our clients
for any release of confidential information, whether as a result of a breach of
our security or by accident. Third parties may attempt to breach our security
or that of our clients. In particular, a substantial amount of the information
contained on our database can only be released to authorized individuals. We
may be subject to federal, state and local fines and to civil and criminal
liability if we were to inadvertently release this information for unauthorized
use as a result of:
. errors in our software;
. human errors; or
. because we are defrauded or deceived by the person seeking the
information into believing that he or she is an authorized user of the
information.
Further, we may be required to expend significant additional capital and
other resources to license encryption technology and additional technologies to
protect against security breaches or to alleviate problems caused by any
breach.
Difficulties in implementing our PAC Manager software may prevent us from
meeting our revenue projections.
We expect to derive a substantial portion of our revenue in the next fiscal
year from the sales and implementation of our PAC Manager software. This
implementation process involves sophisticated software, computing and
communications systems. If we are required to devote significant customer
support, engineering and other resources to a particular project, we may
experience difficulties with implementation of our PAC Manager software for
other clients. In this case, our relationships with our clients may be harmed,
which could adversely affect our sales efforts. Further, if our new or existing
clients have difficulty deploying our PAC Manager software or require
significant amounts of our professional services support or customized
features, our ability to complete the implementation and fully recognize
revenue could be delayed and our costs could increase.
We may face liability claims that could result in unexpected costs and damage
to our reputation.
Provisions in our software license agreements are designed to limit potential
product and service liability claims. Further, our software license agreements
generally limit the amounts recoverable for damages by our clients as a result
of errors in our products and services. Despite these precautions, we may be
subject to liability as a result of errors in our products and services,
including liability relating to damages to our clients' internal computer
systems. Any product or service liability claim, whether or not successful,
could harm our business by increasing our costs, damaging our reputation and
distracting our management. We may also be subject to claims for indemnity to
the extent that our clients are sued for errors in our products or services.
Our software products and services have long sales cycles that make it
difficult to plan our expenses and forecast our revenue.
The sale of our Campaign Manager and PAC Manager software typically takes an
average of one to six months to complete, and it can take significantly longer.
It is therefore difficult to predict the quarter in which a
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<PAGE>
particular sale will occur and to plan our expenses accordingly. The period
between our initial contact with potential clients and their purchases of our
products and services is relatively long due to the following factors:
. implementation periods for our campaign products and services, in
particular, our PAC Manager software;
. requirement of a significant upfront investment of resources by clients;
. clients' budgetary cycles might affect the timing of their purchasing
decisions;
. clients may require competitive evaluations and internal approval before
purchasing our software;
. delays in our development and release of new software; and
. announcements or planned introductions of new software by us or our
competitors.
The delay or failure to complete a sale in a particular quarter could reduce
our revenue in that quarter, as well as subsequent quarters over which revenue
for the sale would likely be recognized. If our sales cycle unexpectedly
lengthens in general or for one or more large orders, it would adversely affect
the timing of our revenue and harm our ability to meet forecasts for a given
quarter.
We may lose sales and revenue if our products and services do not remain
compatible with widely-used software programs.
Our software is designed to assist our clients in collecting and analyzing
data about their constituents and supporters, assist them in customizing their
advertising and marketing efforts and receive donations through the Internet.
Accordingly, our software is designed to interact with software used by our
clients on their existing systems, including Microsoft Windows, Windows NT and
other popular operating systems. Further, in order to access our databases
through the Internet, our clients must use a standard browser, for example,
Microsoft Internet Explorer or Netscape Navigator. We may lose clients if we do
not update our products to remain compatible with newer versions of these
programs or other programs that may become more popular in the future. This may
result, for example, from our failure to obtain developer versions of these
software programs as they are upgraded. Our results of operations will be
adversely affected if we lose clients as a result of our failure to keep our
products compatible with the most recent versions of widely-used software
programs.
We rely on third parties to provide us with information necessary to enhance
our databases.
As we continue to enhance the information contained within our databases, we
expect to rely on contracts with third-party data collection services. While we
currently obtain enhanced information from several sources, we rely heavily
upon one source. If we are unable to continue to obtain enhanced data from this
source, and unable to obtain similar information from an alternative source,
our databases would be impaired, which may render our products and services
obsolete.
Our sales and reputation may be harmed by delays in the development or
enhancements of, or by errors in, our products and services.
We must develop and introduce new products and services and enhance our
existing products and services on a timely basis to remain competitive in our
industry. Our clients rely on our software to comply with federal, state and
local campaign contribution reporting laws, and to manage their complicated
databases. If we experience delays in the introduction or enhancements of our
products and services or if our software contains undetected errors, we could
experience:
. loss of or delay in revenue and an immediate and significant loss of
market share;
. loss of existing and future clients;
. failure to achieve market acceptance;
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<PAGE>
. diversion of development resources;
. damage to our reputation;
. increased service and warranty costs;
. legal actions by our clients against us; and
. increased insurance costs.
Our efforts to remain competitive in product development and enhancements and
to avoid product and service delays may not be successful, and we may lose
clients as a result. Delays in bringing to market new products or services or
in enhancing our existing products and services, or the existence of defects in
new products or our existing products, could be exploited by our competitors.
Our operating results could be harmed if we were to lose market share as a
result of lapses in our product and service management.
We may engage in future acquisitions that could require additional funding,
which could dilute our existing stockholders, cause us to incur significant
expenses or harm our business.
We may review acquisition or investment prospects that would complement our
current business or enhance our technological capabilities. Integrating any
newly acquired businesses, technologies or products may be expensive and time-
consuming. To finance these acquisitions, developments and enhancements, we may
need to raise additional funds through the public or private sale of our debt
or equity securities or by borrowing funds from an institution. We may not be
able borrow money on commercially reasonable terms, or at all, and any sale of
our equity securities may result in dilution to our stockholders. Further, the
rights, preferences and privileges of any securities we may sell may be senior
to those of our current stockholders. In addition, our business will be harmed
if we are unable to integrate effectively and efficiently any acquired
business, technology or product into our business or to operate any acquired
business profitability. Future acquisitions by us could also result in large
and immediate write-offs, incurrence of debt and contingent liabilities, or
amortization of expenses related to goodwill and other intangibles, any of
which could adversely affect our operating results.
Our revenues may be negatively impacted by fluctuations in foreign exchange
rates.
We may sell our products and services in foreign countries based on a U.S.
dollar-denominated pricing schedule. Therefore, a weakening of foreign
currencies versus the U.S. dollar could make our products and services less
competitive in foreign markets. Alternatively, we may receive international
revenue denominated in local currencies. We would, therefore, also be subject
to risks of foreign exchange losses. We do not currently engage in currency
hedging activities.
We are recording stock compensation expense relating to recent stock option
grants. The amortization of this compensation expense will result in a charge
to our earnings over the next five years.
Stock compensation represents an expense associated with the recognition of
the difference between the deemed fair market value of common stock at the time
of an option grant and the option exercise price. Stock compensation is
amortized over the vesting period of the options, generally five years. In
addition, we expect to record an additional deferred compensation charge
relating to option grants made after December 31, 1999, but prior to the
completion of the offering. We estimate the charge relating to these additional
grants for the year ending December 31, 2000 will be approximately $ based
upon an assumed offering price of $ per share.
Loss of our Chief Executive Officer, President and other key personnel could
harm our business.
We depend substantially on the skills, experience and efforts of our senior
management for our success. In particular, we rely on the continued services of
John A. Phillips, our Chief Executive Officer, and Dean A. Phillips, our
President. The loss of service from any of these individuals could seriously
harm our business.
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Additionally, we depend for our success on our ability to hire and retain
qualified personnel, particularly in sales, data acquisition, customer service,
marketing, product development and support. Competition for qualified personnel
in the technology industry is intense. If we are unable to successfully hire or
retain qualified personnel, we may not be able to effectively grow our
business.
We have adopted anti-takeover defenses that could delay or prevent an
acquisition of our company.
Our certificate of incorporation and bylaws contain provisions that could
delay or prevent a change in control of our company. These provisions could
limit the price that investors might be willing to pay in the future for shares
of our common stock. Some of these provisions include:
. authorizing the issuance of preferred stock with rights senior to the
common stock that can be created and issued by our board of directors
without prior stockholder approval, commonly referred to as blank check
preferred stock;
. prohibiting stockholder action by written consent; and
. staggering terms for our board of directors so that not all of our
directors can be elected at any single annual meeting.
Our executive officers and directors will exercise control over stockholder
voting matters.
After this offering, our executive officers and directors, their affiliates
and other substantial stockholders will together control approximately % of
our outstanding common stock. As a result, these stockholders may collectively
be able to control all matters requiring approval of a majority of our
stockholders, including the election of directors and significant corporate
transactions. This concentration of ownership:
. could delay, prevent or deter a change in control of our company;
. could deprive our stockholders of an opportunity to receive a premium
for their common stock as part of a sale of our company or our assets;
and
. might affect the prevailing market price of our common stock.
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Risks Relating to our Industry
Governmental regulation and legal uncertainties could impair the growth of the
Internet and decrease demand for our products and services or increase our cost
of doing business.
Although there are currently few laws and regulations exclusively applicable
to the Internet and the use of the Internet as a commercial medium, a number of
laws have been proposed involving the Internet. These proposed laws include
laws addressing user privacy, pricing and content, copyrights, distribution,
antitrust and characteristics and quality of products and services. Further,
the growth and development of the market for commercial online transactions may
result in more stringent consumer protection laws that may impose additional
burdens on companies engaged in electronic commerce.
We face competition across two industries.
We face competition from a number of companies across two major industries of
campaign and advocacy solution providers and marketers. Many of our
competitors, especially in the marketing industry:
. offer lower prices;
. have closer or longer-standing relationships with potential clients;
. have longer operating histories in the advertising industry;
. offer more diversified lines of products and services; and
. have greater financial, marketing and other resources.
Additionally, in the case of our campaign and advocacy products and services,
we face competition from state or local jurisdictions and political parties
that may have easier or lower cost access to registered voter data. We may also
face increased competition if a competitor or another entity creates a similar
or more expansive database than our database.
Many of our competitors may enter into strategic or commercial relationships
with larger, more established and better-financed companies. These competitors
may be able to undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and make more attractive offerings to clients to
induce them to use their products and services.
In the campaign and advocacy industries, we believe that the principal
competitive factors include:
. quality and size of database;
. functionality of software and contribution processing services;
. availability of technical support; and
. effectiveness of sales force.
In the online marketing industry, we believe that the principal competitive
factors include:
. the timing and market acceptance of new solutions and enhancements to
existing solutions developed either by us or our competitors;
. the continued and increasing acceptance by advertisers of targeted
Internet marketing as an effective and cost-efficient means of
advertising;
. the ability to adapt to the rapidly changing trends of the Internet;
. customer service and support efforts;
. sales and marketing efforts;
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<PAGE>
. ability to adapt and scale our technology as customer needs change and
grow; and
. ease of use, performance, price and reliability of solutions developed
either by us or our competitors.
As we expand the scope of our Web services, we may also face greater
competition from a number of websites and other media companies across a wide
range of different Web services. We may also face competition from providers of
inventory and data management products and services that may enter into the
targeted marketing business. In addition, we may face competition from a number
of large Web publishers and portals, which have large databases of information
about their users, and from providers of traditional marketing mediums, for
example, television, radio and print.
Our ability to maintain and use information in our databases for targeted
banner advertisements may be challenged in the future.
We collect and compile information in our databases that we use in connection
with our campaign products and services and for our targeted marketing
products. Although we collect a significant portion of this information from
public records, we also rely on commercial data collection efforts to enhance
our records. Individuals have claimed, and may claim in the future, that
collection of this information is illegal. Although we believe that we have the
right to use and compile the information in these databases, our ability to do
so may not remain lawful. Moreover, there may be no trade secret, copyright or
other intellectual property protection that is or becomes available for
databases that protects our rights. In addition, third parties may assert
claims to information contained in our databases. There is also a substantial
risk that public perception and approval of the use of information acquired
through the Internet to engage in targeted marketing and other commercial
purposes may deteriorate.
We will only be able to execute our business plan if Internet usage continues
to grow.
The continued growth of the Internet may be limited by various factors, many
of which are outside our control. These factors include:
. the inability of Internet infrastructure to support the demands placed
on it;
. a decline in the performance and reliability of the Internet as usage
grows;
. security and authentication concerns with respect to transmission over
the Internet of confidential information, such as credit card numbers,
and attempts by unauthorized computer users, so-called hackers, to
penetrate online security systems; and
. privacy concerns, including those related to the ability of websites to
gather information.
Our business would be harmed if efficient transmission of data over the
Internet is interrupted or does not continue to grow at the pace at which it
has grown recently.
We may become subject to litigation over privacy concerns.
There are several lawsuits pending against our competitors alleging, among
other things, that our competitors have unlawfully obtained and sold Internet
users' personal information. Further, the Federal Trade Commission has
commenced an inquiry concerning the collection and maintenance of information
about Internet users by companies. If we become involved in litigation over
privacy concerns, or if we become subject to a governmental investigation, our
management and financial resources would be diverted from our daily operations.
Further, any order or judgment that might be rendered against us could
significantly harm our ability to pursue our business strategies and may
deplete our resources. There is also a substantial risk that public perception
and approval of the use of information acquired through the Internet to engage
in commercial purposes, including targeted marketing, may deteriorate.
We may also face liability for defamation, negligence and copyright, patent
or trademark infringement as a result of targeted banner advertisements we
design or display for our clients.
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<PAGE>
Risks Related to Our Offering
We have broad discretion to use the proceeds from this offering and our use of
these proceeds may not yield a favorable return on your investment.
The net proceeds of this offering are not allocated for specific uses other
than:
. acquisition of domestic and international voter records;
. increasing our sales and marketing efforts;
. continuing our product development efforts; and
. working capital and general corporate purposes.
Thus, our management has broad discretion over how these proceeds will be
used and could spend the proceeds in a manner with which you may not agree. The
proceeds may not ultimately be invested in a manner that yields a favorable, or
any, return on your investment.
Our stock price may be volatile and you may not be able to sell your shares at
or above the price you paid for our common stock.
Our common stock has not been publicly traded, and an active trading market
may not develop or be sustained after this offering. You may not be able to
sell your shares at or above the price you paid for our common stock. The price
at which our common stock will trade after this offering is likely to be highly
volatile and may fluctuate substantially due to, among other things, one or
more of the following factors:
. actual or anticipated fluctuations in our operating results;
. changes in or our failure to meet investors' and securities analysts'
expectations;
. announcements of technological innovations;
. introduction of new products and services by us or our competitors;
. developments with respect to intellectual property rights;
. conditions and trends in the Internet and technology industries; and
. general market conditions.
We may become involved in securities class action litigation that could divert
our management's attention.
The stock market has from time to time experienced significant price and
volume fluctuations that have affected the market price for the common stock of
technology companies, particularly companies conducting business on the
Internet. These broad fluctuations may cause the market price of our common
stock to decline. In the past, following periods of volatility in the market
price of a particular company's securities, securities class action litigation
has often been brought against the company. We may become involved in this type
of litigation in the future. Litigation is often expensive and diverts
management's attention and resources, which could harm our ability to execute
our business plan.
Future sales of our common stock may depress our stock price.
Sales of a substantial number of shares of our common stock in the public
market after this offering or after the expiration of contractually or legally
required holding periods could cause the market price of our common stock to
decline. After this offering, we will have approximately shares of
common stock outstanding. All of the shares sold in this offering will be
freely tradable. The remaining shares of common stock outstanding after
this offering are subject to contractual lock-ups agreements that prohibit the
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sale of shares for 180 days after the date of this prospectus. Immediately
after the expiration of the 180-day period, shares that will be
outstanding immediately after this offering will become available for sale and
shares will become available for sale at various times thereafter upon
the expiration of one-year holding periods.
Purchasers of our common stock will suffer immediate and substantial dilution.
As of December 31, 1999, we had a negative book value of $0.67 per share.
Purchasers of our common stock in this offering will suffer immediate dilution
of $ per share in the pro forma net tangible book value per share of
common stock, based on an initial public offering price of $ per share.
Purchasers will also experience additional dilution upon the exercise of
outstanding stock options. The initial public offering price is expected to be
substantially higher than the book value per share of our common stock. Some
elements of our market value do not originate from measurable transactions.
Therefore, there is not a corresponding rise in book or historical accounting
value for our rise in market value, if any. Examples of these elements include:
. the perceived value associated with our strategic relationships;
. the perceived growth prospects of our markets; and
. our perceived competitive position within the market.
We do not intend to pay dividends.
We have never declared or paid any cash dividend on our capital stock, and we
do not intend to pay dividends in the foreseeable future. We intend to invest
our future earnings, if any, to fund our growth. Therefore, you will not
receive any funds without selling your shares. You may not receive a return on
your investment when and if you sell your shares and you may lose all or a
substantial portion of your investment upon sale of your shares.
Our revenue could be adversely affected if we suffer computer problems as a
result of the year 2000 problem or if clients delay implementation of our
products and services as a result of year 2000 problems.
We have not experienced any year 2000 problems and have not been informed of
any material year 2000 problems by our clients or vendors. However, the
performance of our products may be impaired by the existence of any
undiscovered year 2000 problems with our system or one of our client's systems.
Although we cannot control the year 2000 compliance of our clients and their
third party vendors, we may still be subject to claims and liability because
our products provided incorrect data. These claims could divert our resources,
and we may not have adequate commercial insurance to cover these claims.
Further, we may not be able to resolve year 2000 problems that we may discover
in our products before we suffer losses.
In 1999, many companies devoted substantial financial resources to testing
and fixing systems for year 2000 problems. Some companies may delay
installation or implementation of new systems or applications to avoid having
to perform additional year 2000 tests on their existing systems. If these
companies also defer purchases of our products until their year 2000 problems
have been tested or resolved, it will reduce our sales in the new term, which
may harm our business.
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions Prospectus Summary, Risk
Factors, Management's Discussion and Analysis of Financial Condition and
Results of Operations, Business and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including, among
other things:
. implementing our business strategy;
. attracting and retaining clients;
. obtaining and expanding market acceptance of the products and services
we offer;
. forecasts of Internet usage and the size and growth of relevant markets;
and
. competition in our market.
In some cases, you can identify forward-looking statements by terminology
such as may, will, should, could, predicts, potential, continue, expects,
anticipates, future, intends, plans, believes, estimates and similar
expressions. These statements are based on our current beliefs, expectations
and assumptions and are subject to a number of risks and uncertainties. Actual
results, levels of activity, performance, achievements and events may vary
significantly from those implied by the forward-looking statements. A
description of risks that could cause our results to vary appears under the
caption Risk Factors and elsewhere in this prospectus. These forward-looking
statements are made as of the date of this prospectus, and except as required
under applicable securities law, we assume no obligation to update them or to
explain the reasons why actual results may differ.
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USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of common stock
offered by us are estimated to be between $ and $ or $ and $ if the
underwriters' over-allotment option is exercised in full. This assumes the
deduction of the underwriting discounts and commissions and the estimated
offering expenses payable by us based on the initial public offering price of
between $ and $ per share.
We intend to use the net proceeds for:
. acquiring domestic and international voter records;
. increasing our sales and marketing efforts;
. increasing our product development efforts; and
. working capital and general corporate purposes.
We have not yet determined the expected expenditures and thus cannot estimate
the amounts to be used for each of these purposes. The actual amounts and
timing of these expenditures will vary significantly depending on a number of
factors, including the amount of cash used in or generated by our operations
and the market response to the introduction of any new product or service
offerings. In addition, we may use a portion of the net proceeds of this
offering to acquire or invest in businesses, products, services or technologies
complementary to our current businesses, through mergers, acquisitions or joint
ventures. However, we have no specific agreements or commitments and are not
currently engaged in any negotiations with respect to such transactions.
Accordingly, our management will retain broad discretion as to the allocation
of the net proceeds of this offering. We intend to invest the net proceeds of
this offering in short-term, interest-bearing investment grade securities until
they are used.
DIVIDEND POLICY
We have never declared or paid dividends on shares of our capital stock and
do not anticipate paying any dividends in the foreseeable future. We currently
intend to retain our earnings, if any, for the development of our business.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on an as adjusted basis giving effect to:
. conversion of all shares of our Series A Preferred Stock
outstanding as of December 31, 1999 into 1,272,727 shares of
common stock, which will occur upon the closing of this offering;
. the issuance of 112,050 shares of common stock from the conversion
of our Notes payable-related parties into 112,050 shares of our
Series A Preferred Stock, which will convert into common stock
upon the closing of this offering; and
. sale of shares of our common stock in this offering,
assuming an offering price of $ per share, after deducting
underwriting discounts and commissions and our estimated offering
expenses of $ million.
The presentation below does not include 423,047 shares of common stock
issuable upon exercise of stock options outstanding as of December 31, 1999.
You should read this information together with our financial statements and
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------
Actual As Adjusted
------------- --------------
(In thousands, except
share and per share
data)
<S> <C> <C>
Convertible preferred stock:
Series A Preferred Stock, $0.001 par value,
1,400,000 shares authorized, 1,272,727 shares
issued and outstanding, actual; no shares
authorized, issued and outstanding, as adjusted.. $ 3,500 $ --
------------- ---------
Stockholders' equity:
Common stock, $0.001 par value, 10,000,000 shares
authorized;
3,000,000 shares issued and outstanding, actual;
shares issued and outstanding, as
adjusted........................................ 3 --
Additional paid-in capital........................ 410 --
Accumulated deficit............................... (2,429) --
------------- ---------
Total stockholders' equity (deficit).............. (2,016) --
------------- ---------
Total capitalization.............................. $ 1,484 $ --
============= =========
</TABLE>
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DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $ , or $ per share of common stock. We have determined pro
forma net tangible book value per share by dividing pro forma stockholder's
equity by pro forma shares of common stock outstanding as of December 31,
1999. The preceding pro forma information gives effect to the conversion of all
shares of convertible preferred stock outstanding as of the date of this
prospectus into 1,272,727 shares of common stock, and the issuance of 112,050
shares of common stock from the conversion of Notes payable-related parties
into 112,050 shares of Series A Preferred Stock, which will convert into common
stock upon the closing of this offering.
If we sell shares of our common stock in this offering at an initial
public offering price of $ per share and assume our receipt of the
estimated net proceeds therefrom, our pro forma adjusted net tangible book
value as of December 31, 1999 would have been approximately $ million, or
$ per share. These numbers represent an immediate increase in such net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Initial public offering price per share............................... $
Pro forma net tangible book value as of December 31, 1999............. $
Increase per share of common stock attributable to the offering(1)....
---
Pro forma net tangible book value after the offering(1)...............
----
Net tangible book value dilution to new investors(1).................. $
====
</TABLE>
- --------
(1) Does not include options to purchase our common stock outstanding as of
December 31, 1999. As of December 31, 1999, there were options outstanding
to purchase a total of 423,047 shares of common stock with a weighted
average per share exercise price of $2.13 per share. To the extent that
any of the options are exercised, there would be further dilution to new
investors.
The following table summarizes on a pro forma basis as of December 31, 1999,
the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors, at an assumed initial offering price of $
per share and without giving effect to the underwriting discount and estimated
offering expenses.
<TABLE>
<CAPTION>
Total Average
Shares Purchased Consideration Price
----------------- ------------------ Per
Number Percent Amount Percent Share
--------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 4,272,727 % $3,575,000 % $0.84
New investors...................
--------- ----- ---------- ----- -----
Total......................... 100.0% $ 100.0%
========= ===== ========== =====
</TABLE>
24
<PAGE>
SELECTED FINANCIAL DATA
The selected data presented below under the captions Selected Statement of
Operations Data and Selected Balance Sheet Data for, and as of the end of, each
of the years in the five-year period ended December 31, 1999, are derived from
our financial statements. Our financial statements as of December 31, 1997 and
1998 and for each of the years then ended have been audited by Keller Bruner &
Company, LLP, independent certified public accountants. Our financial
statements as of December 31, 1999 and for the year then ended have been
audited by KMPG LLP, independent certified public accountants. The financial
statements as of December 31, 1998 and 1999, and for each of the years in the
three-year period ended December 31, 1999, and the reports thereon, are
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ---------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Products............... $ 1,397,821 $2,175,317 $1,187,812 $1,715,426 $ 2,815,431
Services............... 277,545 358,054 530,476 812,914 1,097,132
----------- ---------- ---------- ---------- -----------
Total revenue.......... 1,675,366 2,533,371 1,718,288 2,528,340 3,912,563
----------- ---------- ---------- ---------- -----------
Cost of revenue:
Products............... 518,019 590,876 290,966 555,410 987,220
Services............... 126,536 162,848 100,420 123,564 262,844
----------- ---------- ---------- ---------- -----------
Total cost of revenue.. 644,555 753,724 391,386 678,974 1,250,064
----------- ---------- ---------- ---------- -----------
Gross profit............ 1,030,811 1,779,647 1,326,902 1,849,366 2,662,499
----------- ---------- ---------- ---------- -----------
Operating expenses:
General and
administrative........ 1,976,250 1,469,097 856,905 1,253,200 2,654,033
Sales and marketing.... 527,013 757,633 817,697 1,195,237 1,633,054
Product development.... 210,839 243,412 116,313 93,143 398,097
----------- ---------- ---------- ---------- -----------
Total operating
expenses.............. 2,714,102 2,470,142 1,790,915 2,541,580 4,685,184
----------- ---------- ---------- ---------- -----------
Loss from operations.... (1,683,291) (690,495) (464,013) (692,214) (2,022,685)
Other income (expense),
net.................... 2,039,569 71,076 65,496 634,544 75,178
Interest income......... 12,403 21,426 19 -- 40,199
Interest expense........ (9,956) (13,137) (24,506) (23,698) (7,263)
----------- ---------- ---------- ---------- -----------
Loss before income
taxes.................. (358,725) (611,130) (423,004) (81,368) (1,914,571)
Provision for (benefit
from) income taxes..... 39,310 (209,767) (173,909) -- --
----------- ---------- ---------- ---------- -----------
Net income (loss)....... $ 319,415 $ (401,363) $ (249,095) $ (81,368) $(1,914,571)
=========== ========== ========== ========== ===========
Basic and diluted net
income (loss) per
common share........... $ 0.11 $ (0.13) $ (0.08) $ (0.03) $ (0.64)
=========== ========== ========== ========== ===========
Shares used to compute
basic and diluted net
loss per common share.. 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000
=========== ========== ========== ========== ===========
Pro forma unaudited
basic and diluted net
loss per common share.. $
===========
Shares used to compute
pro forma unaudited
basic and diluted net
loss per common share..
===========
<CAPTION>
As of December 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ -- $ -- $ 24,444 $ 44,399 $ 2,404,956
Working capital
(deficit).............. 188,535 (246,272) (438,385) (530,018) 1,296,416
Total assets............ 1,564,824 554,210 532,358 561,665 3,801,617
Deferred revenue........ 79,301 118,596 194,591 342,648 771,505
Total liabilities....... 1,256,124 662,799 890,042 1,000,717 2,317,650
Convertible preferred
stock.................. -- -- -- -- 3,500,000
Stockholders' equity
(deficit).............. 308,700 (108,589) (357,684) (439,052) (2,016,033)
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our
financial statements and related notes included elsewhere in this prospectus.
The discussion in this prospectus contains certain forward-looking statements
that involve risks and uncertainties. The principal factors that could cause or
contribute to differences in our actual results are discussed in the section
titled Risk Factors.
Overview
We are a technology company that provides information, products and services
to political campaigns, advocacy organizations and commercial enterprises. Over
the past ten years, we have compiled a large database of over 145 million
registered voters in the United States. This database is our core strategic
asset. We believe this database would be very difficult to replicate because
many voter jurisdictions have different authorization requirements and
restrictions on gathering and disclosure of voter records. We use our database
to provide campaign management and Internet marketing and to facilitate online
fundraising. We also have created a database that contains records of over 37
million voters in the United Kingdom and a database that contains records from
departments of motor vehicles throughout the United States. We believe that we
are an industry leader in providing campaign management products and services
and that we have significant knowledge and expertise in this field.
To date, we have generated the majority of our revenue from our software
products, Campaign Manager and PAC Manager, and our database products,
consisting principally of information from voter records provided to candidates
running for public office or political action committees, or PACs. Our Campaign
Manager software and PAC Manager software are designed to help campaigns and
PACs manage their constituent and contributor lists and comply with reporting
requirements imposed by the Federal Election Commission, or FEC, or state
reporting agencies. For clients not requiring customized software, we deliver
our software products on a CD, and recognize revenue upon delivery. For clients
requiring customized software, we recognize revenue based on a percentage of
completion. We also provide software maintenance services and telephone support
services related to the software. Our customer support contracts typically have
a one-year term and revenue is recognized ratably over the term of the
contract.
Campaign and advocacy organizations extract a demographically, geographically
or politically defined list of potential contributors or constituents from our
databases. We provide this information through one of three means, by accessing
information on our website, www.voterlistsonline.com, by modem download through
a file transfer protocol, or by delivery of a CD. We recognize revenue at the
time of delivery.
During 1999, we developed and introduced two new services that use our
registered voter file database: CampaignContribution.com and targeted Internet
marketing. These new services did not generate significant revenue during 1999.
We anticipate devoting substantial resources to increase sales for each of
these services.
CampaignContribution.com permits campaign and advocacy organizations to
process contributions online. The products provide for acceptance, processing,
authentication, analysis and disclosure of contributions made online. We
process the contribution on behalf of the donee and remit the contribution, net
of our fees, to the donee. For each contribution, we charge a fee equal to a
percentage of the transaction, plus a set cost per transaction. We recognize
revenue based on only the fees charged to the donee.
Our targeted Internet marketing services permit our clients to target
potential constituents, based on demographic and geographic data. Our clients
typically sign contracts where the fee is calculated based upon the number of
impressions delivered. We recognize revenue based on delivery of impressions.
We have incurred net losses and negative cash flows for each of the past
three years. As of December 31, 1999, we had an accumulated deficit of $2.4
million. We had a net loss of $249,000 for the year ended
26
<PAGE>
December 31, 1997, $81,000 for the year ended December 31, 1998, and $1.9
million for the year ended December 31, 1999. We intend to continue to invest
in our technology and infrastructure, including significant investments in our
databases. We also intend to increase our expenditures relating to sales and
marketing and product development activities. As a result, we believe we will
continue to incur operating losses and negative cash flows from operations and
the rate at which these losses will be incurred may increase from the current
level.
Results of Operations
The following table sets forth statement of operations data as a percentage
of total revenue for the periods indicated. The historical results are not
necessarily indicative of results to be expected for any future period:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue:
Products.................................................. 69% 68% 72%
Services.................................................. 31% 32% 28%
---- ---- ----
Total revenue........................................... 100% 100% 100%
Cost of revenue:
Products.................................................. 17% 22% 25%
Services.................................................. 6% 5% 7%
---- ---- ----
Total cost of revenue................................... 23% 27% 32%
Gross margin:
Products.................................................. 52% 46% 47%
Services.................................................. 25% 27% 21%
---- ---- ----
Total gross margin...................................... 77% 73% 68%
Operating expenses:
General and administrative................................ 50% 50% 68%
Selling and marketing..................................... 48% 47% 42%
Product development....................................... 7% 4% 10%
---- ---- ----
Total operating expenses................................ 105% 101% 120%
</TABLE>
Years Ended December 31, 1998 and 1999
Revenue. Total revenue, which consists of products revenue and services
revenue, increased 55% from $2.5 million for the year ended December 31, 1998
to $3.9 million for the year ended December 31, 1999.
Products revenue increased 64%, from $1.7 million for the year ended December
31, 1998 to $2.8 million for the year ended December 31, 1999. This increase
was attributable primarily to purchases by the NRA of voter data in the amount
of $807,000. Additional increases were attributable to a new release of multi-
user versions of our Campaign Manager and PAC Manager software products and an
overall increase in usage of our registered voter files due to an increased
number of jurisdictions from which voter records were acquired.
Services revenue increased 35% from $813,000 for the year ended December 31,
1998 to $1.1 million for the year ended December 31, 1999. This increase was
attributable primarily to an increase in the number of software support
contracts signed during 1999.
Cost of revenue. Cost of revenue consists of cost of products revenue and
cost of services revenue. Cost of products revenue consists primarily of
external costs associated with acquisition, enhancements, updates and
maintenance of voter records, as well as personnel costs associated with
programming and customization of our software. Cost of services revenue
consists primarily of personnel costs associated with our customer support
department.
27
<PAGE>
Total cost of revenue increased 84% from $679,000 for the year ended December
31, 1998 to $1.3 million for the year ended December 31, 1999.
Cost of products revenue increased 78% from $555,000 for the year ended
December 31, 1998 to $987,000 for the year ended December 31, 1999. This
increase was attributable primarily to significant increases in the number of
voter records in our database. Additional increases were due to increases in
the number of personnel and increased compensation costs associated with data
acquisition labor. We expect future increases in our data acquisition costs
related to both the acquisition of the data and the labor associated with the
department.
Cost of services revenue increased 113% from $124,000 for the year ended
December 31, 1998 to $263,000 for the year ended December 31, 1999. This
increase was attributable primarily to increases in personnel costs expended to
significantly improve the capabilities of our customer support department. We
expect costs associated with our customer support department to increase in
absolute dollars and may increase as a percentage of revenue.
Gross margin. Total gross margin percentage decreased from 73% for the year
ended December 31, 1998 to 68% for the year ended December 31, 1999. Products
gross margin percentage decreased from 68% for the year ended December 31, 1998
to 65% for the year ended December 31, 1999. This decrease was attributed
primarily to increases in our data acquisition costs. Services gross margin
percentage decreased from 85% for the year ended December 31, 1998 to 76% for
the year ended December 31, 1999. This decrease was attributed to a substantial
increase in the number of our personnel in our customer support department.
General and administrative expense. General and administrative expense
consists primarily of management and support personnel expenses as well as
facilities and professional fees.
General and administrative expense increased 112% from $1.3 million for the
year ended December 31, 1998 to $2.7 million for the year ended December 31,
1999. This increase was attributable primarily to changes in corporate
infrastructure including increased headcount and facilities. We expect general
and administrative expense to continue increasing as we continue to build and
maintain our corporate infrastructure.
Selling and marketing expense. Selling and marketing expense consists
primarily of compensation costs associated with our sales and marketing
personnel and associated benefits. Additional expenses include sales
commissions and bonuses and advertising and promotions expense.
Selling and marketing expense increased 37% from $1.2 million for the year
ended December 31, 1998 to $1.6 million, for the year ended December 31, 1999.
This increase was attributable primarily to increases in headcount and
commission expense due to increased sales and expenses associated with
producing marketing materials. We expect sales and marketing expense to
continue increasing in absolute dollars.
Product development expense. Product development expense consists primarily
of employee compensation costs and related benefits associated with the
development of our new products.
Product development expense increased 327% from $93,000 for the year ended
December 31, 1998 to $398,000 for the year ended December 31, 1999. This
increase was attributable primarily to an increase in our headcount for new
product and services development. We believe that a significant level of
product development is required to remain competitive, and expect that the
dollar amount of these expenses will continue to increase in future periods.
Equity based compensation expense. We recorded equity-based compensation
expense of $256,000 associated with options granted during 1999. We did not
incur similar expense in 1998. We expect to incur equity-based compensation
expense associated with the issuance of options with an exercise price less
than market value from 2000 to 2005. This expense is allocated among the
various components of cost of revenue and operating expenses.
28
<PAGE>
Other income. During the year ended December 31, 1998, we received a cash
payment from a legal settlement in the amount of $650,000 which we used to
supplement our cash flow from operations.
Interest income and interest expense. Net interest changed $57,000 from
$24,000 in net interest expense for the year ended December 31, 1998 to $33,000
in net interest income for the year ended December 31, 1999. This change was a
result of increases in cash available for short-term investments, which
resulted principally from the sale of our Series A Preferred Stock in September
1999. Interest expense includes interest costs incurred on personal loans made
by our stockholders.
Income taxes. We did not pay income taxes during the years ended December 31,
1998 and 1999. As of December 31, 1999, we had a net operating loss
carryforwards of approximately $1.9 million that expire through 2019.
Years Ended December 31, 1997 and 1998
Revenue. Total revenue increased 47% from $1.7 million for the year ended
December 31, 1997 to $2.5 million for the year ended December 31, 1998.
Products revenue increased 44% from $1.2 million for the year ended December
31, 1997 to $1.7 million for the year ended December 31, 1998. This increase
was attributable primarily to a phase out of our non-Windows based products,
which necessitated that clients adopt updated versions of our Campaign Manager
and PAC Manager software, and an increase in the number of jurisdictions for
which we offered voter file data.
Services revenue increased 53% from $530,000 for the year ended December 31,
1997 to $813,000 for the year ended December 31, 1998. This increase was
attributable to an increase in the number of software contracts.
Cost of revenue. Total cost of revenue increased 73% from $391,000 for the
year ended December 31, 1997 to $679,000 for the year ended December 31, 1998.
Cost of products revenue increased 91% from $291,000 for the year ended
December 31, 1997 to $555,000 for the year ended December 31, 1998. This
increase was attributable primarily to significant increases in the number of
voter records in our database. Additional increases were due to increases in
the number of personnel and increased compensation costs associated with data
acquisition labor.
Cost of services revenue increased 23% from $100,000 for the year ended
December 31, 1997 to $124,000 for the year ended December 31, 1998. This
increase was attributable primarily to increases in personnel costs.
Gross margin. Total gross margin percentage decreased from 77% for the year
ended December 31, 1997 to 73% for the year ended December 31, 1998. Products
gross margin percentage decreased from 76% for the year ended December 31, 1997
to 68% for the year ended December 31, 1998. This decrease was attributable
primarily to increases in our data acquisition costs. Services gross margin
percentage increased from 81% for the year ended December 31, 1997 to 85% for
the year ended December 31, 1998. This increase was attributable to increases
in the number of support contracts.
General and administrative expense. General and administrative expense
increased 46% from $857,000 for the year ended December 31, 1997 to $1.3
million for the year ended December 31, 1998. This increase was attributable
primarily to changes in our corporate infrastructure including increasing
personnel and expenses related to our facilities.
Selling and marketing expense. Selling and marketing expense increased 46%
from $818,000 for the year ended December 31, 1997 to $1.2 million for the year
ended December 31, 1998. The increase was attributable primarily to increases
in our sales and marketing headcount and increases in bonuses and commissions.
29
<PAGE>
Product development expense. Product development expense decreased 20% from
$116,000 for the year ended December 31, 1997 to $93,000 for the year ended
December 31, 1998. This decrease was attributable primarily to a decline in the
average headcount in this department during the year.
Interest income and expense. Net interest expense decreased 3% from $25,000
for the year ended December 31, 1997 to $24,000 for the year ended December 31,
1998.
Income taxes. We did not pay income taxes during the years ended December 31,
1997 and 1998. As of December 31, 1998, we had a net operating loss
carryforwards of approximately $44,000 that will expire in 2018.
Liquidity and Capital Resources
We had working capital of $1.3 million as of December 31, 1999. As of
December 31, 1999, we had $2.4 million in cash and cash equivalents consisting
of bank deposits and money market funds.
Historically, our cash requirements have been financed through a combination
of cash flow from operations, $3.5 million received upon the sale of Series A
Preferred Stock in September 1999, and loans from our principal stockholders.
Additionally, we have supplemented our cash from operations by receipt of two
legal settlements of approximately $2.0 million in 1995 and $650,000 in 1998.
As of December 31, 1999, we had accounts receivable of $1.0 million. Of this
amount, approximately $500,000 was attributable to the sale of our voter
records to a single client and was collected after the year end. The remaining
$500,000 is attributable to sales of our campaign products and services to
candidates, including candidates for the 1999-2000 presidential elections. Some
of these candidates rely on matching funds from the federal government in order
to pay the expenses of their campaigns. We expect to collect all or
substantially all of these accounts receivable in 2000; however, the terms of
the collection of these accounts may adversely affect our cash flow.
The Series A Preferred Stock will automatically convert to 1,272,727 shares
of common stock upon the closing of an initial public offering that raises at
least $15.0 million in aggregate proceeds.
In September 1999, our principal stockholders converted deferred compensation
and other working capital advances into a convertible promissory note in the
amount of $308,000. Concurrent with the closing of this offering, this note
will be converted into 112,050 shares of common stock.
For the year ended December 31, 1997, cash used by operations was $7,000,
primarily attributable to net losses from operations of $249,000 and an
increase in accounts receivable of $164,000, partially offset by a decrease in
income tax refund receivable of $153,000 and an increase in accrued expenses of
$103,000. For the year ended December 31, 1998, cash provided by operations was
$116,000, primarily attributable to an increase in deferred revenue of $148,000
and a decrease in income tax receivable of $94,626, partially offset by an
increase in prepaid expense on current assets of $101,000, a decrease in
accounts payable of $96,000 and a net loss of $81,000. For the year ended
December 31, 1999, cash used by operations was $1.1 million, primarily
attributable to a net loss from operations of $1.9 million and an increase in
accounts receivable of $900,000, partially offset by increases in accounts
payable of $590,000, deferred revenue of $429,000 and accrued expense of
$301,000.
Our investing expenditures for our business have included capital
expenditures totaling $12,000 for the year ended December 31, 1997, $115,000
for the year ended December 31, 1998 and $149,000 for the year ended December
31, 1999. These capital expenditures were incurred primarily to acquire
computer hardware and software for our operations and internal use, as well as
to expand our existing and newly leased space to accommodate increases in our
employee headcount. We expect that as our client base and employee base grow,
we will require additional computer hardware and software and we will incur
additional expenses in leasehold improvements to accommodate existing and
future leased spaces.
30
<PAGE>
For the year ended December 31, 1997, cash provided by financing activities
was $43,000, attributable primarily to proceeds from loans from stockholders,
partially offset by repayments on loans from stockholders. For the year ended
December 31, 1998, cash provided by financing activities was $18,000,
attributable primarily to proceeds from loans from stockholders, partially
offset by repayments on loans from stockholders. For the year ended December
31, 1999, cash provided by financing activities was $3.6 million, attributable
primarily to proceeds from the issuance of Series A Preferred Stock of $3.5
million and proceeds from loans from stockholders of $196,000, partially offset
by repayments on loans from stockholders of $129,000.
We intend to invest the net proceeds of this offering in short-term,
investment grade securities. We believe that the net proceeds from this
offering, together with cash on hand, cash equivalents and borrowings, will be
sufficient to meet our operating and capital requirements for at least the next
18 months. If our plans change due to changes in market conditions, competitive
factors or new opportunities that may become available in the future, or if our
assumptions change or prove to be inaccurate, or if the net proceeds of this
offering or our cash flows prove to be insufficient to finance our growth
strategy, we may be required to seek additional financing. Furthermore, we may
need to seek additional financing to expand our operations in the future.
Year 2000 Issues
We currently are not aware of any year 2000 problem in any of our critical
systems and products. However, the success to date of our year 2000 efforts
cannot guarantee that a year 2000 problem affecting third parties upon which we
rely will not become apparent in the future and interfere with our operations
or otherwise harm our business.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The new standard establishes accounting and reporting
standards for derivative instruments embedded in other contracts and for
hedging activities. This statement, as amended, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company does
not expect SFAS No. 133 to have a material affect on its financial position or
results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, or FIN 44, Accounting for Certain Transactions Involving
Stock Compensation. FIN 44 further defines the accounting consequence of
various modifications to the terms of a previously fixed stock option or award
under APB Opinion No. 25. FIN 44 becomes effective on July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occur after December 15, 1998
or January 12, 2000. We have not completed our evaluation of the impact of FIN
44 on our financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. This
SAB expresses the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Registrants can
apply the accounting and disclosure requirements of this SAB retrospectively,
or may report a change in accounting principle no later than the first fiscal
quarter of the fiscal year beginning after December 15, 1999. The Company does
not expect the application of this SAB to have a material impact on the
Company's financial statements.
31
<PAGE>
BUSINESS
Overview
We are a technology company that provides information, products and services
to political campaigns, advocacy organizations and commercial enterprises. Over
the past ten years, we have compiled a large database of over 145 million
registered voters in the United States. This database is our core strategic
asset. We believe this database would be very difficult to replicate because
many voter jurisdictions have different authorization requirements and
restrictions on gathering and disclosure of voter records. We use our database
to facilitate campaign management, Internet marketing and online fundraising.
We also have created a database that contains records of over 37 million voters
in the United Kingdom and a database with records from departments of motor
vehicles. We believe that we are an industry leader in providing campaign
management products and services and that we have significant knowledge and
expertise in this field.
Our products and services are designed to service the following three
markets:
. political campaigns or parties on the federal, state and local level;
. advocacy organizations, including political action committees, or PACs,
non-profit organizations and issue-oriented organizations; and
. commercial enterprises.
As of April 30, 2000 our clients include over 50 U.S. Senators, over 200
members of the U.S. House of Representatives, approximately 46 Democratic and
Republican state parties and numerous national advocacy groups and consulting
firms. Furthermore, of the top 50 Senate and top 50 House of Representative
fundraisers for the 1999-2000 election cycle, as recorded by the Federal
Election Committee, or FEC, as of May 2000 72% of the Senate candidates and 66%
of the House candidates used at least one of our products or services.
Our clients use our products and services to reach their audiences based on
demographic, geographic or political criteria. Our campaign and advocacy
clients use our software products to maintain lists of voters, contributors,
prospective contributors, volunteers, members of the press and community
organizers, and to comply with the reporting regulations of the FEC and state
government agencies. Our targeted marketing clients use our products and
services to combine our databases and software to reach potential constituents
and supporters, generate campaign awareness and solicit contributions through
the Internet, telephone, mail or door-to-door efforts.
Industry Background
The importance of sophisticated databases to facilitate communication through
the Internet. The Internet has rapidly emerged as an important medium for
facilitating communication, conducting commerce and gathering and disseminating
information. International Data Corporation, or IDC, estimates that the number
of worldwide Internet users exceeded 142 million in 1998 and will grow to
approximately 502 million by 2003. IDC also estimates that worldwide commerce
over the Internet will grow from approximately $50.4 billion in 1998 to
approximately $1.3 trillion by 2003.
As Internet usage has grown, the need for sophisticated databases to manage
vast quantities of mission-critical information has significantly increased.
These databases are used for various purposes, including:
. targeted Internet and direct marketing;
. authenticating identity for e-commerce transactions;
. obtaining prospect lists online; and
. electronic directory assistance or reference services.
32
<PAGE>
A major challenge for organizations building databases is the gathering and
maintaining of sufficient, valuable and accurate information. Building and
maintaining comprehensive and accurate databases often requires a significant
investment of resources and may require many years to complete. Organizations
spend millions of dollars each year to acquire and maintain data on residents
of the United States and other countries from traditional sources, including
direct mail responses, telephone surveys, warranty cards and product
information cards, as well as the Internet. For example, many organizations
incur substantial advertising costs to attract visitors to their websites in
order to build and enhance their database of user profiles. The information
gathered through traditional means or through the Internet may be incomplete or
inaccurate. Further, many organizations may only be able to obtain information
for limited demographic segments or geographic regions. Organizations also
incur costs compiling this data into usable formats and developing or
configuring sophisticated software to manage their data.
Ability of technology to facilitate management of campaign and advocacy
organizations. Campaign and advocacy organizations are increasingly adopting
new technologies to organize and communicate with constituents and supporters.
The operation of campaign and advocacy organizations requires intensive efforts
involving both professionals and volunteers who use large quantities of data.
As the cost of communicating with constituents and supporters increases, these
campaign and advocacy organizations are under increasing pressure to use
information management tools and accurate databases to affect the outcome of
elections or influence legislation. Comprehensive and accurate databases enable
campaign and advocacy organizations to concentrate their communication efforts
on those constituents able, and most likely, to support their efforts.
With the increasing cost of campaigns and the proliferation of issues, many
organizations now conduct fundraising efforts and operate on a year-round
basis. These organizations raise funds for a variety of purposes, including:
. media relations;
. lobbying activities;
. targeted constituent outreach programs; and
. additional fundraising.
Many of these organizations are seeking more efficient means of attracting
and identifying potential supporters, soliciting funds and reporting
information about their contributors to federal, state and local governments.
At the federal and state levels, these organizations are increasingly regulated
and are required by law in most jurisdictions to disclose the amount of
receipts and disbursements, the amount and source of loans and the amount,
source, employer and occupation of contributors.
Advantages of targeted Internet marketing. In addition to campaign and
advocacy organizations, commercial entities are also seeking new technologies
to lower marketing costs and increase marketing effectiveness. To do this, many
of these entities are increasingly using the Internet as a more effective and
lower cost alternative to traditional media and for providing targeted
marketing to potential client. Further, targeted Internet marketing enables
entities to more easily generate public awareness of products, services or
particular issues within specific demographic, geographic or political
segments. Unlike traditional media, the Internet facilitates immediate feedback
that enables these entities to continually optimize the effectiveness of their
marketing and advertising strategies and evaluate the return on their
expenditures. We believe that targeted Internet marketing has the potential to
be more cost-effective, as well as easier to develop and implement, than
traditional direct marketing or advertising campaigns.
Our Solution
Our databases, products, services and technology provide campaign and
advocacy organizations, regardless of party affiliation, with campaign
management, targeted Internet marketing, online fundraising and voter
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authentication solutions. Our software is designed to extract and manipulate
information from our databases about specific population demographics. Our
clients include major political candidates, as well as advocacy groups, non-
profit organizations and direct marketing firms.
Our databases. Our databases, which we regard as our key assets, have been
built and maintained over the past ten years and contain over 145 million
domestic voter records, 37 million voter records from the United Kingdom and an
aggregate of over 50 million departments of motor vehicle records in the United
States. The registered voter records can contain information provided by the
voter at the time of registration. In many jurisdictions this information may
include:
. date of birth;
. date of registration;
. residence address;
. political jurisdiction; and
. party affiliation.
Where available, we have enhanced the records in our databases to include
demographics not contained in the voter records. Examples of these enhancements
include:
. listed telephone number;
. estimated income level;
. ethnic surname; and
. homeowner or renter status.
Our comprehensive campaign management solutions. Our campaign and advocacy
clients use our software to manage their organizations by maintaining their
lists of voters, contributors, prospective contributors, volunteers, members of
the press and community organizers in one database. Our clients also use our
software to comply with FEC and state disclosure requirements. Technical
support is available at our website or by a toll-free call 24 hours a day,
seven days a week.
Clients use our databases and software to target potential constituents and
supporters, generate campaign awareness and solicit contributions through the
Internet, or by telephone, mail or door-to-door efforts. We provide campaign
and advocacy organizations with cost-effective tools to facilitate online
fundraising. Campaign and advocacy organizations wishing to drive traffic to
their websites, or to the website of a legislator they wish to influence, may
purchase banner advertisements directed to constituents nationally or just
those who reside in a particular state, congressional district or town.
Targeted Internet marketing. We are using our databases as a targeted
Internet marketing tool to allow our clients to reach their audience based on
demographic, geographic or political criteria. We believe that our targeted
marketing will increase clients' awareness and traffic flow to their websites
in a more cost-effective manner than alternative online advertising or
traditional media, such as mass mailings.
Strategy
Our goal is to become a leading provider of targeted Internet marketing and
to expand our position within the campaign and advocacy industries. We intend
to pursue our goal by the following actions:
Continue to enhance size and quality of our databases. We believe that we
have established one of the most comprehensive databases of voter records in
the United States. We intend to continue to enhance the size and quality of our
domestic databases by continuing to access domestic voter records, departments
of motor
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vehicle records and other records. We intend to continue to improve upon
already established relationships with various state and local agencies in
order to increase our efficiency in collecting and updating our voter records.
By combining our frequently updated database with new database technologies and
demographic targeting techniques, we believe that we will be able to offer our
clients increasingly effective and comprehensive methods for targeting their
intended audiences.
Increase applications for our databases. Our clients can use our products and
services to increase the efficiency of their marketing and fundraising efforts.
We intend to use our database technologies and expertise to expand our service
offerings to include targeted Internet marketing. By building relationships
with Internet Service Providers, or ISPs, Web portals and third party ad-
servers, we intend to assist our clients in increasing traffic to their
websites by using targeted banner ads to customize advertising efforts for
specific political, demographic and commercial segments. Further, we believe
that there are other attractive potential uses for the information contained in
our database. In addition to expanding our targeted Internet marketing in the
commercial context, these opportunities, where permitted by law, include
providing:
. government mandated age authentication for use by websites in need of a
verification tool for their user base, in order to protect children from
products or communications intended for adults;
. access to voter records online; and
. online directory assistance or reference services.
Expand the scope of our comprehensive fundraising solutions. We intend to
continue to provide our clients with an effective means of campaign and
advocacy fundraising by expanding the functionality of our campaign management
Internet and software solutions. Specifically, we intend to provide our clients
with solutions that more efficiently:
. target prospective contributors;
. accept, process, authenticate, analyze and disclose contributions
received through Internet, direct and telephone marketing efforts as
well as special events and PACs;
. manage their contributor and constituent response efforts;
. recruit volunteers and community members; and
. enhance their press and public relations activities.
Extend international databases. We intend to use our database technology and
expertise to offer our products and services on an international scale. We
recently acquired the voter records, or Electoral Roll, of the United Kingdom,
which consists of records of over 37 million persons. We intend to build our
international database by enhancing our United Kingdom records and acquiring
voter records from other countries. We have had discussions with possible
strategic partners in the following countries:
<TABLE>
<S> <C> <C>
. Australia . Italy . South Africa
. Austria . Japan . South Korea
. Canada . The Philippines . Spain
. France . Poland . Switzerland
. Germany . Russia
</TABLE>
We also plan to enter into discussions with potential partners in other
countries throughout Africa, Asia, Europe and South America in order to expand
our databases.
Broaden our sales and marketing efforts. To broaden our market coverage and
expand our service offerings, we intend to continue to grow our sales and
marketing organization to target new industries in the United States and
internationally. We intend to complement our current staff of trained
professionals with additional qualified personnel, including category sales and
international specialists. We intend to focus on
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expanding our current sales and marketing reach, cross-selling our software and
Internet solutions and developing our sales and marketing efforts for new
products and services.
Products and Services
We intend to continue to use our databases and installed client base to
expand the use of multiple products among our existing clients and to increase
the number of new clients using one or more of our integrated suites of
products. Our products and services, which are listed by revenue produced
during the year ending December 31, 1999, are described below:
Political software. We are a leading provider of political management
software to campaigns and PACs. Our Campaign Manager software is a database
management program that facilitates the creation and manipulation of lists of a
campaign's contributors, supporters, constituents, volunteers, press contacts
and organizers. The program maintains the information necessary to submit
disclosure reports that comply with the reporting requirements of federal and
state agencies, including the FEC. Our programs are continuously upgraded to
provide an interface between a campaign's database and popular word processing
and email programs, and keep abreast of changing campaign disclosure
regulations.
Our PAC Manager software is used to maintain supporter lists and comply with
disclosure requirements imposed by federal and state disclosure agencies. The
program is used by more than 50 PACs to file federal or state reports.
For the years ended December 31, 1997, 1998 and 1999, we derived revenue of
approximately 47%, 43% and 39% from the sale of our Campaign Manager and PAC
Manager software and related services.
Voter lists. We provide our clients with enhanced lists of registered voters,
in many formats, as requested. Users may order, pay for and obtain a list of
constituents at our website, www.voterlistsonline.com. Clients input specific
criteria related to the list of voters they wish to obtain directly at our
website and after performing a search and viewing the results, a client can
obtain the requested listing formatted as mailing labels, telephone sheets,
walk lists, a polling sample or a file suitable for import into many popular
software programs.
We collect data to enhance our database from several sources, including
Central Address Systems, Inc., or CAS. CAS provides us with the following data
enhancements:
. phone number verification;
. inferred income;
. presence of children; and
. homeowner or renter status.
This contract automatically renews annually unless notice of termination is
provided by either party. Our failure to continue to obtain data from this
source, if we cannot obtain it from an alternative source, may adversely affect
our ability to maintain our enhanced database.
For the years ended December 31, 1997, 1998 and 1999, we derived revenue of
approximately 18%, 24% and 47% from the sale of our voter files.
Online fundraising. CampaignContribution.com, or CC.com, facilitates
Internet-based contributions to campaign and advocacy organizations. CC.com
provides for the acceptance, processing, authentication, analysis and
disclosure of contributions made at organizations' websites.
Electronic directory assistance or reference services. Our
www.governmentrecords.com service facilitates access by users to our databases
of voter record information provided by state and local boards of
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elections and departments of motor vehicles. Our website acts as a search
engine to locate individuals or groups of records based on criteria specified
by the user. Our primary marketing efforts for this service are aimed at
government agencies, litigation support services, law firms and insurance
companies.
Targeted advertising. Using our database to customize their advertising
efforts, our clients can reach up to 150 million individuals nationwide,
representing an estimated 70% of the citizens of the United States age 18 or
older. We also use geographic and demographic attributes from our database to
deliver advertising to individuals online. We place our targeted banner
advertisements through Web portals and third party ad-servers. To date, we have
not received any material revenue from sales of our targeted marketing efforts.
We have a two-year contract with MatchLogic, Inc., a subsidiary of Excite,
under which we are obligated to purchase advertising space from MatchLogic and
match our database with MatchLogic's database for targeted advertising. In
connection with this agreement, we plan on selling the advertising space we
purchase to our clients for their banner advertisements. Under the terms of the
contract, either party may terminate the contract upon sixty days notice if the
other party materially breaches the terms of the contract, or if less than
$1,000,000 in advertisement fees are generated by October 2000. Further, under
terms of the agreement, MatchLogic can refuse to serve any ads we may sell. We
also have purchasing arrangements for ad-server space with one other third-
party ad-server; however, we do not have any contractual rights to receive ad-
space with this third-party server or any other third party ad-server, Web
portal or ISP. We depend on securing space in order to place any targeted
banner ads we might sell.
Emerging and Prospective Products and Services
Our knowledge of the market, client base and databases may give us the
opportunity to provide clients with additional products and services. These
products and services include:
Age authentication. With the consent of the individual involved, our
databases may be used for age authentication required by governmental agencies
or sought by commercial entities wishing to regulate access to their website.
For example, this age authentication tool could be used by a website to protect
children from products or communications intended for adults.
International campaign services. We have developed a database consisting of
voter records of the United Kingdom, and intend to expand our databases to
include voter records of other countries. A potential opportunity for using
these international databases exists in established and emerging democracies
where candidates and organizations are looking to implement U.S.-style
campaigns.
Web Wizard. We have developed a Web creation tool that facilitates the
creation of websites. The tool is designed to meet the needs of smaller
campaign and advocacy organizations that wish to establish a Web presence
without retaining a professional Web design firm.
Internet voting services. Although in its earliest stages, we are exploring
the possibility of providing new products and services to registrars and
secretaries of state to register and authenticate votes cast on the Internet.
Sales and Marketing
We sell our products and services in the United States and the United Kingdom
through our sales and marketing team. As of April 30, 2000, our sales and
marketing team consisted of 39 employees. Our sales and marketing team is
organized by industry and geographic region. We believe we have assembled a
sales and marketing staff that is well trained and experienced in their
industries, thus possessing the skills required to provide our clients with the
best software and targeted marketing solutions. We have developed an internal,
custom-made training program for all new sales representatives to ensure that
they are trained on our products and services and in their industries.
Our sales and marketing personnel use a variety of marketing programs to
generate demand for our products and services, build market awareness, develop
customer leads and establish business relationships. Our
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marketing activities include television ads, public relations, print
advertisements. Our direct marketing activities include seminars, trade shows,
special events, sponsorships and ongoing client communications programs. We
also have consulted with advertising experts to assist us in learning more
about our clients, through the use of focus groups within our clients'
industries. Based on the information gathered through these efforts, we tailor
marketing programs to address our clients' specific concerns and needs.
Clients
Our current principal client list consists of campaigns, advocacy and
commercial clients. As of April 30, 2000, our clients include over 50 U.S.
Senators, over 200 members of the U.S. House of Representatives, approximately
46 Democratic and Republican state parties and numerous national advocacy
groups and consulting firms. Furthermore, of the top 50 Senate and top 50 House
of Representative fundraisers for the 1999-2000 election cycle, as recorded by
the FEC as of May 2000, 72% of the Senate candidates and 66% of the House
candidates used at least one of our products or services.
For the year ending December 31, 1999, the NRA accounted for approximately
$807,000, or 21%, of our revenue. Other than described in the preceding
sentence, we have not derived ten percent or more of our revenue from any
single client in any fiscal year from 1997 to 1999.
Customer Service
Our software clients receive software maintenance and telephone support at no
additional charge for 90 days from the date the software is delivered to the
client. Thereafter, clients may choose to discontinue maintenance and telephone
support, purchase maintenance only, or purchase maintenance and telephone
support for a 12- or 24-month period.
Maintenance consists of all updates to the software including changes made to
keep the software in compliance with federal and state disclosure requirements.
Telephone support allows the client to call an 800 number and request
assistance 24 hours a day seven days a week.
We currently have more than 350 clients under maintenance and telephone
support, including federal and state candidates, PACs and associations, and
national, state or local political parties. Our clients can also access our
customer service department through our website www.aristotle.com and can email
support questions to [email protected].
As of April 30, 2000, we employed nine customer support representatives.
These representatives are trained in both the technical aspects of software,
data and networking and the political or organizational imperatives of our
clients. Representatives handle client telephone calls in a help-desk role and
are responsible for proactive customer service. They are also assigned a list
of PAC or state party clients or clients in a specific geographic region for
whom they serve as a primary contact, consultant and project manager. Clients
call the help-desk for assistance with day-to-day questions or problems. If a
problem or concern escalates, it is transferred to the representative
responsible for that client.
Product Development
Based upon client feedback, competition and market analysis, our Internet
services product group determines functions and specifications for future
Internet-based services and enhancements to our current services. Our product
development group develops these new services and enhances existing services.
We have developed a managed release process for our Internet and software
products to assist clients in the adoption of new product releases. This
process includes testing and evaluating revisions, updating online and paper
documentation to include new features, training customer support personnel and
notifying and training customers.
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Our product development department updates our software on a continuous
basis. The software changes include updates to incorporate new FEC and state
reporting requirements and enhancements to product features and performance. As
of April 30, 2000, our product development group consisted of 20 full time
employees. For the year ended December 31, 1999, we spent approximately
$398,000 on product development activities.
Government Regulation and Privacy Concerns
We are subject to extensive government regulation, including:
Federal regulation of databases. Our publication of departments of motor
vehicle records is regulated by the Drivers Privacy Protection Act of 1994, or
DPPA. The DPPA restricts our clients' use of this data to specific uses,
including government use, and requires us to keep specific records of our sale
of this data. The Federal Election Campaign Act of 1974 and FEC regulations
prohibit the use of data regarding federal contributions that we publish for
solicitation or other business purposes.
State regulation of databases. Our publication of voter lists is regulated by
the laws of the jurisdictions from which these records are obtained. While
jurisdictions in which approximately one-half of the registered voters in the
United States reside do not limit the use of voter records, the remaining
jurisdictions generally limit the use to government and political purposes.
Further, access to the voter lists is restricted in a small number of
jurisdictions.
Our publication of departments of motor vehicle records is subject to the
laws of the states from which the records are obtained. Many of these state
laws restrict the uses to which the data may be used by our clients, and
require us to meet record-keeping standards for any sales of the data.
International regulation. Currently, there are almost no government
regulations on the collection and use of data about registered voters in the
United Kingdom. However, the United Kingdom is currently implementing
regulations that would limit access to and use of the complete Electoral Roll.
As we expand our international products and services, we may also face
government restrictions on our collection and use of data from other foreign
jurisdictions.
Precedent for use of our databases for age authentication. We are not aware
of any government regulation limiting the use of our databases to authenticate
an individual's age or identity through voter or departments of motor vehicle
records with that person's consent. However, age and identity verification
through use of voter or departments of motor vehicle records contained
electronically in a database is a new and emerging field and government
regulations may be adopted to limit these activities.
Privacy concerns. We collect and compile information in our databases that we
use in connection with our campaign products and services and for our targeted
marketing products. Although we collect a significant portion of this
information from public records, we also rely on commercial data collection
efforts to enhance our records. Although we believe that we have the right to
use and compile the information in these databases, our ability to do so may
not remain lawful and there may be no trade secret, copyright or intellectual
property protection that is available or becomes available for databases that
enhances our rights. In addition, third parties may assert claims to
information contained in our databases. There is also a substantial risk that
public perception and approval of the use of information acquired through the
Internet to engage in commercial purposes, including targeted marketing, may
deteriorate.
Public concern of targeted marketing techniques. The practice of matching
offline marketing databases, and in particular personal medical or financial
information, to website visitation patterns, or click-stream behavior, is
highly controversial. This controversy has resulted in scrutiny of all targeted
marketing where offline information is matched to personally identifiable
information and where the informed consent of the individual has not first been
obtained. While we use a public record database that does not contain
information of a confidential nature, and we prohibit the linking of our
databases to click-stream information, public
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controversy engendered by questionable practices may limit our ability to
deliver our services or secure sufficient inventory to place our clients'
banner advertisements.
Technology
We use high performance SQL servers running Microsoft Windows NT to maintain
our databases. Our systems employ commercially available technology and
commercial payment processing services, including CyberCash, Signio/Telecheck
and VeriSign. Our systems can be scaled to meet increased requirements for
security, reliability, performance, expandability and affordability. Although
we currently rely on employees and consultants to service our systems, if our
network system demands increase, we may elect to out-source our network
services to third-party providers.
Our technology is designed to provide a high level of data security. Our
operating system tracks all login attempts to prevent unauthorized usage. We
also employ password and firewall protection to control access to sensitive
information contained in our system.
Competition
We believe that we face competition in two major categories, including:
Campaign and advocacy solutions providers. We face competition in various
forms from within the campaign and advocacy solutions industries. Within these
industries, our competitors are focused on the following areas:
. software--Gnossos, Hannibal, NetFile, state and federal agencies that
distribute compliance software at little or no cost to registered
political committees and internally developed software;
. voter files--Labels and Lists, Voter Contact Services, Blaemire
Associates, Republican National Committee, state parties, local, county
and state clerks and elections administrators and numerous smaller data
providers; and
. campaign contributions--Netivation, Campaign Solutions, Politicsonline
and e-Contributor.com.
We may also face competition from consultants to campaign and advocacy
organizations.
Many of our competitors offer lower prices, and some have closer or longer-
standing relationships with potential clients, greater financial resources, or,
in the case of state or local jurisdictions, easier or less expensive access to
the registered voter data. We believe that the principal competitive factors in
these markets include quality and size of database, functionality of software
and contribution processing services, availability of technical support and the
effectiveness of a sales force.
Advertisers. The online advertising market is extremely competitive. We
believe our ability to compete depends upon many factors both within and beyond
our control, including the following:
. timing and market acceptance of new and upgraded products and services
developed either by us or our competitors;
. continued and increasing acceptance by advertisers of targeted Internet
marketing as an effective and cost-efficient means of marketing;
. ability to adapt to the rapidly changing trends of the Internet;
. our customer service and support efforts;
. our sales and marketing efforts;
. our ability to adapt and scale our technology as client needs change and
grow; and
. ease of use, performance, price and reliability of solutions developed
either by us or our competitors.
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As we expand the scope of our Web services, we may face greater competition
from a number of websites and other media companies across a wide range of
different Web services. Many of our competitors may have advantages over us in
expertise, brand recognition, size, financial and personnel resources and other
factors. Several companies offer competitive products or services through Web
advertising networks, including 24/7 Media, DoubleClick, Flycast Communications
and L90. Our business may also encounter competition from providers of
advertising inventory and database management products and related services,
including AdForce, DoubleClick and Engage Technologies. In addition, we may
face potential competition from a number of large Web publishers, search
engines and ISPs, including AOL, Excite, Infoseek, Juno and Yahoo!. Competition
may also materialize from political or public policy websites, including
Grassroots.com, Politics.com, SpeakOut.com, Vote.com, Votenet.com and
Voter.com. We also compete with television, radio and print media companies for
a share of the overall advertising budgets of advertisers.
Employees
As of April 30, 2000, we had a total of 96 employees, 39 of whom were in
sales and marketing, 20 in product development, 17 in finance and
administration, 20 in customer support and data acquisition. From time to time
we also employ independent contractors. Our employees are not represented by a
labor union, and we have never experienced a work stoppage. We believe our
relations with our employees are good.
Facilities
Our principal executive offices and our product development facilities are
located in Washington, D.C. We lease approximately 2,300 square feet for our
corporate headquarters under a lease expiring January 15, 2001, for which we
have monthly rental obligations of approximately $5,750, and commercial office
space for our product development facility under a lease expiring May 31, 2001,
for which we have monthly rental obligations of approximately $3,500. Our
product development facility provides us with a secure area to store and
operate our computer systems and capacity for communications links and Internet
connectivity systems. We also lease space in San Francisco, California for
sales and marketing under a lease expiring on November 30, 2002, for which we
have monthly rental obligations of approximately $5,500. In addition, we have a
sales and marketing office in Atlanta and we employ sales representatives in
Chicago, Dallas, Nashville, Seattle and London, England. While we are
continually evaluating our facility requirements, we believe our facilities are
adequate to meet our current and anticipated needs.
Legal Proceedings
From time to time, we may be involved in litigation incidental to the conduct
of our business. Except as described below, we are not currently party to any
legal proceeding that we believe is material to our business or results of
operations.
We have received a letter from a third party engaged in website design and
Web hosting requesting that we cease and desist from using the name Aristotle
in connection with our online activities. Although the third party has a
registered trademark for the use of the name Aristotle in connection with
Internet access and website design and hosting, we believe that we have rights
to use the name Aristotle in connection with our political, campaign and
advocacy operations. We also believe we may have legal rights to use the name
Aristotle in connection with our commercial and non-profit activities. There is
a risk, however, that we may not be able to use the name Aristotle for these
activities on the Internet. If we are unable to use our brand name for these
activities we would be required to develop a new brand name for these
activities, which could impact our sales and marketing activities, and
therefore our ability to generate revenue.
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MANAGEMENT
Director, Executive Officers and Key Employees
Our directors, executive officers and key employees and their positions and
ages, as of May 1, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John A. Phillips........ 44 Chairman of the Board and Chief Executive Officer
Dean A. Phillips........ 42 President and Director
T. Robert Christ........ 31 Chief Financial Officer
J. Blair Richardson,
Jr. ................... 44 General Counsel
Gordon N. Stoll......... 33 Executive Vice President of Sales
Nicholas Donatiello, Jr.
....................... 39 Director
Esther Dyson............ 48 Director
William R. Hambrecht.... 64 Director
</TABLE>
John Aristotle Phillips co-founded us in 1983 and has since served as
Chairman of our board of directors. From September 1999 to date, Mr. Phillips
has served as our Chief Executive Officer, and from January 1983 to September
1999, Mr. Phillips served as our President. Mr. Phillips graduated from
Princeton University in 1978 with a bachelors in science degree in aerospace
engineering. While at Princeton, Mr. Phillips received international
recognition for his design, from publicly available documents, of an atomic
bomb. He is the co-author of Mushroom: the Story of the A-Bomb Kid, which was
sold to a television network for a made for television movie. John Phillips is
the brother of Dean Phillips, our President.
Dean Aristotle Phillips co-founded us in 1983 and has since served as a
director. Since September 1999, Mr. Phillips has served as our President. From
1994 to 1999, Mr. Phillips served as our Chief Executive Officer and from
January 1983 to December 1994, Mr. Phillips served as our Vice President. Mr.
Phillips graduated from MIT in 1980 with a bachelors in science from the
Department of Engineering and Computer Science with a concentration in
microcomputer design. Dean Phillips is the brother of John Phillips, our Chief
Executive Officer.
T. Robert Christ has served as our Chief Financial Officer since November of
1999. From August 1999 to October 1999 and following the acquisition of Pulsar
Data Systems by Litronic, Inc., a publicly traded data security company, Mr.
Christ served as vice president of finance for Litronic. Prior to that
acquisition, from August 1998 to June 1999, Mr. Christ served as the chief
financial officer of Pulsar Data Systems, a hardware solutions firm. From
December 1994 to July 1998, Mr. Christ served as director of finance for The
Centech Group, an information technology provider, and from August 1991 to
October 1994, Mr. Christ worked as a senior accountant at Rubino and McGeehin,
a Washington, D.C. accounting firm. Mr. Christ received a CPA certificate in
May 1991. Mr. Christ obtained a bachelors of business administration in
Accounting from James Madison University in 1991.
J. Blair Richardson, Jr. has served as our General Counsel since November
1999. Prior to joining us, he served as our outside counsel from March 1992 to
September 1999, providing legal advice on matters relating to data acquisition,
regulatory compliance and privacy. From January 1984 to February 1992, Mr.
Richardson worked as an attorney with Winston and Strawn, Washington, D.C.,
specializing in litigation. He received his juris doctorate from the Fordham
University School of Law in 1982 and graduated from Princeton University in
1979 with a bachelor of arts from the Department of English.
Gordon N. Stoll has served as our Executive Vice President of Sales since
February 2000. Since 1991, Mr. Stoll has worked for us in the following
capacities: Vice President of Sales & National Territory Sales Manager from
January 1999 to February 2000, Vice President of Sales and Sales Manager for
the Southeast Region from February 1993 to December 1998, Director of Southeast
sales from June 1992 to January 1993
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and Director of Government Accounts from March 1991 to June 1992. Prior to
joining us in 1991, he served as Capitol Hill sales director for Cali
Communications from December 1989 to February 1991. He received his bachelor of
arts in 1989 from University of Georgia.
Nicholas Donatiello, Jr. has served as a director since September 1999. Since
1993, Mr. Donatiello has served as president and chief executive officer of
Odyssey Ventures, Inc., which is the general partner of Odyssey, L.P. Mr.
Donatiello also served as campaign manager from July 1989 to March 1991 and the
press secretary from July 1987 to June 1989 for U.S. Senator Bill Bradley,
where he undertook a major study of the changing role of cable television,
including work with market research companies, cable television providers,
media buying firms and heads of major advertising agencies. Mr. Donatiello
currently serves as a director of TV Guide, Inc. He earned his bachelor of
science in engineering at Princeton in 1982 and received his masters in
business administration from Stanford University.
Esther Dyson has served as a director since March 2000. Since 1982, Ms. Dyson
has served as chairman of Edventure Holdings, a company focused on emerging
information technologies worldwide and on the emerging computer markets of
central and Eastern Europe. Ms. Dyson currently serves on the board of
directors of the following companies: Graphisoft, Internet Capital,
Languageware.net, Medscape, PRT Group, Scala Business Solutions, Thinking
Tools, Uproar.com and WPP Group.
William R. Hambrecht has served as a director since September 1999. Mr.
Hambrecht is the founder and chairman of WR Hambrecht + Co, a position he has
held since January 1998. Prior to founding WR Hambrecht + Co, Mr. Hambrecht co-
founded Hambrecht & Quist, LLC in 1968, an investment banking firm specializing
in emerging high growth technology companies. Mr. Hambrecht began his career in
the securities business in 1958. Mr. Hambrecht currently serves on the board of
directors of GetThere.com. Mr. Hambrecht graduated with a bachelor of arts in
1957 from Princeton University.
Board of Directors and Committees
Following this offering, our board of directors will consist of between five
and seven directors divided into three classes, with each class serving for a
term of three years. At each annual meeting of stockholders, directors will be
elected for a three-year term to succeed the directors whose terms are
expiring. Effective as of this offering, one of our Class I director seats will
be vacant and the other seat will be occupied by Esther Dyson. The terms for
the Class I directors will expire in 2000. Dean A. Phillips and Nicholas
Donatiello, Jr. will be Class II directors whose terms will expire in 2001.
John A. Phillips and William R. Hambrecht will be Class III directors whose
terms will expire in 2002.
Our board of directors has a compensation committee and an audit committee.
The compensation committee is responsible for making recommendations to our
board of directors regarding salaries, incentives and other forms of
compensation for our directors, officers and other employees. Messrs.
Donatiello and Hambrecht and Ms. Dyson are the current members of the
compensation committee.
We did not have a compensation or audit committee in 1999. The audit
committee reviews our annual audit and meets with our independent auditors to
review our internal controls and financial management practices. Messrs.
Donatiello and Hambrecht and Ms. Dyson are the current members of the audit
committee.
Our board of directors may establish, from time-to-time, other committees to
facilitate the management of our business.
Director Compensation
Our directors do not receive compensation for attendance at board meetings.
However, our directors are reimbursed for all reasonable out-of-pocket expenses
incurred in connection with their attendance at board meetings. In March 2000,
we granted Ms. Dyson an option to purchase 52,147 shares of our common stock,
at an exercise price of $2.75 per share.
43
<PAGE>
Compensation Committee Interlocks and Insider Participation
Prior to May 14, 2000, our board of directors did not have a compensation
committee and all compensation decisions were made by the full board of
directors. The members of our compensation committee are currently Messrs.
Donatiello and Hambrecht and Ms. Dyson. No interlocking relationship exists, or
has existed in the past, between our board of directors or compensation
committee and the board of directors or compensation committee of any other
company.
Executive Compensation
The following table provides summary information concerning compensation
earned by or paid to our chief executive officer and to each of our other
executive officers whose total annual salary and bonus exceeded $100,000, for
services rendered in all capacities to us during the fiscal year ended December
31, 1999. These individuals are referred to as the named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
----------------------------- ------------
Securities
Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation Options (#)
- --------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John A. Phillips.............. 1999 $232,083 $ -- $-- --
Chairman and Chief Executive
Officer
Dean A. Phillips.............. 1999 232,083 -- -- --
President
T. Robert Christ(1)........... 1999 11,704 10,000 -- 52,147
Chief Financial Officer
J. Blair Richardson, Jr.(2)... 1999 16,250 -- -- 24,100
General Counsel
Gordon N. Stoll............... 1999 134,513 -- -- 39,100
Executive Vice President of
Sales
</TABLE>
- --------
(1) Mr. Christ joined us in November 1999.
(2) Mr. Richardson joined us in November 1999. In addition to the salary
earned by Mr. Richardson in 1999, he received $90,000 and options to
purchase 15,000 shares from us as outside counsel for the year ended
December 31, 1999.
44
<PAGE>
Stock Options
The following tables summarize option grants and exercises during fiscal 1999
to or by our Chief Executive Officer and the named executive officers, and the
value of the options held by such persons at the end of fiscal 1999. We have
not granted any stock appreciation rights.
Option Grants in Fiscal 1999
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Securities Granted to Exercise Appreciation for
Underlying Employees or Base Option Term(3)
Options in Fiscal Price Expiration ----------------
Name Granted(#)(1) Year (2) ($/Sh) Date 5% 10%
- ---- ------------- ---------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
John A. Phillips........ -- -- -- -- -- --
Dean A. Phillips........ -- -- -- -- -- --
T. Robert Christ........ 52,147 11.90% $2.75 9/30/09 $90,653 $229,733
J. Blair Richardson,
Jr.(4)................. 24,100 5.50 2.75 10/31/09 41,680 105,625
Gordon N. Stoll......... 15,000 3.42 1.50 3/31/09 44,692 84,492
Gordon N. Stoll......... 24,100 5.50 2.75 10/31/09 41,680 105,625
</TABLE>
- --------
(1) The exercise price may be paid in cash, in shares of our common stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. We
may also finance the option exercise by lending the optionee funds to pay
the exercise price for the purchased shares. These options vest over five
years at the rate of 25% of the shares subject to the option on the first
anniversary of the vesting start date specified in the stock option
agreement and 1.5625% every month after that date. Unvested shares are
subject to our right of repurchase upon termination of employment. Upon
specified changes in control, all shares that are then unvested will
become vested. Options expire ten years from the date of grant.
(2) We granted to employees options to acquire 438,047 shares of our common
stock in 1999.
(3) The potential realizable value of each grant of options has been
calculated, pursuant to the regulations promulgated by the Securities and
Exchange Commission, assuming that the market price of our common stock
appreciates in value from the date of grant to the end of the option term
at the annualized rates of 5% and 10%, respectively. These values do not
represent our estimate or projection of future value of our common stock.
There can be no assurance that any of the value reflected in the table
will be achieved.
(4) Excludes 15,000 options granted to Mr. Richardson for services he provided
prior to becoming an employee. These options have an exercise price of
$1.50 and expire March 31, 2009.
45
<PAGE>
Aggregated Option Exercises in Fiscal 1999 and Value of Options
At End of Fiscal 1999
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised In-the-Money Options
Options at End of Fiscal 1999 at End of Fiscal 1999(1)
------------------------------- -------------------------------
Name Exercisable(#) Unexercisable(#) Exercisable($) Unexercisable($)
- ---- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
John A. Phillips........ -- -- $-- $ --
Dean A. Phillips........ -- -- -- --
T. Robert Christ........ -- 52,147 -- --
J. Blair Richardson,
Jr..................... 15,000 24,100 --
Gordon N. Stoll......... 15,000 24,100 --
</TABLE>
- --------
(1) Value is based on the difference between the option exercise price and
, the estimated initial public offering price of our common stock,
multiplied by the number of shares of our common stock underlying the
option. No market existed for our common stock prior to this offering.
1999 Stock Option Plan
In March 1999, our board of directors adopted, subject to the approval of our
stockholders, the 1999 Stock Option Plan. Stockholder approval was obtained on
March 16, 1999. The 1999 plan allows options to be granted either as incentive
stock options or as non-qualified stock options. The aggregate number of shares
authorized for issuance under the 1999 plan is 830,000. As of April 30, 2000:
. options to purchase 560,728 shares were outstanding;
. options to purchase 150,909 shares were vested; and
. 0 options had been exercised.
Following the closing of this offering, no additional options will be granted
under the 1999 plan. Options granted under the 1999 plan are subject to the
following terms:
. options are exercisable within the times or upon the events as
determined by the compensation committee and described in each grant.
Each option must become exercisable at a rate of at least 20% per year
over five years from the date the option is granted, and no incentive
stock option granted to a 10% or greater stockholder shall be
exercisable after the expiration of five years from the date the option
was granted;
. the exercise price of any non-qualifying option shall not be less than
85% of the fair market value of the share on the date the option is
granted, and the exercise price of an incentive stock option shall not
be less than 100% of the fair market value on the date the option is
granted;
. unless the stock option grant states differently, options granted under
the plan terminate and may not be exercised if the optionee ceases to be
employed by us or our affiliates;
. options under the plan are not transferable or assignable; and
. the plan provides that upon the occurrence of a change of control event,
the surviving entity must either assume or substitute the options
granted under the plan, or in the alternative, the options become fully
exercisable.
2000 Omnibus Stock Plan
We expect to adopt our 2000 Omnibus Stock Plan before the closing of this
offering. The 2000 plan provides for a total of shares of our
common stock to initially be reserved for issuance. The 2000 plan is designed
to assist us in recruiting, retaining and motivating our employees, outside
directors and independent contractors. Under the 2000 plan we can grant:
. restricted shares;
. stock units;
46
<PAGE>
. incentive stock options;
. nonstatutory stock options; and
. stock appreciation rights.
Our compensation committee will administer the 2000 plan and has the
authority to determine to whom options will be granted and shares will be sold,
the number of shares and the exercise and vesting terms.
401(k) Plan
We sponsor a defined contribution plan intended to qualify under Section 401
of the Internal Revenue Code. All employees who are 21 years old and have one
year of service are eligible to participate and may enter the 401(k) plan as of
the first day of each plan year and the date six months later. Participants may
make pre-tax contributions to the 401(k) plan of up to 15% of their eligible
earnings, subject to a statutorily prescribed annual limit. We may make
matching contributions, of up to five percent, to the 401(k) plan. Each
participant is fully vested in his or her contributions, and vest in any
matching contributions we make over a six-year vesting schedules. Contributions
by us or the participants to the 401(k) plan, and the income earned on these
contributions, are generally not taxable to the participants until withdrawn.
Contributions by us, if any, will generally be deductible by us when made.
Contributions of the participants and us are held in trust as required by law.
Employment Agreements and Change of Control Arrangements
John A. Phillips and Dean A. Phillips
On September 17, 1999, we entered into a two-year employment agreement with
each of John A. Phillips, our Chief Executive Officer, and Dean A. Phillips,
our President. The annual salary under each of these agreements is $220,000.
Under both agreements, we have the right to terminate the agreement on 30 days
notice to the employee. However, if we terminate employment, we may become
liable for a severance payment, as described below. In addition, under each
agreement the employee may terminate his employment upon 30 days' notice if we
breach the contract. Both agreements provide a non-compete restriction on the
employee which has a duration of one year from the termination of the
employment relationship. These non-compete agreements become void against the
employee if the employee is terminated without cause or constructively
terminated.
Upon the occurrence of either an involuntary termination without cause or a
constructive termination, including a constructive termination following a
change in control, the company must make payments to the terminated employee,
over the following four months, which in the aggregate equal 100% of the
employee's annual base salary, plus any other incentive compensation payable to
the employee. In addition, upon the occurrence of either of these events, any
stock options granted to the employee shall become immediately vested and
exercisable for each employee and our repurchase rights over 1,500,000 shares
owned by each employee lapse.
T. Robert Christ
Under the terms of Mr. Christ's employment offer letter, dated October 10,
1999, he is entitled to an annual salary of $110,000. In addition, Mr. Christ
is entitled to a bonus of $15,000 upon the consummation of this offering. Under
this agreement, if Mr. Christ is terminated by us without cause during the
first 12 twelve months of his employment, he is entitled to severance equal to
the amount of his salary that he would have earned during the remaining initial
12 month period. In addition, 25% of the shares covered by Mr. Christ's initial
option grant, or 13,037 shares of common stock, vest immediately in the event
he is terminated without cause during the first 12 months of his employment
with us. Mr. Christ is subject to a non-competition agreement for a period of
one year from the termination of his employment.
47
<PAGE>
J. Blair Richardson, Jr.
Under the terms of Mr. Richardson's employment offer letter, dated November
2, 1999, he is entitled to an annual salary of $130,000, and a bonus of up to
$15,000. Either party must give the other two weeks' notice in order to
terminate the employment relationship. Mr. Richardson is subject to a non-
competition agreement for a period of one year from the termination of his
employment, which prevents him from soliciting any of our clients and from
misusing any proprietary information.
Gordon N. Stoll
Under the terms of Mr. Stoll's employment arrangements, he is entitled to an
annual salary of $30,000, plus commission. In 1998 and 1999, Mr. Stoll was paid
commissions of approximately $70,000 and $105,000. Mr. Stoll is also entitled
to a bonus if periodic sales targets are met. Either party must give the other
two weeks' notice in order to terminate the employment, except that we may
terminate Mr. Stoll's employment without notice if he breaches his employment
terms or habitually neglects his duties.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemption; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. Our
certificate of incorporation and bylaws also permit us to secure insurance on
behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether the
bylaws would permit indemnification.
We intend to enter into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our certificate of
incorporation and bylaws. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
48
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of our last fiscal year, there has not been any
transaction or series of transactions to which we were or are a party in which
the amount involved exceeded or exceeds $60,000 and in which any director,
executive officer, holder of more than 5% of any class of our voting securities
or any member of the immediate family of any of the foregoing persons had or
will have a direct or indirect material interest, other than the transactions
described below.
In September 1999, we sold and issued 1,272,727 shares of our Series A
Preferred Stock for an aggregate consideration of $3,500,000, to raise capital
to finance our operations. Upon completion of this offering, each share of
Series A Preferred Stock will convert into one share of common stock.
The following table summarizes purchases, valued in excess of $60,000, of
shares of our Series A Preferred Stock by our directors, executive officers and
5% stockholders:
<TABLE>
<CAPTION>
Number of
Shares of
Series A
Purchaser Preferred Stock
--------- ---------------
<S> <C>
W.R. Hambrecht/Aristotle, LLC............................ 727,273
ePartners................................................ 363,636
</TABLE>
These affiliates purchased the securities described above at the same price
and on the same terms and conditions as the unaffiliated investors in the
private financing.
Prior to December 31, 1995, John A. Phillips advanced to us $14,419 pursuant
to oral lending agreements with us. Prior to December 31, 1995, Dean A.
Phillips advanced to us $13,102 pursuant to oral lending agreements with us. At
December 31, 1995, aggregate outstanding balances under these loans were
$27,519.
During the year ending December 31, 1996, John A. Phillips advanced to us
$72,334 pursuant to oral lending agreements with us, and Dean A. Phillips
advanced to us $75,343 pursuant to oral lending agreements with us. During the
year ended December 31, 1996, we repaid $8,360 of outstanding advances to John
A. Phillips. At year-end, the outstanding balance to John A. Phillips was
$78,392 and the outstanding balance to Dean A. Phillips was $88,445.
During the year ending December 31, 1997, John A. Phillips advanced to us
$21,975 pursuant to oral lending agreements with us and Dean A. Phillips
advanced to us $130,718 pursuant to oral lending agreements with us. During the
year ended December 31, 1997, we repaid outstanding advances to John A.
Phillips of $9,016 and outstanding advances to Dean A. Phillips of $87,800. At
year-end, the outstanding balance to John A. Phillips was $91,352 and the
outstanding balance to Dean A. Phillips was $131,363.
During the year ending December 31, 1998, John A. Phillips advanced to us
$679 pursuant to a oral lending agreement with us and Dean A. Phillips advanced
to us $347,003 pursuant to oral lending agreements with us. During the year
ended December 31, 1997, we repaid outstanding advances to John A. Phillips of
$52,897 and outstanding advances to Dean A. Phillips of $276,363. At year-end,
the outstanding balance to John A. Phillips was $39,134 and the outstanding
balance to Dean A. Phillips was $202,003.
During the period from January 1, 1999 through September 16, 1999 additional
advances were made by Dean A. Phillips to us in the amount of $196,000 and
repayments were made by us to John A. Phillips of $128,997. In connection with
the sale of our Series A Preferred Stock, John A. Phillips and Dean A. Phillips
converted these outstanding advances into a promissory note payable to John A.
Phillips and Dean A. Phillips. This promissory note is convertible into Series
A Preferred Stock and is due and payable upon the initial public offering of
our common stock or upon a change of control. In connection with this
conversion, all outstanding interest on the advances was waived by John A.
Phillips and Dean A. Phillips.
49
<PAGE>
Immediately prior to the effectiveness of this offering, John A. Phillips and
Dean A. Phillips are converting the promissory note into shares of Series A
Preferred Stock, which will in turn convert into 112,050 shares of common stock
at the closing of this offering.
Two of our directors, William Hambrecht and Nicholas Donatiello, Jr., are
beneficial owners of W.R. Hambrecht/Aristotle LLC, a limited liability company
that owns 727,723 shares of our Series A Preferred Stock. Additionally, Mr.
Donatiello is a beneficial owner of Odyssey Capital II, LLC and ePartners.
Our Chief Executive Officer, John A. Phillips, and our President, Dean A.
Phillips, are brothers.
We paid accrued deferred compensation charges of approximately $55,000 to our
President in 2000.
In June 1999, we entered an agreement with Aristotle Ventures, LLC an entity
beneficially owned by our Chief Executive Officer, John A. Phillips, and our
President, Dean A. Phillips, to lease our office building located at 2237 Union
Street in San Francisco, California. Under the terms of the agreement, we paid
monthly rent of $3,300. The lease was terminated in late 1999.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
common stock as of April 30, 2000, and as adjusted to reflect the sale of
shares of common stock in this offering, by:
.each person or entity known to us to own beneficially more than 5% of our
common stock;
.each of our directors;
.each of the named executive officers; and
.all of our executive officers and directors as a group.
Except as otherwise indicated and subject to applicable community property
laws, each person has sole investment and voting power with respect to the
shares shown. Ownership information is based upon information furnished by the
respective individuals or entities, as the case may be.
The following table assumes no exercise of the underwriters' over-allotment
option. Applicable percentage ownership is based on shares of
common stock outstanding as of April 30, 2000, which assumes conversion of all
Series A Preferred Stock, and shares outstanding immediately after
completion of this offering.
Unless otherwise indicated, the address for the following stockholders is
Aristotle International, Inc., 50 E Street, S.E., Suite 300, Washington, D.C.
20003.
<TABLE>
<CAPTION>
Shares
Beneficially Percent of Shares
Owned Outstanding
------------ -----------------
Before After
Name and Address of Beneficial Owner Offering Offering
- ------------------------------------ -------- --------
<S> <C> <C> <C>
John A. Phillips(1)........................... 1,501,866 34% %
Dean A. Phillips(2)........................... 1,610,164 37 *
T. Robert Christ.............................. 0 * *
J. Blair Richardson, Jr.(3)................... 15,000 * *
Gordon N. Stoll(4)............................ 15,000 * *
Nicholas Donatiello, Jr.(5)................... 1,272,727 29
Esther Dyson ................................. 0 * *
William Hambrecht(6).......................... 727,273 17
WR Hambrecht + Co
539 Bryant Street, Suite 100
San Francisco, CA 94107
W.R. Hambrecht/Aristotle, LLC................. 727,273 17
WR Hambrecht + Co
539 Bryant Street, Suite 100
San Francisco, CA 94107
ePartners..................................... 363,636 8
1211 Avenue of the Americas
New York, NY 10036
All directors and executive officers as a
group (8 persons)(7)......................... 4,384,777 100% %
</TABLE>
- -------
* Less than 1%
(1) Includes 1,886 shares that will be issued pursuant to a convertible note as
of the closing of this offering.
(2) Includes 110,164 shares that will be issued pursuant to a convertible note
as of the closing of this offering.
(3) Includes 15,000 shares that are exercisable within 60 days of May 1, 2000.
(4) Includes 15,000 shares that are exercisable within 60 days of May 1, 2000.
(5) Includes 181,818 shares owned by Odyssey Capital II, LLC, 363,636 shares
owned by ePartners, and 727,273 shares owned by W.R. Hambrecht/Aristotle,
LLC. Mr. Donatiello is a managing member of each of these entities. Mr.
Donatiello disclaims beneficial ownership of these shares except to the
extent of his ownership interests in each of the entities.
(6) Includes 727,273 shares held by W.R. Hambrecht/Aristotle, LLC. Mr.
Hambrecht either controls or is affiliated with this entity.
(7) Includes shares listed in footnotes (1), (2), (3), (4), (5), (6) and (7)
above.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
held by that person that are currently exercisable or exercisable within 60
days of May 1, 2000 are deemed outstanding. These shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership of
any other person.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, and after giving effect to the conversion
of all outstanding preferred stock into common stock and the amendment of our
certificate of incorporation, our authorized capital stock will consist of
shares of common stock, $0.001 par value, and 5,000,000 shares of
preferred stock, $0.001 par value.
Common Stock
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of common stock are entitled to the
following:
Dividends. Holders of common stock are entitled to receive dividends out of
assets legally available for the payment of dividends at the times and in the
amounts as the board of directors from time to time may determine.
Voting. Holders of common stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders, including the election of
directors, and will not have cumulative voting rights unless we are subject to
Section 2115 of the California Corporations Code. Cumulative voting for the
election of directors is not authorized by our certificate of incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election.
Preemptive rights, conversion and redemption. Holders of the common stock are
not entitled to preemptive rights and shares of common stock are not subject to
conversion or redemption.
Liquidation, dissolution and winding-up. Upon liquidation, dissolution or
winding-up of us, the holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities and the liquidation of any
preferred stock.
Each outstanding share of common stock is, and all shares of common stock to
be outstanding upon completion of this offering will be, upon payment
therefore, duly and validly issued, fully paid and nonassessable.
Preferred Stock and Bylaw Provisions
Our board of directors is authorized, without action by the stockholders, to
designate and issue up to 5,000,000 shares of preferred stock in one or more
series. Our board of directors can also fix the rights, preferences and
privileges of the shares of each series and any qualifications, limitations or
restrictions on these shares.
Our board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, may:
. delay, defer or prevent a change in control;
. discourage bids for the common stock at a premium over the market price
of our common stock;
. adversely affect the voting and other rights of the holders of our
common stock; and
. discourage acquisition proposals or tender offers for our shares and, as
a consequence, inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts.
52
<PAGE>
We have no current plans to issue any shares of preferred stock.
Our bylaws provide that:
. all stockholder action be taken at a stockholders' meeting;
. special meetings of stockholders may only be called by the chairman of
the board, the chief executive officer or the board of directors; and
. our board of directors is divided into three classes, with each class
serving a staggered three-year term.
The provisions described above, together with the ability of our board of
directors to issue preferred stock, may have the effect of deterring a hostile
takeover or delaying a change in our control or management.
Registration Rights
Upon completion of this offering, the holders of 1,272,727 shares of common
stock issuable upon conversion of the Series A Preferred Stock have the right
to cause us to register these shares under the Securities Act as follows:
. Demand registration rights. Six months after the closing of this
offering, the holders of 25% or more of our common stock issuable or
issued upon conversion of the Series A Preferred Stock may request that
we register their shares with respect to all or part of their
registrable securities having aggregate proceeds of at least $5,000,000.
. Piggyback registration rights. The holders of registrable securities may
request to have their shares registered any time we file a registration
statement to register any of our securities for our own account or for
the account of others.
. S-3 registration rights. The holders of registrable securities have the
right to request registrations on Form S-3 if we are eligible to use
Form S-3, have not already effected one S-3 registration within the past
12 months, and if the aggregate proceeds from the registration will be
more than $5,000,000.
Messrs. John and Dean Phillips, who hold an aggregate of 3,000,000 shares of
our common stock, also have piggyback registration rights. Registration of
shares of common stock pursuant to the exercise of demand registration rights,
piggyback registration rights or S-3 registration rights under the Securities
Act would result in these shares becoming freely tradable without restriction
under the Securities Act immediately upon the effectiveness of such
registration.
We will pay all registration expenses, other than underwriting discounts and
commissions, in connection with any demand or piggyback registration. We are
not obligated to pay any expenses of registration in the case of a demand or S-
3 registration that is subsequently withdrawn at the request of the
stockholders. The registration rights terminate five years following the
closing of this offering, or, with respect to each holder of registrable
securities, when the holder can sell all of the holder's shares in any 3-month
period under Rule 144 under the Securities Act.
We may be subject to Section 2115 of the California General Corporation Law.
Section 2115 provides that, regardless of a company's legal domicile, certain
provisions of California corporate law will apply to that company if more than
50% of its outstanding voting securities are held of record by persons having
addresses in California and the majority of the company's operations occur in
California. If we are subject to Section 2115, stockholders may cumulate votes
in electing directors. Cumulative voting means that each stockholder may vote
the number of votes equal to the number of candidates multiplied by the number
of votes to which the stockholder's shares are normally entitled in favor of
one candidate. This potentially allows minority stockholders to elect some
members of the board of directors. If we are not subject to Section 2115,
cumulative voting will not be allowed and a holder of 50% or more of our voting
stock will be able to control the election of all directors. In addition to
this difference, Section 2115 has the following additional effects:
. enables removal of directors with or without cause with majority
stockholder approval;
. places limitations on the distribution of dividends;
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<PAGE>
. extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of shares;
and
. provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2000 annual meeting
of stockholders. If these two conditions occur, then we will not be subject to
Section 2115 as of the record date for our 2000 annual meeting of stockholders.
Delaware Anti-Takeover Law and Charter Provisions
Delaware takeover statute. We are subject to Section 203 of the Delaware
General Corporation Law, which prohibits a Delaware corporation from engaging
in any business combination with any interested stockholder for a period of
three years following the date that the stockholder became an interested
stockholder, unless:
. prior to this date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are
directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
In general, Section 203 defines an interested stockholder as any entity or
person who, together with his or her affiliates and associates owns, or within
three years, beneficially owned, 15% or more of the outstanding voting stock of
the corporation. The term business combination includes mergers, asset sales
and other similar transactions resulting in a financial benefit to an
interested stockholder.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
Listing
We have applied to have our common stock quoted on the Nasdaq National Market
under the symbol .
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common stock,
and we cannot predict the effect, if any, that market sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. As described below, only a limited number of shares will be
available for sale shortly after this offering due to contractual and legal
restrictions on resale. Nevertheless, sales of substantial amounts of our
common stock in the public market after the restrictions lapse could cause the
market price of our common stock to decline.
When this offering is completed, we will have a total of
shares of common stock outstanding, assuming no exercise of outstanding
options. The shares offered by this prospectus will be freely
tradable unless they are purchased by our affiliates, as defined in Rule 144
under the Securities Act. The remaining shares are restricted, which
means they were originally sold in offerings that were not subject to a
registration statement filed with the Securities and Exchange Commission. These
restricted shares may be resold only through registration under the Securities
Act or under an available exemption from registration, such as provided through
Rule 144.
Contractual Restrictions on Resales
All of our officers, directors and stockholders have agreed not to transfer
or dispose of, directly or indirectly, any of their shares of our common stock,
or any securities convertible into or, exchangeable or exercisable for shares
of our common stock, for a period of 180 days from the date of this prospectus.
Subject to these contractual restrictions and to the provisions of Rule 144,
shares of common stock will be available for sale in the public market
commencing 180 days after the date of this prospectus.
Rule 144
In general, under Rule 144, a person, or persons whose shares are aggregated,
who has beneficially owned restricted securities for at least one year,
including the holding period of any holder who is not an affiliate, is entitled
to sell within any three-month period a number of our shares of common stock
that does not exceed the greater of:
. 1% of the then outstanding shares of our common stock, which will equal
approximately shares upon completion of this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of sale is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. Under Rule
144 and subject to volume limitations, of the restricted shares will
be eligible for sale beginning 180 days after the date of the final prospectus,
and the remaining restricted shares will become salable at various times
thereafter.
Rule 144(k)
A person who is not deemed an affiliate of ours at any time during the 90
days preceding a sale and who has beneficially owned shares for at least two
years, including the holding period of any prior owner who is not an affiliate,
would be entitled to sell shares following this offering under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information or notice requirements of Rule 144.
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<PAGE>
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases securities, including
options, from us before the date of this prospectus through our stock option
plans or through some other written agreement is eligible to resell those
shares, including shares issued upon the exercise of options, 90 days after the
effective date of this offering in reliance on Rule 144, but without compliance
with the holding period, information and volume restrictions contained in Rule
144.
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<PAGE>
PLAN OF DISTRIBUTION
In accordance with the terms of an underwriting agreement among us and W.R.
Hambrecht + Co., LLC, , and as representative(s) of the underwriters, the
underwriters will purchase from us the following respective number of shares of
common stock at the public offering price less the underwriting discounts and
commissions described on the cover page of this prospectus.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- -----------
<S> <C>
W.R. Hambrecht + Co., LLC........................................
.....................................................
-----------
Total..........................................................
===========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions, including the absence of any material adverse change
in our business, and the receipt of certificates, opinions and letters from us
and our counsel and independent accountants. Subject to those conditions, the
underwriters are committed to purchase all shares of our common stock offered
if any of the shares are purchased.
The underwriters propose to offer the shares of our common stock directly to
the public at the offering price set forth on the cover page of this
prospectus, as this price is determined by the OpenIPO process described below,
and to certain dealers at this price less a concession not in excess of $
per share. Any dealers that participate in the distribution of our common stock
may be deemed to be underwriters within the meaning of the Securities Act, and
any discounts, commissions or concessions received by them and any provided by
the sale of the shares by them might be deemed to be underwriting discounts and
commissions under the Securities Act. After completion of the initial public
offering of the shares, the public offering price and other selling terms may
be changed by the underwriters. The underwriters have informed us that they do
not intend discretionary sales to exceed 10% of the shares of the common stock
offered by this prospectus.
The following table shows the per share and total underwriting discount to be
paid to the underwriters by us in connection with this offering. The
underwriting discount will be determined through negotiations between us and
the representatives of the underwriters, and will be calculated as a percentage
of the offering price. These amounts are shown assuming both no exercise and
full exercise of the over-allotment option.
<TABLE>
<CAPTION>
Per share No Exercise Full Exercise
--------- ----------- -------------
<S> <C> <C> <C>
Public Offering Price....................
Underwriting Discounts...................
Proceeds, before expenses, to us.........
</TABLE>
The expenses of the offering, exclusive of the underwriting discounts, will
be approximately $ . These fees and expenses are payable entirely by us.
These fees include, among other things, our legal and accounting fees, our
printing expenses, our expenses incurred in connection with meetings with
potential investors, the filing fees of the Securities and Exchange Commission
and the listing fees of the Nasdaq National Market.
An electronic prospectus is available on the website maintained by WR
Hambrecht + Co. Other than the prospectus in electronic format, the information
on these websites relating to the offering is not part of this prospectus and
has not been approved or endorsed by us and should not be relied on by
prospective investors.
W.R. Hambrecht/Aristotle, LLC is an affiliate of WR Hambrecht + Co, one of
the underwriters in this offering. As described in Principal Stockholders, W.R.
Hambrech/Aristotle, LLC owns an aggregate of 727,273 shares of common stock,
which represent more than 10% of our outstanding common stock. As a result,
under Rule 2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc., which provides that the public offering price of an equity
security be no higher than that recommended by a qualified independent
underwriter meeting certain standards, has assumed the
responsibilities of acting as the qualified
57
<PAGE>
independent underwriter for this offering and will recommend a price in
compliance with the requirements of Rule 2720. In connection with this
offering, is performing due diligence investigations and reviewing and
participating in the preparation of this prospectus and the registration
statement of which this prospectus forms a part.
The Auction Process
The method of distribution being used by the underwriters in this offering is
known as the OpenIPO process. It differs from that traditionally employed in
underwritten public offerings. In particular, the public offering price will be
based primarily on an auction conducted by the underwriters. The allocation of
shares of our common stock will be determined entirely by the auction process.
The following describes how WR Hambrecht + Co, other underwriters and selected
dealers will conduct the auction process and confirm bids from prospective
investors:
. Before the registration statement relating to this offering becomes
effective, the underwriters and participating dealers will solicit bids
from prospective investors through the Internet, telephone and
facsimile. The bids will specify the number of shares of our common
stock the potential investor proposes to purchase and the price the
potential investor is willing to pay for the shares. These bids may be
above or below the range set forth on the cover page of this prospectus.
The minimum size of any bid is 100 shares.
. The shares offered by this prospectus may not be sold nor may offers to
buy be accepted prior to the time that the registration statement filed
with the Securities and Exchange Commission becomes effective. A bid
received by WR Hambrecht + Co involves no obligation or commitment of
any kind prior to the closing of the auction. Bids can be modified or
revoked at any time prior to the closing of the auction.
. Approximately two business days prior to the registration statement
being declared effective, prospective investors will receive, by e-mail,
telephone or facsimile, a notice indicating the proposed effective date.
On or after that time, WR Hambrecht + Co may post on its website an
estimate of the clearing price.
. After the registration statement relating to this offering becomes
effective, potential investors who have submitted bids to WR Hambrecht +
Co will be contacted by e-mail, telephone or facsimile. Potential
investors will be advised that the registration statement has been
declared effective and will be requested to confirm their bids.
. The auction will close after the registration statement becomes
effective at a time agreed to by us and WR Hambrecht + Co. The actual
time at which the auction closes will be determined by us and
WR Hambrecht + Co based on general market conditions during the period
after the registration statement becomes effective. After the
registration statement has been declared effective, the public offering
price of our common stock may be set at a price that is outside of the
range set forth on the cover of this prospectus.
. All bids that are not confirmed before the time specified by the
underwriters, or if the time is not specified, by the close of the
auction, will be deemed withdrawn.
. Once a potential investor affirmatively confirms its previous bid, the
confirmation will remain valid unless subsequently withdrawn by the
potential investor. Potential investors will be able to withdraw their
bids at any time before the close of the auction by notifying WR
Hambrecht + Co or a participating dealer.
. If the public offering price range is changed before or after a
potential investor affirmatively confirms a bid, or if the public
offering price is outside the public offering range previously provided
to the potential investor in the prospectus, the underwriters and
participating dealers will notify potential investors of the change and
that offers will not be accepted until the potential investor has again
reconfirmed its bid regardless of whether the potential investor's
initial bid was above, below or at the public offering price.
. Following the closing of the auction, WR Hambrecht + Co will determine
the highest price at which all of the shares offered, including shares
that may be purchased by the underwriters to cover any overallotments,
may be sold to potential investors. This price, which is called the
clearing price, will be determined based on the results of all valid
bids at the time the auction is closed. The clearing price will not
necessarily be
58
<PAGE>
the public offering price, which will be set as described in Determination
of Public Offering Price below. The public offering price will determine
the allocation of shares to potential investors, with all bids submitted
at or above the public offering price receiving a pro rata portion of the
shares bid for.
. Once the auction closes and a clearing price is set as described below,
WR Hambrecht + Co will accept the bids from those bidders whose bid is
at or above the public offering price but may allocate to a prospective
investor fewer shares than the number included in the investor's bid.
. WR Hambrecht + Co or a participating dealer will notify successful
bidders by email, telephone or facsimile that the auction has closed and
that their confirmed bids have been accepted. Other bidders will be
notified that their bids have not been accepted.
. Potential investors may at any time expressly request that all, or any
specific, communications between them and the underwriters and
participating dealers be made by specific means of communication,
including telephone and facsimile.
Some underwriters and selected dealers that participate in this offering may
request prospective investors to confirm their bids prior to the effective date
of the registration statement, if that practice is used by these institutions
in connection with initial public offerings that are not conducted using the
OpenIPO process.
Determination of Public Offering Price
The public offering price for this offering will ultimately be determined by
negotiation between the underwriters and us after the auction closes and will
not necessarily bear any direct relationship to our assets, current earnings or
book value or to any other established criteria of value, although these
factors were considered in establishing the initial public offering price
range. Prior to the offering, there has been no public market for our common
stock. The principal factor in establishing the public offering price will be
the clearing price resulting from the auction.
The clearing price is the highest price at which all of the shares offered,
including the shares that may be purchased by the underwriters to cover any
overallotments, may be sold to potential investors, based on the valid bids at
the time the auction is run.
Factors considered in determining the initial public offering price range
included an assessment of our management, operating results, capital structure
and business potential and the demand for similar securities of comparable
companies. Changes, if any, in the public offering price range will be based
primarily on the bids received.
The public offering price may be lower, but will not be higher, than the
clearing price based on negotiations between the underwriters and us. The
public offering price will always determine the allocation of shares to
potential investors. Therefore, if the public offering price is below the
clearing price, all bids that are at or above the public offering price will
receive a pro rata portion of the shares bid for. If sufficient bids are not
received, or if we do not consider the clearing price to be adequate, or if we
and the underwriters are not able to reach agreement on the public offering
price, then we and the underwriters will either postpone or cancel this
offering. Alternatively, we may file a post-effective amendment to the
registration statement in order to conduct a new auction.
The following simplified example illustrates how the public offering price
will be determined through the auction process: Company X offers to sell 100
shares in its public offering through the auction process.
WR Hambrecht + Co, on behalf of Company X, receives five bids to purchase,
all of which are kept confidential until the auction closes.
The first bid is to pay $10 per share for 20 shares. The second bid is to pay
$9 per share for 30 shares. The third bid is to pay $8 per share for 60 shares.
The fourth bid is to pay $7 per share for 40 shares. The fifth bid is to pay $6
per share for 80 shares.
Assuming that all of these bids are confirmed and not withdrawn or modified
before the auction closes, and assuming that no additional bids are received,
the clearing price used to determine the public offering price
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<PAGE>
would be $8 per share, which is the highest price at which all 100 shares
offered may be sold to potential investors who have submitted valid bids.
However, the shares may be sold at a price below $8 per share based on
negotiations between the underwriters and Company X.
If the public offering price is the same as the $8 per share clearing price,
the underwriters will confirm bids at or above $8 per share. Because 110 shares
were bid for at or above the clearing price, each of the three potential
investors who bid $8 per share or more would receive approximately 90% of the
shares for which bids were made. The two potential investors whose bids were
below $8 per share would not receive any shares in this example.
If the public offering price is $7 per share, the underwriters will confirm
bids that were made at or above $7 per share. No bids made at a price of less
than $7 per share will be accepted. The four potential investors with the
highest bids would receive a pro rata portion of the 100 shares offered, based
on the 150 shares they requested, or two-thirds of the shares for which bids
were made.
The potential investor with the lowest bid would not receive any shares in
this example. The following table illustrates the example described above,
assuming that the initial public offering price is set at $8.00 per share. The
table also assumes that these bids are the final bids, and that they reflect
any modifications that have been made to reflect any prior changes to the
offering range, and to avoid the issuance of fractional shares.
<TABLE>
<CAPTION>
Initial Public Offering of Company X
Bid Information Auction Results
--------------------------- -------------------------------------
Approximate
Cumulative Allocated
Shares Shares Bid Shares Requested Clearing Amount
Requested Requested Price Allocated Shares Price Raised
--------- ---------- ------ --------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
20 20 $10.00 18 90% $8.00 $144
30 50 9.00 27 90 8.00 216
Clearing
Price (right
arrow) 60 110 8.00 55 90 8.00 440
40 150 7.00 0 0
80 230 6.00 0 0
--- ----
Total: 100 $800
=== ====
</TABLE>
Requirements for Valid Bids
Valid bids are those that meet the requirements, including eligibility,
account status and size, established by the underwriters or participating
dealers. In order to open a brokerage account with WR Hambrecht + Co, potential
investors must deposit at least $2,000 in their account. This brokerage account
will be a general account subject to WR Hambrecht + Co's customary rules, and
will not be limited to this offering. In addition, once the registration
statement becomes effective and the auction closes, a prospective investor
submitting a bid through a WR Hambrecht + Co brokerage account must have an
account balance equal to or in excess of the amount of its bid or its bid will
not be accepted by WR Hambrecht + Co. However, other than the $2,000 described
above, prospective investors will not be required to deposit any money into
their accounts until after the registration statement becomes effective. No
funds will be transferred to the underwriters, and any amounts in excess of
$2,000 may be withdrawn, at any time until the acceptance of the bid and the
subsequent closing of this offering. Conditions for valid bids, including
eligibility standards and account funding requirements of other underwriters or
participating dealers other than WR Hambrecht + Co, may vary.
The Closing of the Auction and Allocation of Shares
The auction will close on a date estimated and publicly disclosed in advance
by the underwriters on the website of WR Hambrecht + Co at www.wrhambrecht.com
or www.openipo.com. The shares
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<PAGE>
offered hereby, or shares if the underwriters' overallotment option
is exercised in full, will be purchased from us by the underwriters and sold
through the underwriters and participating dealers to investors who have
submitted bids at or higher than the public offering price. These investors
will be notified by e-mail, telephone or facsimile as soon as practicable
following the closing of the auction that their bids have been accepted.
Each participating dealer has agreed with the underwriters to sell the shares
it purchases from the underwriters in accordance with the auction process
described above, unless the underwriters otherwise consent. The underwriters
reserve the right to reject bids that they deem manipulative or disruptive in
order to facilitate the orderly completion of this offering, and they reserve
the right, in exceptional circumstances, to alter this method of allocation as
they deem necessary to ensure a fair and orderly distribution of the shares of
our common stock. For example, large orders may be reduced to ensure a public
distribution and bids may be rejected or reduced by the underwriters or
participating dealers based on eligibility or creditworthiness criteria. In
addition, the underwriters or the participating dealers may reject or reduce a
bid by a prospective investor who has engaged in practices that could have a
manipulative, disruptive or otherwise adverse effect upon the offering.
Price and volume volatility in the market for our common stock may result
from the somewhat unique nature of the proposed plan of distribution. Price and
volume volatility in the market for our common stock after the completion of
this offering may adversely affect the market price of our common stock.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to an aggregate of
additional shares of our common stock at the offering price, less the
underwriting discount, set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, the underwriters will have a
firm commitment to purchase the additional shares, and we will be obligated to
sell the additional shares to the underwriters. The underwriters may exercise
the option only to cover over-allotments made in connection with the sale of
shares offered. The underwriting agreement provides that we will indemnify the
underwriters against specified liabilities, including liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make.
We have agreed not to offer, sell, contract to sell, or otherwise dispose of
any shares of common stock, or any options or warrants to purchase common stock
other than the shares of common stock or options to acquire common stock issued
under our stock option plans and stock purchase plan, for a period of 180 days
after the date of this prospectus, except with the prior written consent of WR
Hambrecht + Co. Each of our directors, executive officers and additional
holders of approximately shares of our outstanding capital stock
has agreed to restrictions on his or her ability to sell, offer, contract or
grant any option to sell, pledge, transfer or otherwise dispose of shares of
our common stock for a period of 180 days after the date of this prospectus,
without the prior written consent of WR Hambrecht + Co.
In connection with the offering, persons participating in the offering may
purchase and sell shares of common stock on the open market. These transactions
may include short sales, stabilizing transactions in accordance with Rule 104
of Regulation M under the Securities Exchange Act of 1934, as amended, and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required
to purchase in the offering which creates a syndicate short position.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock. The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representative has repurchased shares sold
by or for the account of that underwriter in stabilizing or short covering
transactions. These activities by the underwriters may stabilize, maintain or
otherwise affect the market price of our common stock. As a result, the price
of our common stock may be higher than the price that otherwise might exist in
the open market. If these activities are commenced, they may be discontinued by
the underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
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<PAGE>
Persons participating in this offering may also engage in passive market
making transactions in our common stock on the Nasdaq National Market. Passive
market making consists of displaying bids on the Nasdaq National Market limited
by the prices of independent market makers and affecting purchases limited by
such prices and in response to order flow. Rule 103 of Regulation M promulgated
by the SEC limits the amount of net purchases that each passive market may make
and the displayed size of each bid.
Passive market making may stabilize the market price of our common stock at a
level above that which might otherwise prevail in the open market and, if
commenced, may be discontinued at any time. WR Hambrecht + Co currently intends
to act as a market maker for our common stock following this offering. However,
WR Hambrecht + Co is not obligated to do so and may discontinue any market
making at any time.
WR Hambrecht + Co is an investment banking firm formed in February 1998. In
addition to this offering, WR Hambrecht + Co has engaged in the business of
public and private equity investing and financial advisory services since its
inception. The manager of WR Hambrecht + Co, William R. Hambrecht, has 40 years
of experience in the securities industry.
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<PAGE>
LEGAL MATTERS
Selected legal matters with respect to the validity of the common stock
offered by this prospectus are being passed upon for Aristotle by Pillsbury
Madison & Sutro LLP, San Diego, California. Legal matters in connection with
this offering will be passed upon for the underwriters by Morrison & Foerster
LLP, San Francisco, California.
EXPERTS
Our financial statements and schedule as of December 31, 1999, and for the
year then ended, have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
Our financial statements and schedule as of December 31, 1998, and for each
of the years in the two year period ended December 31, 1998, have been included
in this prospectus and in the registration statement in reliance upon the
report of Keller Bruner & Company, LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules which are part of the registration statement. For
further information with respect to Aristotle and the common stock offered by
this prospectus, we refer you to the registration statement and the exhibits
and schedules filed as part of the registration statement. You may read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from the SEC's website at http://www.sec.gov. Upon
completion of this offering, we will become subject to the information and
periodic reporting requirements of the Securities and Exchange Act, as amended,
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. These periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the website of the SEC referred to above.
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<PAGE>
ARISTOTLE INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports.............................................. F-2
Balance Sheets............................................................. F-4
Statements of Operations................................................... F-5
Statements of Stockholders' Equity (Deficit)............................... F-6
Statements of Cash Flows................................................... F-7
Notes to Financial Statements.............................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Aristotle International, Inc.:
We have audited the accompanying balance sheet of Aristotle International,
Inc. as of December 31, 1999, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aristotle International, Inc.
as of December 31, 1999 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
May 12, 2000
McLean, Virginia
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Aristotle International, Inc.:
We have audited the accompanying balance sheet of Aristotle International,
Inc. as of December 31, 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
1997 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aristotle International, Inc.
as of December 31, 1998 and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1998 in conformity with generally
accepted accounting principles.
October 29, 1999
Bethesda, Maryland
F-3
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $ 44,399 $ 2,404,956
Accounts receivable, net............................ 178,725 1,003,727
Income tax receivable............................... 117,718 80,898
Other receivables................................... 27,386 13,067
Prepaid expenses and other current assets........... 102,471 100,000
---------- -----------
Total current assets.............................. 470,699 3,602,648
Property and equipment, net......................... 89,014 175,921
Other assets........................................ 1,952 23,048
---------- -----------
$ 561,665 $ 3,801,617
========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current installments of obligations under capital
lease.............................................. $ -- $ 3,665
Accounts payable.................................... 137,737 727,754
Accrued expenses.................................... 279,196 495,169
Deferred revenue.................................... 342,648 771,505
Notes payable--related parties...................... 241,136 308,139
---------- -----------
Total current liabilities......................... 1,000,717 2,306,232
Obligations under capital lease, excluding current
portion.............................................. -- 11,418
---------- -----------
Total liabilities................................. 1,000,717 2,317,650
---------- -----------
Convertible preferred stock........................... -- 3,500,000
---------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $0.001 par value; 10,000,000 shares
authorized; 3,000,000 shares issued and
outstanding........................................ 3,000 3,000
Additional paid-in capital.......................... 72,500 410,090
Accumulated deficit................................. (514,552) (2,429,123)
---------- -----------
(439,052) (2,016,033)
---------- -----------
$ 561,665 $ 3,801,617
========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Revenue:
Products................................ $1,187,812 $1,715,426 $ 2,815,431
Services................................ 530,476 812,914 1,097,132
---------- ---------- -----------
Total revenue......................... 1,718,288 2,528,340 3,912,563
---------- ---------- -----------
Cost of revenue:
Products................................ 290,966 555,410 987,220
Services................................ 100,420 123,564 262,844
---------- ---------- -----------
Total cost of revenue................. 391,386 678,974 1,250,064
---------- ---------- -----------
Gross profit.............................. 1,326,902 1,849,366 2,662,499
---------- ---------- -----------
Operating expenses:
General and administrative.............. 856,905 1,253,200 2,654,033
Sales and marketing..................... 817,697 1,195,237 1,633,054
Product development..................... 116,313 93,143 398,097
---------- ---------- -----------
Total operating expenses.............. 1,790,915 2,541,580 4,685,184
---------- ---------- -----------
Loss from operations...................... (464,013) (692,214) (2,022,685)
Other income (expense), net............... 65,496 634,544 75,178
Interest income........................... 19 -- 40,199
Interest expense.......................... (24,506) (23,698) (7,263)
---------- ---------- -----------
Loss before income taxes.................. (423,004) (81,368) (1,914,571)
Benefit from income taxes................. (173,909) -- --
---------- ---------- -----------
Net loss.................................. $ (249,095) $ (81,368) (1,914,571)
========== ========== ===========
Basic and diluted net loss per share
applicable to common stockholders........ $ (0.08) $ (0.03) $ (0.64)
========== ========== ===========
Shares used to compute basic and diluted
net loss per share applicable to common
stockholders............................. 3,000,000 3,000,000 3,000,000
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
---------------- Paid-In Accumulated Equity
Shares Amount Capital Deficit (Deficit)
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... 3,000,000 $3,000 $ 72,500 $ (184,089) $ (108,589)
Net loss................ -- -- -- (249,095) (249,095)
--------- ------ -------- ----------- -----------
Balance, December 31,
1997................... 3,000,000 3,000 72,500 (433,184) (357,684)
Net loss................ -- -- -- (81,368) (81,368)
--------- ------ -------- ----------- -----------
Balance, December 31,
1998................... 3,000,000 3,000 72,500 (514,552) (439,052)
Forgiveness of interest
on amounts due to
stockholders........... -- -- 81,483 -- 81,483
Equity-based
compensation........... -- -- 256,107 -- 256,107
Net loss................ -- -- -- (1,914,571) (1,914,571)
--------- ------ -------- ----------- -----------
Balance, December 31,
1999................... 3,000,000 $3,000 $410,090 $(2,429,123) $(2,016,033)
========= ====== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Reconciliation of net loss to net cash
provided by (used in) operating activities:
Net loss................................... $(249,095) $ (81,368) $(1,914,571)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 46,770 71,399 71,368
Provision for bad debts................... -- 7,000 67,580
Loss on disposal of property and
equipment................................ 21,410 30,546 4,242
Equity-based compensation expense......... -- -- 256,107
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable..................... (164,370) 702 (900,987)
Income tax receivable................... 153,304 94,626 36,820
Prepaid expenses and other current
assets................................. 380 (101,415) 25,195
Other assets............................ 399 2,500 (21,096)
Increase (decrease) in:
Accounts payable........................ 5,497 (95,654) 590,017
Accrued expenses........................ 102,890 39,850 301,456
Deferred revenue........................ 75,995 148,057 428,857
--------- --------- -----------
Net cash provided by (used in)
operating activities.................. (6,820) 116,243 (1,055,012)
--------- --------- -----------
Cash flows used in investing activities:
Purchase of property and equipment......... (11,597) (114,710) (149,263)
--------- --------- -----------
Net cash used in investing activities.. (11,597) (114,710) (149,263)
--------- --------- -----------
Cash flows from financing activities:
Decrease in disbursements in excess of
available cash............................ (13,017) -- --
Proceeds from issuance of Series A
Preferred Stock........................... -- -- 3,500,000
Principal payments on obligations under
capital lease............................. -- -- (2,171)
Proceeds from loans from stockholders...... 152,694 347,682 196,000
Repayments on loans from stockholders...... (96,816) (329,260) (128,997)
--------- --------- -----------
Net cash provided by financing
activities............................ 42,861 18,422 3,564,832
--------- --------- -----------
Net increase in cash................... 24,444 19,955 2,360,557
Cash and cash equivalents:
Beginning of year.......................... -- 24,444 44,399
--------- --------- -----------
End of year................................ $ 24,444 $ 44,399 $ 2,404,956
========= ========= ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest..... $ 1,515 $ 40 $ 7,263
Cash received from income tax refunds...... $ 326,408 $ 95,023 $ 36,820
Supplemental disclosure of noncash investing
and financing activities:
The Company incurred additional capital
lease obligations of approximately $16,643
during 1999 for new property and
equipment.
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
ARISTOLE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Nature of Business and Significant Accounting Policies
(a) Nature of Business
Aristotle International, Inc. (formerly Aristotle Publishing, Inc.)
("Aristotle" or the "Company") is a technology company that provides
information, products and services to political campaigns, advocacy
organizations and commercial enterprises. Over the past ten years, Aristotle
has compiled a large database of registered voters in the United States, which
is the Company's core strategic asset. The Company uses its database to provide
campaign management, Internet marketing and online fundraising.
A summary of the significant accounting policies of the Company is as
follows:
(b) Revenue Recognition
Revenue is generated from licensing software products and providing
services, including maintenance and technical support, training and consulting.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, Software Revenue
Recognition. Subsequently, in March 1998 and December 1998, the AICPA issued
SOP 98-4 and SOP 98-9, respectively, which defer until the Company's fiscal
year beginning January 1, 2000, the application of several paragraphs and
examples in SOP 97-2 that limit the definition of vendor specific objective
evidence ("VSOE") for determining fair value of various elements in a multiple
element arrangement. The provisions of SOP 97-2 have been applied to
transactions entered into beginning January 1, 1998. Prior to 1998, the
Company's revenue recognition policy was in accordance with the preceding
authoritative guidance provided by SOP No. 91-1, Software Revenue Recognition.
The adoption of SOP 97-2 did not have a material impact on the Company's
financial statements. Further, management of the Company does not believe that
the adoption of the remaining portions of SOP 97-2, which were deferred by SOP
98-4 and SOP 98-9, will have a material impact on the Company's financial
statements.
Software license revenue is recognized when there is an executed license
agreement, the software has been delivered, collectibility from the customer is
probable and there are no significant remaining obligations to the customer.
The Company also provides Internet-based fund raising, in which the Company
hosts the website, which may be accessed directly or through the customers'
websites, and processes the contributions. Contributions are generally made via
credit card. Revenue is recognized when the contributions are collected, and
are based upon negotiated transaction fee, which may contain fixed charges as
well as a percent of the contribution collected.
The Company also has entered into contracts with various electronic commerce
intermediaries to deliver targeted banner advertising to its customer base. The
Company will contract with its client for the delivery of a specified number of
impressions to its defined target market through the third-party websites.
Revenue is recognized as the impressions are delivered. However, revenue from
this activity was not significant during 1997, 1998 or 1999.
The Company has entered into representation agreements with other web
portals. Under the terms of these agreements, Aristotle earns a fee for banner
advertising sold on the third-party portals. Revenue is recognized on a pro
rata basis over the term of the advertising agreements, or as impressions are
delivered based upon whether the contracts with the advertisers are for a
specified period of time or a determined number of impressions. The Company
records this revenue on a net commission basis. However, no revenue was
recognized under these agreements during 1997, 1998 or 1999.
F-8
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Services revenue consists of maintenance and technical support, training and
consulting. Revenue from maintenance and technical support, which consists of
unspecified when and if available product updates and customer telephone
support services, are recognized ratably over the term of the service period.
Other services revenue is recognized as the related services are provided.
(c) Cost of Revenue
Cost of product revenue consists primarily of external costs associated with
acquisition, enhancements, updates and maintenance of voter records, as well as
personnel costs associated with programming and customization of the Company's
software. Cost of service revenue consists primarily of personnel costs
associated with our customer support department.
(d) Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. The
estimated useful lives used in determining depreciation are between three and
five years for office and computer equipment and five years for automobiles.
Leasehold improvements are amortized over the shorter of the useful life of the
asset, generally five years, or the lease term.
(e) Software Development Costs
Software development costs are accounted for in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. Under the standard, capitalization of software development costs
begins upon the establishment of technological feasibility, subject to net
realizable value considerations. To date, the period between the establishment
of technological feasibility and the general availability of such software has
been short; therefore, software development costs qualifying for capitalization
have been immaterial. Accordingly, the Company has not capitalized any software
development costs and has charged all such costs to product development
expense. Product development costs are expensed as incurred.
(f) Income Taxes
Deferred income taxes are provided on a liability method, whereby, deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates an the date of
enactment.
(g) Financial Credit Risk
The Company maintains its cash in bank deposit accounts, that, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash.
Financial instruments that potentially expose the Company to concentration
of credit risk consist primarily of trade receivables. Substantially all of the
Company's trade receivables are due from U.S. political candidates, their
campaign organizations and political organizations or businesses engaged in
lobbying activities. The trade receivables may age significantly prior to
collection, which is frequently funded with Federal matching funds received
several months after each campaign concludes. Changes to the Federal
F-9
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
campaign regulations or lobbying regulations could have an adverse impact on
the Company's ability to collect its receivables.
(h) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
(i) Stock Split
On March 24, 1999, the Board of Directors of the Company approved a 6,000-
for-1 split of the Company's common stock. All share, per share and conversion
amounts relating to common stock and stock options included in the accompanying
financial statements, and accompanying notes, have been retroactively adjusted
to reflect the stock split.
(j) Stock-Based Compensation
The Company accounts for equity-based compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25 Accounting for Stock Issued to Employees, and related interpretations,
and complies with the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. Under APB Opinion No. 25, compensation expense is
based upon the difference, if any, on the date of grant, between the fair value
of the Company's stock and the exercise price. All equity-based awards to non-
employees are accounted for at their fair value in accordance with SFAS No.
123.
(k) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and Notes payable--related parties approximate the fair values
due to the short-term nature of these instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
(l) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. The new standard establishes
accounting and reporting standards for derivative instruments embedded in other
contracts and for hedging activities. This statement, as amended, is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company does not expect SFAS No. 133 to have a material affect on its financial
position or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 (FIN 44), Accounting for Certain Transactions Involving
Stock Compensation. FIN 44 further defines the accounting consequence of
various modifications to the terms of a previously fixed stock option or award
under APB Opinion No. 25. FIN 44 becomes effective on July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occur after December 15, 1998
or January 12, 2000. The Company has not completed its evaluation of the impact
of FIN 44 on its financial position or results of operations.
F-10
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. This SAB expresses the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements.
Registrants can apply the accounting and disclosure requirements of this SAB
retrospectively, or may report a change in accounting principle no later than
the first fiscal quarter of the fiscal year beginning after December 15, 1999.
The Company does not expect the application of this SAB to have a material
impact on the Company's financial statements.
(m) Segment Information
The Company operates under one business segment providing voter database
related products and services.
(2) Accounts Receivable
Accounts receivable consists of the following as of December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Accounts receivable.................................... $190,725 $1,078,557
Allowance for doubtful accounts........................ (12,000) (74,830)
-------- ----------
$178,725 $1,003,727
======== ==========
</TABLE>
(3) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets at December 31, 1998 consists
primarily of equipment acquired for customer contracts that had not been
installed as of the end of the year. As of December 31, 1999, prepaid expenses
and other current assets is solely comprised of a prepaid contract fee with
MatchLogic for future services.
(4) Property and Equipment
Property and equipment consists of the following as of December 31, 1998
and 1999:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Office and computer equipment.......................... $ 126,638 $ 167,550
Automobiles............................................ 45,779 65,422
Leasehold improvements................................. 29,806 111,828
--------- ---------
202,223 344,800
Less-accumulated depreciation and amortization......... (113,209) (168,879)
--------- ---------
$ 89,014 $ 175,921
========= =========
</TABLE>
(5) Accrued Expenses
Accrued expenses consists of the following as of December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Accrued salaries and commissions.......................... $134,053 $425,784
Accrued vacation.......................................... 20,138 49,116
Accrued interest--related party........................... 81,483 --
Other accrued expenses.................................... 43,522 20,269
-------- --------
$279,196 $495,169
======== ========
</TABLE>
F-11
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(6) Notes Payable--Related Parties
Notes payable-related parties are notes held by stockholders of the
Company. As of December 31, 1998, notes payable in the amount of $241,136 were
unsecured, bore interest at nine percent per annum, and were due upon demand.
Accrued interest related to these notes totaled $43,929 as of December 31,
1998. During 1999, the Company converted the Notes payable-related parties
aggregating $308,139 from interest bearing to non-interest bearing convertible
notes and the stockholders forgave the associated accrued interest. The
forgiveness of the interest was treated as a capital contribution. Interest
expense related to these notes amounted to $25,255, $43,929 and $0 for the
years ended December 31, 1997, 1998 and 1999, respectively. These notes are
convertible at the option of the holder into Series A Preferred Stock, at a
conversion rate of $2.75 per share, subject to certain adjustments. The notes
are payable upon an initial public offering.
(7) Accrued Compensation--Stockholder
As of December 31, 1998 and 1999, the Company owed a stockholder/officer of
the Company $55,381 in deferred salaries. The amount is attributed to unpaid
salaries for the period from 1988 to 1994. The deferred salaries and interest
are payable upon demand. The Company has accrued interest related to the
liability at the rate of nine percent per annum through 1998 at which point
further interest was waived. Accrued interest amounted to $37,554 and $0 as of
December 31, 1998 and 1999, respectively. The amounts were paid during 2000.
(8) Income Taxes
Net deferred tax amounts consist of the following components as of December
31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
Deferred tax liabilities--property and
equipment................................ $ -- $ 3,059 $ --
--------- -------- ---------
Deferred tax assets:
Property and equipment.................. 6,463 -- 22,311
Accrued salaries........................ 22,976 22,974 22,974
Allowance for doubtful accounts......... 2,074 4,978 29,393
Accrued vacation........................ 5,677 8,354 19,493
Equity based compensation............... -- -- 100,599
Net operating loss carryforward......... -- 18,246 622,938
--------- -------- ---------
37,190 54,552 817,708
--------- -------- ---------
37,190 51,493 817,708
Less valuation allowance................ (37,190) (51,493) (817,708)
--------- -------- ---------
$ -- $ -- $ --
========= ======== =========
Income tax expense charged to operations for the years ended December 31,
1997, 1998 and 1999, consists of the following:
<CAPTION>
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
Current tax (benefit):
Federal................................. $(119,716) $ -- $ --
State................................... (54,193) -- --
--------- -------- ---------
$(173,909) $ -- $ --
========= ======== =========
</TABLE>
F-12
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the years ended
December 31, 1997, 1998 and 1999 due to the following.
<TABLE>
<CAPTION>
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
Computed "expected" tax benefit............ $(143,821) $(27,665) (650,954)
Increase (decrease) in income taxes
resulting from:
Other nondeductible expense.............. 10,492 5,437 5,027
State income taxes, net of federal tax
benefit................................. (42,216) (8,120) (120,298)
Other.................................... (35,554) (16,045) --
Increase in valuation allowance.......... 37,190 14,303 766,225
--------- -------- ---------
Total.................................. $(173,909) $ -- $ --
========= ======== =========
</TABLE>
There was no income tax expense (benefit) for the years ended December 31,
1998 or 1999. Net operating loss carryforwards (NOLs) as of December 31, 1997,
1998 and 1999 are approximately $0, $43,900 and $1,874,850, respectively, which
will expire, if unused, through 2019.
The realization of the benefits of the NOLs is dependent on sufficient
taxable income in future years. Lack of future earnings, a change in the
ownership of the Company, or the application of the alternative minimum rules
could adversely affect the Company's ability to utilize NOLs. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of the deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which the temporary differences become deductible. Management considers taxes
paid during the previous three years, scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies that
can be implemented by the Company in making this assessment. Management has
established a valuation for the full amount of the net deferred tax assets at
December 31, 1997, 1998 and 1999. The net change in the valuation allowance
during the years ended December 31, 1998 and 1999 was an increase of $14,303
and $732,354, respectively.
(9) Royalty Agreement
In 1997, the Company renewed a Data License agreement with Survey Sampling,
Inc. to receive royalties on Survey Sampling's sale of voter data. The
agreement allowed for the Company to receive cash advances against future
royalties earned, with additional royalties being paid on each six-month
anniversary of the agreement for royalties due less the applicable cash
advances paid against the royalties. The amount of royalty income receivable
included as a component of other current assets was $19,811 and $8,405 as of
December 31, 1998 and 1999, respectively. Royalty income included as a
component of other income was $8,456, $46,267 and $23,558 for the years ended
December 31, 1997, 1998 and 1999, respectively.
(10) Stockholders' Equity
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 10,000,000 shares of Common Stock and 1,400,000 shares of
Series A Preferred Stock.
F-13
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999, the Company had reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A Preferred Stock.......................... 1,272,727
Exercise of stock options....................................... 830,000
---------
2,102,727
=========
</TABLE>
(11) Convertible Preferred Stock
The Convertible Preferred Stock, as of December 31, 1999, consisted of
1,272,727 shares of Series A Preferred Stock (the "Series A"), par value $.001
per share and an original cost of $2.75 per share. The holders of the Series A
have the following rights and preferences:
(a) Voting Rights and Protective Provisions
The holders of Series A may vote with the common stockholders as a single
class on all actions taken by the stockholders on an as-if converted basis. The
holders of Series A are also entitled to separately elect two members of the
Board of Directors. The holders also have a right of first refusal to match the
purchase price for any issuance of stock to retain their voting interest in the
Company. Furthermore, consent of the holders of at least a majority of the
Series A is necessary for (i) liquidation, sale or disposal of 50% of the
voting power of the Company, (ii) modification of the rights, preferences or
privileges of the Series A shares, (iii) issuance of any stock with a
liquidation preference to the Series A shares, or (iv) a change in the number
of the authorized Series A.
(b) Dividends
The Series A is entitled to dividends at a rate of $0.22 per year upon the
declaration of a dividend by the Company. The dividends are not cumulative. No
dividends have been declared or paid for any period presented.
(c) Liquidation
The Series A is senior to all common stock and has a liquidation preference
of $2.75 per share, plus any declared and unpaid dividends. After the
preference has been paid, Series A stockholders share on an equal basis with
the common stockholders until total payments to the Series A stockholders have
received 300% of the original cost of $2.75, including preference payments.
(d) Redemption
The stock is not redeemable; however, a change of control of the Company
represents a liquidation as defined by the Certificate of Incorporation.
(e) Conversion
The Series A is immediately convertible into common stock at the option of
the holder at a rate of $2.75 per share. Additionally, the stock will
automatically convert upon the closing of an initial public offering with
proceeds of at least $15 million or upon the consent of two-thirds of the
Series A stockholders.
F-14
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(f) Dilution Provisions
The Series A includes provisions adjust the conversion price should any
stock be sold at a price below the $2.75 per share paid by the Series A
stockholders.
(12) Employee Benefit Plans
(a) 401(k) Plan
The Company established a defined contribution profit sharing plan for those
resident employees who have completed one year of service or 1,000 hours and
have reached 21 years of age. Annual contributions to the plan are composed of
discretionary amounts. Discretionary contributions are based on an integrated
formula. The Company did not make matching contributions for the years ended
December 31, 1997 and 1998. For 1999, the Company made a matching contribution
of $45,000. After six years of service, a participant shall be 100 percent
vested. The Company can terminate the plan at any time.
(b) Stock Option Plan
In March 1999, the Company's Board of Directors authorized the adoption of a
stock option plan. The Company has reserved up to 830,000 shares for issuance
under the stock option plan. All of the Company's employees, officers,
directors, consultants and advisors are eligible to be granted options under
the stock option plan. The exercise price and duration of the options are
determined by the Board at the date of grant. Vesting of these options is
generally 25 percent upon the first anniversary of the date of grant with the
remaining amount vesting ratably over a period of four years. The options
generally expire in ten years.
The following table summarizes outstanding and exercisable options for the
year ended December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/99 Contractual Life Exercise Price at 12/31/99 Exercise Price
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.50 205,500 9.3 years $0.73 107,543 $1.50
2.34 22,500 9.7 years 0.12 -- --
2.75 195,047 9.8 years 1.27 -- --
------- -------
423,047 9.6 years 2.12 107,543 1.50
======= =======
</TABLE>
The per share weighted average fair value of the options granted during 1999
was $1.16. The fair value of each option grant is estimated on the date of
grant, using the Black-Scholes options-pricing model with the following
weighted-average assumptions as of December 31, 1999:
<TABLE>
<S> <C>
Average dividend yield................................................. --
Expected life in years................................................. 5.0
Risk-free interest rate................................................ 5.38%
Expected volatility.................................................... --
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. As a result, the Company recorded equity-
based compensation expense of approximately $163,377 relating to options to
purchase 202,500 shares granted in 1999 equal to the difference between the
fair market value of the Company's common stock on the grant date and the
exercise price of the options.
F-15
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
SFAS No. 123 requires pro forma net income (loss) disclosures as if the
Company had accounted for its stock options granted under the fair value
method prescribed by that statement. Had the Company used the fair value
methodology for determining compensation expense, the following table presents
the proforma net loss that would have been recorded by the Company for options
granted during 1999:
<TABLE>
<S> <C>
Net loss:
As reported.................................................. $(1,914,571)
Pro forma.................................................... (2,028,509)
Net loss per share--basic and diluted:
As reported.................................................. (0.64)
Pro forma.................................................... (0.68)
</TABLE>
(13) Legal Settlement
During the year ended December 31, 1998, the Company reached a settlement
with a vendor regarding breach of contract. The vendor agreed to pay the
Company $650,000 in consideration of the mutual release of all parties. The
Company recognized other income of $650,000 in the year ended December 31,
1998.
(14) Commitments and Contingencies
(a) Capital and Operating Leases
The Company leases its office space under various noncancelable agreements
expiring through November 2002 and accounted for as operating leases. The
basic rentals are subject to increases each year for operating expenses and
real estate taxes. During 1999, the Company entered into a leasing agreement
to finance the purchase of an automobile.
Aggregate minimum rental payments under noncancelable leases as of December
31, 1999, are as follows:
<TABLE>
<CAPTION>
Operating Capital
--------- -------
<S> <C> <C>
2000.................................................... $193,000 $ 5,211
2001.................................................... 86,000 5,211
2002.................................................... 61,000 5,210
2003.................................................... -- 2,795
-------- -------
Total future minimum payments......................... $340,000 18,427
========
Less amount representing interest....................... (3,344)
-------
Present value future minimum lease payments........... 15,083
Less current maturities of obligations under capital
lease.................................................. (3,665)
-------
Obligations under capital lease, net of current
maturities........................................... $11,418
=======
</TABLE>
The Company has entered into an agreement to sublease a portion of the
leased office space that expires in August 1999. The sublease income was $0,
$22,194 and $19,728 for the years ended December 31, 1997, 1998 and 1999,
respectively.
Total rental expense net of sublease receipts charged to operations for the
years ended December 31, 1997, 1998 and 1999 amounted to $82,511, $72,517 and
$117,406, respectively.
F-16
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(b) Commitments
The Company entered into an agreement in March 1998 with the United States
Postal Service ("USPS") for use of USPS "Fastforward technology" whereby the
Company shall make a yearly payment to the USPS in the amount of $10,000 for
the right to use the technology. The license is contingent upon the Company
making payment to the USPS no less than sixty days prior to the end of a
particular term. The maximum number of terms that the license may be renewed is
ten.
(c) Employment and Stock Repurchase Options.
In September 1999, the Company entered into an Employment and Stock
Repurchase Agreement with the Company's founders. The Agreement provides for
annual compensation, severance and relocation packages, and provides for the
Company to repurchase the Company's stock at the Founder's cost upon
termination.
The Company also has employment agreements with other key executives.
(d) Contingencies
The Company is engaged in various litigation in the ordinary course of
business. Management believes that there will be no material adverse effect on
its financial position or results of operations as a result of these matters.
We have received a letter from a third party engaged in website design and
Web hosting requesting that we cease and desist from using the name Aristotle
in connection with our online activities. Although the third party has a
registered trademark for the use of the name Aristotle in connection with
Internet access and website design and hosting, we believe that we have rights
to use the name Aristotle in connection with our political, campaign and
advocacy operations. We also believe we may have legal rights to use the name
Aristotle in connection with our commercial and nonprofit activities, however,
there is a risk that we may not be able to use the name Aristotle for these
activities on the Internet. If we are unable to use our brand name for these
activities we would be required to develop a new brand name for these
activities, which could impact our sales and marketing activities, and
therefore our ability to generate revenue.
F-17
<PAGE>
[INSIDE BACK COVER]
<PAGE>
[LOGO]
Until , 2000, 25 days after the date of this offering, all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealer's obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates,
except the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC Registration Fee.............................................. $7,920
NASD Filing Fee................................................... 3,500
Nasdaq National Market Listing Fee................................ *
Printing and Engraving............................................ *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
Blue Sky Fees and Expenses........................................ *
Transfer Agent Fees............................................... *
Director & Officer Liability Insurance (1933 Act Premiums)........ *
Miscellaneous..................................................... *
------
Total........................................................... $ *
======
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by Delaware General Corporation Law, the registrant's
certificate of incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except to the extent that exculpation from liability is not
permitted under the Delaware General Corporation Law as in effect at the time
such liability is determined.
As permitted by the Delaware General Corporation Law, the bylaws of the
registrant provide for indemnification of the registrant's directors, officers,
employees and other agents to the extent and under the circumstances permitted
by the Delaware General Corporation Law.
The registrant intends to enter prior to the closing of this offering into
agreements with its directors and executive officers that will require the
registrant, among other things, to indemnify them against certain liabilities
that may arise by reason of their status or service as directors or executive
officers to the fullest extent not prohibited by law.
The registrant intends to purchased directors and officers liability
insurance prior to the closing of this offering.
Reference is also made to the Underwriting Agreement, which provides for the
indemnification of officers, directors and controlling persons of the
registrant against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the following securities were sold or issued by
the registrant without registration under the Securities Act:
(a) Issuances of capital stock:
1. In September 1999, the registrant issued and sold 1,272,727 shares of
Series A Preferred Stock to three investors for an aggregate purchase price
of $3,500,000.
II-1
<PAGE>
(b) Grants of stock options:
1. The registrant's 1999 Stock Option Plan was adopted by the board of
directors in 1999. At various times since 1999, the registrant has granted
438,047 options for shares of common stock at a purchase price of between
$1.50 per share and $2.75 per share.
(c) Convertible Promissory Notes:
1. In September 1999, the registrant issued a convertible promissory note
in the amount of $308,139.45, without interest, in satisfaction of certain
payments made to it by certain directors of the registrant. The note is
convertible upon demand of the holders into Series A Preferred Stock, which
is in turn convertible into 112,050 shares of common stock at the closing
of this offering. The number of shares subject to the conversion is
determined by dividing the then outstanding principal amount of the Note by
the original Series A issue price, as established in the registrant's
Restated Certificate of Incorporation, and with certain adjustments as
described in Article IV(B)(4)(d) therein.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act, as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under Rule 701. The recipients of
securities in each of these transactions represented their intention to acquire
the securities for investment only and not with view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationship with the Registrant,
to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of Aristotle International, Inc.
*3.2 Bylaws of Aristotle International, Inc.
*4.1 Form of Stock Certificate.
4.2 Aristotle Publishing, Inc., Investors' Rights Agreement, dated as of
September 17, 1999, by and among the registrant and the parties who
are signatories thereto.
*5.1 Opinion of Pillsbury Madison & Sutro LLP.
10.1 Registrant's 1999 Stock Option Plan.
*10.2 Registrant's 2000 Omnibus Stock Plan.
10.3 Employment and Stock Repurchase Agreement, dated as of September 17,
1999, by and between the registrant and John A. Phillips.
10.4 Employment and Stock Repurchase Agreement, dated as of September 17,
1999, by and between the registrant and Dean A. Phillips.
10.5 Letter Agreement, dated as of October 6, 1999, by and between the
registrant and Rob Christ.
10.6 Letter Agreement, dated as of November 2, 1999, by and between the
registrant and Blair Richardson.
*10.7 Letter Agreement, dated as of , by and between the registrant and
Gordon N. Stoll.
*10.8 Form of Directors and Officers' Indemnification Agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.9 Agreement, dated as of February 9, 1998, between the registrant and
Central Address Systems, Inc.
10.10 Lease Agreement, dated as of September 28, 1999, between the registrant
and Colleen Brent, Leland Dobbs and Barrett G. Levine.
10.11 Office Lease Agreement, dated as of January 15, 2000, between the
registrant and Council on American-Islamic Relations.
10.12 Lease Agreement, dated September 30, 1996, between the registrant and
Sidney S. Zlotnick and Renee Z. Kraft.
10.13 Form of Proprietary Information and Inventions Agreement.
23.1 Consent of KPMG LLP, Independent Auditors.
23.2 Consent of Keller Bruner & Company, LLP.
*23.3 Consent of Pillsbury Madison & Sutro LLP (contained in their opinion
filed as Exhibit 5.1).
24.1 Power of attorney (reference is made to Page II-4).
27.1 Financial Data Schedule for Aristotle International, Inc.
</TABLE>
- --------
* To be filed by amendment
(b) Financial Statement Schedules
See Schedule II attached.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on the 14th day of May, 2000.
ARISTOTLE, INC.
/s/ John A. Phillips
By: _________________________________
John A. Phillips
Chief Executive Officer and
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John A. Phillips and T. Robert Christ, and each
of them, his or her true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration
Statement, and any registration statement relating to the offering covered by
this Registration Statement and filed pursuant to Rule 462(b) under the
Securities Act of 1933 and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each of said attorneys-
in-fact and agents or their substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ John A. Phillips Chief Executive Officer May 14, 2000
______________________________________ and Director (Principal
John A. Phillips Executive Officer)
/s/ T. Robert Christ Chief Financial Officer May 14, 2000
______________________________________ (Principal financial
T. Robert Christ Officer and Principal
Accounting Officer)
/s/ Dean A. Phillips President and Director May 14, 2000
______________________________________
Dean A. Phillips
/s/ Nicholas Donatiello, Jr. Director May 14, 2000
______________________________________
Nicholas Donatiello, Jr.
/s/ Esther Dyson Director May 14, 2000
______________________________________
Esther Dyson
/s/ William R. Hambrecht Director May 14, 2000
______________________________________
William R. Hambrecht
</TABLE>
II-4
<PAGE>
ARISTOTLE INTERNATIONAL, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- ------------------- -------- --------
Additions Charged Balance
Balance at Charged to to Other Amounts at End
Beginning Costs and Accounts Written of
Classification of Period Expenses Describe Off Period
-------------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful
accounts................... $ 5,000 $ 4,264 $ -- $(4,264) $ 5,000
======= ======== ===== ======= ========
Valuation allowance on
deferred tax asset......... -- 37,190 -- -- 37,190
======= ======== ===== ======= ========
Year ended December 31, 1998
Allowance for doubtful
accounts................... 5,000 7,420 -- (420) 12,000
======= ======== ===== ======= ========
Valuation allowance on
deferred tax asset......... 37,190 14,303 -- -- 51,493
======= ======== ===== ======= ========
Year ended December 31, 1999
Allowance for doubtful
accounts................... 12,000 67,580 -- (4,750) 74,830
======= ======== ===== ======= ========
Valuation allowance on
deferred tax asset......... $51,493 $732,354 $ -- $ -- $783,847
======= ======== ===== ======= ========
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of Aristotle International, Inc.
*3.2 Bylaws of Aristotle International, Inc.
*4.1 Form of Stock Certificate.
4.2 Aristotle Publishing, Inc., Investors' Rights Agreement, dated as of
September 17, 1999, by and among the registrant and the parties who
are signatories thereto.
*5.1 Opinion of Pillsbury Madison & Sutro LLP.
10.1 Registrant's 1999 Stock Option Plan.
*10.2 Registrant's 2000 Omnibus Stock Plan.
10.3 Employment and Stock Repurchase Agreement, dated as of September 17,
1999, by and between the registrant and John A. Phillips.
10.4 Employment and Stock Repurchase Agreement, dated as of September 17,
1999, by and between the registrant and Dean A. Phillips.
10.5 Letter Agreement, dated as of October 6, 1999, by and between the
registrant and Rob Christ.
10.6 Letter Agreement, dated as of November 2, 1999, by and between the
registrant and Blair Richardson.
*10.7 Letter Agreement, dated as of , by and between the registrant and
Gordon N. Stoll.
*10.8 Form of Directors and Officers' Indemnification Agreement.
10.9 Agreement, dated as of February 9, 1998, between the registrant and
Central Address Systems, Inc.
10.10 Lease Agreement, dated as of September 28, 1999, between the
registrant and Colleen Brent, Leland Dobbs and Barrett G. Levine.
10.11 Office Lease Agreement, dated as of January 15, 2000, between the
registrant and Council on American-Islamic Relations.
10.12 Lease Agreement, dated September 30, 1996, between the registrant and
Sidney S. Zlotnick and Renee Z. Kraft.
10.13 Form of Proprietary Information and Inventions Agreement.
23.1 Consent of KPMG LLP, Independent Auditors.
23.2 Consent of Keller Bruner & Company, LLP.
*23.3 Consent of Pillsbury Madison & Sutro LLP (contained in their opinion
filed as Exhibit 5.1).
24.1 Power of attorney (reference is made to Page II-4).
27.1 Financial Data Schedule for Aristotle International, Inc.
</TABLE>
- --------
* To be filed by amendment
<PAGE>
EXHIBIT 4.2
ARISTOTLE PUBLISHING, INC.
INVESTORS' RIGHTS AGREEMENT
SEPTEMBER 17, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Registration Rights ...................................................... 1
1.1 Definitions .................................................... 1
1.2 Request for Registration ....................................... 2
1.3 Company Registration ........................................... 3
1.4 Form-3 Registration ............................................ 5
1.5 Obligations of the Company ..................................... 6
1.6 Information from Holder ........................................ 6
1.7 Expenses of Registration ....................................... 7
1.8 Delay of Registration .......................................... 7
1.9 Indemnification ................................................ 7
1.10 Reports Under Securities Exchange Act of 1934 ................. 9
1.11 Assignment of Registration Rights ............................. 10
1.12 Limitations on Subsequent Registration Rights ................. 10
1.13 "Market Stand-Off' Agreement .................................. 10
1.14 Termination of Registration Rights ............................ 11
2. Covenants of the Company ................................................. 11
2.1 Delivery of Financial Statement ................................ 11
2.2 Inspection ..................................................... 12
2.3 Termination of Information and Inspection Covenants............. 12
2.4 Right of First Offer ........................................... 12
2.5 Board of Directors ............................................. 13
2.6 Observer Rights ................................................ 14
2.7 Termination of Certain Covenants ............................... 15
2.8 Confidentiality ................................................ 15
3. Miscellaneous ........................................................... 15
3.1 Successors and Assigns ......................................... 15
3.2 Governing Law .................................................. 15
3.3 Counterparts ................................................... 15
3.4 Titles and Subtitles ........................................... 16
3.5 Notices ........................................................ 16
3.6 Expenses ....................................................... 16
3.7 Entire Agreement: Amendments and Waivers ....................... 16
3.8 Severability ................................................... 16
3.9 Aggregation of Stock ........................................... 16
</TABLE>
<PAGE>
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 17th day of
September, 1999, by and among Aristotle Publishing, Inc., a Delaware corporation
(the "Company") the investors listed on Schedule A hereto, each of which is
herein referred to as an "Investor" and the holders of Common Stock listed on
Schedule B hereto, each of which is herein referred to as a "Founder."
RECITALS
WHEREAS, the Company and the Investors are parties to the Series A
Preferred Stock Purchase Agreement of even date herewith (the "Series A
Agreement");
WHEREAS, in order to induce the Company and the Founders to approve the
issuance of the Series A Preferred Stock and to induce the Investors to invest
funds in the Company pursuant to the Series A Agreement, the Investors, the
Founders and the Company hereby agree that this Agreement shall govern the
rights of the Investors and the Founders to cause the Company to register shares
of Common Stock issued or issuable to them and certain other matters as set
forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.11 hereof.
(d) The term "Initial Offering" means the Company's first
firm commitment underwritten public offering of its Common Stock under the Act.
(e) The term "1934 Act" means the Securities Exchange Act
of 1934, as amended.
(f) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in
<PAGE>
compliance with he Act, and the declaration or ordering of effectiveness of such
registration statement or document.
(g) The term "Registrable Securities" means (i) the
Common Stock issuable or issued upon conversion of the Series A Preferred Stock,
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security that is issued
as) a dividend or other distribution with respect to, or in exchange for, or in
replacement of, the shares referenced in (i) above, excluding in all cases,
however, any Registrable Securities sold by a person to the public either
pursuant to Rule 144 or in a transaction in which his rights under this Section
1 are not assigned.
(h) The number of shares of "Registrable Securities"
outstanding shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(i) The term "SEC" shall mean the Securities and
Exchange Commission.
1.2 Request for Registration.
------------------------
(a) Subject to the conditions of this Section 1.2, if
the Company shall receive at any time after the earlier of (i) two (2) years
after the date of this Agreement or (ii) six (6) months after the effective date
of the Initial Offering, a written request from the Holders of twenty-five
percent (25%) or more of the Registrable Securities then outstanding (the
"Initiating Holders") that the Company file a registration statement under the
Act covering the registration of Registrable Securities with an anticipated
aggregate offering price of at least $5,000,000, then the Company shall, within
twenty (20) days of the receipt thereof, give written notice of such request to
all Holders, and subject to the limitations of this Section 1.2, use best
efforts to effect, as soon as practicable, the registration under the Act of all
Registrable Securities that the Holders request to be registered in a written
request received by the Company within twenty (20) days of the mailing of the
Company's notice pursuant to this Section 1.2(a).
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in Section 1.2(a). In such event the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 1.2, if the underwriter
advises the Company that marketing factors require a limitation of the number
2
<PAGE>
of securities underwritten (including Registrable Securities), then the Company
shall so advise all Holders of Registrable Securities that would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
(c) The Company shall not be required to effect a
registration pursuant to this Section 1.2:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Act; or
(ii) after the Company has effected three (3)
registrations pursuant to this Section 1.2, and such registrations have been
declared or ordered effective; or
(iii) during the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of the filing
of, and ending on a date one hundred eighty (180) days following the effective
date of, a Company-initiated registration subject to Section 1.3 below, provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or
(iv) if the Initiating Holders propose to dispose of
Registrable Securities that may be registered on Form S-3 pursuant to Section
1.4 hereof; or
(v) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 1.2, a certificate
signed by the Company's Chief Executive Officer Chairman of the Board stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its shareholders for such
registration statement to be effected at such time, in which event the Company
shall have the right to defer such filing for a period of not more than one
hundred twenty (120) days after receipt of the request of the Initiating
Holders, provided that such right to delay a request shall be exercised by the
Company not more than once in any twelve (12)-month period.
1.3 Company Registration.
--------------------
(a) If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its stock or other
securities under the Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Act, a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or a registration in which the only Common Stock
3
<PAGE>
being registered is Common Stock issuable upon conversion of debt securities
that are also being registered), the Company shall, at such time, promptly give
each Holder written notice of such registration. Upon the written request of
each Holder given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 3.5, the Company shall, subject to the
provisions of Section 1.3(c), use all reasonable efforts to cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
(b) Right to Terminate Registration. The Company shall
-------------------------------
have the right to terminate or withdraw any registration initiated by it under
this Section 1.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The expenses
of such withdrawn registration shall be home by the Company in accordance with
Section 1.7 hereof.
(c) Underwriting Requirements. In connection with any
-------------------------
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under this Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling Holders according to the total amount of securities entitled
to be included therein owned by each selling Holder or in such other proportions
as shall mutually be agreed to by such selling Holders), but in no event shall
(i) the amount of securities of the selling Holders included in the offering be
reduced below thirty percent (30%) of the total amount of securities included in
such offering, unless such offering is the initial public offering of the
Company's securities, in which case the selling Holders may be excluded if the
underwriters make the determination described above and no other shareholder's
securities are included, or (ii) notwithstanding (i) above, any shares being
sold by a shareholder exercising a demand registration right similar to that
granted in Section 1.2 be excluded from such offering. For purposes of the
preceding parenthetical concerning apportionment, for any selling shareholder
that is a Holder of Registrable Securities and that is a partnership or
corporation, the partners, retired partners and shareholders of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling Holder," and any pro rata reduction with respect to such
"selling Holder" shall be based upon the aggregate amount of Registrable
Securities owned by all such related entities and individuals.
4
<PAGE>
1.4 Form S-3 Registration. In case the Company shall receive
---------------------
from the Holders of Registrable Securities a written request or requests that
the Company effect a registration on~Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company shall:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) use best efforts to effect, as soon as practicable,
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company, provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this section
1.4:
(i) if Form S-3 is not available for such offering
by the holders;
(ii) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $5,000,000;
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer or Chairman of the Board of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.4; provided, however, that the Company shall not utilize this right more than
once in any twelve month period;
(iv) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected one
registration on Form S-3 for the Holders pursuant to this Section 1.4; or
(v) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as requests for registration effected pursuant
to Sections 1.2.
5
<PAGE>
1.5 Obligations of the Company. Whenever required under this
--------------------------
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously sly as reasonably possible:
(a) prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use best efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for a period of up to one hundred
twenty (120) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them;
(d) use best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act or the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
1.6 Information from Holder. It shall be a condition precedent
-----------------------
to the obligations of the Company to take any action pursuant to this Section 1
with respect to the
6
<PAGE>
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
1.7 Expenses of Registration. All expenses other than
------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
and the reasonable fees and disbursements of one counsel for the selling Holders
which fees and disbursements shall not exceed $30,000, shall be borne by the
Company. Notwithstanding the foregoing, the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 1.2 or
Section 1.4 if the registration request is subsequently withdrawn at the request
of the Holders of a majority of the Registrable Securities to be registered (in
which case all participating Holders shall bear such expenses pro rata based
upon the number of Registrable Securities that were to be requested in the
withdrawn registration), unless, in the case of a registration requested under
Section 1.2, the Holders of a majority of the Registrable Securities agree to
forfeit their right to one demand registration pursuant to Section 1.2,
provided, however, that if at the time of such withdrawal, the Holders have
learned of a material adverse change in the condition, business, or prospects of
the Company different from that known to, or not previously known by, the
Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2 or 1.4.
1.8 Delay of Registration. No Holder shall have any right to
---------------------
obtain or seer; an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities
---------------
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners or officers, directors and
shareholders of each Holder, legal counsel and accountants for each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the 1934
Act, against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, any
state securities laws or any rule or regulation promulgated under the Act, the
1934 Act
7
<PAGE>
or any state securities laws; and the Company will reimburse each such Holder,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection 1.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter controlling person;
provided further, however, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder or underwriter to
such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, legal counsel and
accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or any state securities laws, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any person intended
to be indemnified pursuant to this subsection 1.9(b), for any legal or other
expenses reasonably incurred by such person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.9(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld), provided that in no event shall any
indemnity under this subsection 1.9(b) exceed the net proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however,
8
<PAGE>
that an indemnified party (together with all other indemnified parties that may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.9, but the omission so to deliver written notice to the
indemnifying will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section
1.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or Omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a view
---------------------------------------------
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the Initial Offering;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
9
<PAGE>
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.11 Assignment of Registration Rights. The rights to cause
---------------------------------
the Company to register Registrable Securities pursuant to this Section I may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is a subsidiary, parent, partner, limited
partner, retired partner or shareholder of a Holder, (ii) is a Holder's family
member or trust for the benefit of an individual Holder, or (iii) after such
assignment or transfer, holds at least 125,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (a) the Company is, within
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1.13 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act.
1.12 Limitations on Subsequent Registration Rights. From and
---------------------------------------------
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.3 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of their securities.
1.13 "Market Stand-Off,' Agreement. Each Holder hereby agrees
-----------------------------
that it will not, without the prior written consent of the managing underwriter,
during the period commencing on the date of the final prospectus relating to the
Company's initial public offering and ending on the date specified by the
Company and the managing underwriter (such period not to exceed one hundred
eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are then owned by the Holder or are thereafter acquired), or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any
10
<PAGE>
such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing provisions of this Section 1.13 shall apply only to the Company's
initial public offering of equity securities, shall not apply to the sale of any
shares to an underwriter pursuant to an underwriting agreement, and shall only
be applicable to the Holders if all officers and directors and greater than one
percent (1%) shareholders of the Company enter into similar agreements. The
underwriters in connection with the Company's initial public offering are
intended third party beneficiaries of this Section 1.13 and shall have the
right, power and authority to enforce the provisions hereof as though they were
a party hereto.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.14 Termination of Registration Rights. No Holder shall be
----------------------------------
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the Initial Offering or, as to any Holder,
such earlier time at which all Registrable Securities held by such Holder (and
any affiliate of the Holder with whom such Holder must aggregate its sales under
Rule 144) can be sold in any three (3)-month period without registration in
compliance with Rule 144 of the Act.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver
--------------------------------
to each Investor and each Holder, so long as each such Holder holds at least
125,000 shares of Registrable Securities (subject to appropriate adjustment for
stock splits, stock dividends, combinations and other recapitalizations):
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by independent public accountants of nationally
recognized standing selected by the Company;
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited income statement, statement of
cash flows for such fiscal quarter and an unaudited balance sheet as of the end
of such fiscal quarter.
(c) within thirty (30) days of the end of each month, an
unaudited income statement and statement of cash flows and balance sheet for and
as of the end of such month, in reasonable detail;
11
<PAGE>
(d) as soon as practicable, but in any event at least thirty
(30) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance sheets,
income statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company certifying that such financials
were prepared in accordance with GAAP consistently applied with prior practice
for earlier periods (with the exception of -footnotes that may be required by
GAAP) and fairly present the financial condition of the Company and its results
of operation for the period specified, subject to year-end audit adjustment; and
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
the Company shall not be obligated under this subsection (f) or any other
subsection of Section 2.1 to provide information that it deems in good faith to
be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each Investor, at such
----------
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however. that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information that it
reasonably considers to be a trade secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in Sections 2.1 and 2.2 shall terminate as to Investors and
be of no further force or effect when the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
firm commitment underwritten offering of its securities to the general public is
consummated or when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall
first occur.
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this paragraph 2.4, the Company hereby grants to each Investor who
holds at least 125,000 Registrable Securities (for purposes of this Section 2.4,
a "Major Investor"), a right of first offer with respect to future sales by the
Company of its Shares (as hereinafter defined). For purposes of this Section
2.4, Investor includes any general partners and affiliates of an Investor. An
Investor shall be entitled to apportion the right of first offer hereby granted
it among itself and its partners and affiliates in such proportions as it deems
appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exchangeable or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Investor in accordance with the following provisions.
12
<PAGE>
(a) The Company shall deliver a notice in accordance with
Section 3.5 ("Notice") to the Major Investors stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
fifteen (15) calendar days after receipt of the Notice, each Major Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series A Preferred Stock then held, by such Major Investor bears to the
total number of shares of Common Stock of the Company then outstanding (assuming
full conversion of all convertible securities). The Company shall promptly, in
writing, inform each Major Investor that elects to purchase all the shares
available to it (a "Fully Exercising Investor") of any other Major Investor's
failure to do likewise. During the ten (10) day period commencing after such
information is given, each Fully Exercising Investor may elect to purchase that
portion of the Shares for which Major Investors were entitled to subscribe but
which were not subscribed for by the Major Investors that is equal to the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of Series A Preferred Stock then held, by such Fully
Exercising Investor bears to the total number of shares of Common Stock issued
and held, or issuable upon conversion of the Series A Preferred Stock then held,
by all Fully Exercising Investors who wish to purchase some of the unsubscribed
shares.
(c) If all Shares that Major Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the ninety (90) day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within ninety (90) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable to (i) the issuance or sale of shares of Common Stock (or options
therefor) to employees, directors and consultants for the primary purpose of
soliciting or retaining their services; (ii) the issuance of securities pursuant
to a bona fide, firmly underwritten public offering of shares of Common Stock,
registered under the Act, resulting in proceeds to the Company of at least
$15,000,000 in the aggregate, (iii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities outstanding as
of the date of this Agreement, or (iv) the issuance of securities in connection
with a bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise.
2.5 Board of Directors;
------------------
(a) With respect to one (1) of the members of the Company's
Board of Directors that the Company's Restated Certificate of Incorporation (the
"Restated Certificate") provides are to be elected by the holders of Common
Stock (the "Common Directors"), the
13
<PAGE>
Investors and the Founders hereby agree to vote all of their shares of Common
Stock and Preferred Stock now owned or hereafter acquired in favor of a person
designated by the unanimous consent of the remaining members of the Board of
Directors.
(b) With respect to one (1) of the two (2) members of the
Company's Board of Directors that the Restated Certificate provides are to be
elected by the holders of the Series A Preferred Stock (the "Series A
Directors"), the Investors hereby agree to vote all of their shares of Series A
Preferred Stock now owned or hereafter acquired in favor of the election of a
designee of entities affiliated with W.R. Hambrecht & Co., which designee shall
initially be William R. Hambrecht ("Mr. Hambrecht") until such time as Mr.
Hambrecht is no longer able to serve as director of the Company as a result of
death or prolonged physical or mental incapacity.
(c) Should the provisions of this Section 2.5 be construed to
constitute the granting of proxies, such proxies shall be deemed coupled with an
interest and are irrevocable for the term of this Agreement. It is agreed and
understood that monetary damages would not adequately compensate an injured
party for the breach of this Section 2.5 by any party, that this Section 2.5
shall be specifically enforceable, and that any breach or threatened breach of
this Section 2.5 shall be the proper subject of a temporary or permanent
injunction or restraining order. Further, each party hereto waives any claim or
defense that there is an adequate remedy at law for such breach or threatened
breach.
(d) In the event of the resignation, death, removal or
disqualification of a Series A Director, as the case may be, W.R. Hambrecht &
Co. shall promptly nominate a new director, and, after written notice of the
nomination has been given by W.R. Hambrecht & Co. to the other parties, each
Investor and Founder shall vote its shares of capital stock of the Company
entitled to vote in such election to elect such nominee to the Board of
Directors.
(e) Except with respect to Mr. Hambrecht, W.R. Hambrecht & Co.
may remove its designated director(s) at any time and from time to time, with or
without cause (subject to the Bylaws of the Company as in effect from time to
time and any requirements of law), in its sole discretion, and, after written
notice to each of the parties hereto of the new nominee to replace such
director, each Investor and Founder shall promptly vote its shares of capital
stock of the Company entitled to vote in such election to elect such nominee to
the Board of Directors.
2.6 Observer Rights. The Company shall invite a representative of
---------------
entities affiliated with W.R Hambrecht & Co., which representative shall
initially be Scott Gibbs, to attend all meetings of its Board of Directors in a
nonvoting observer capacity and, in this respect, shall give such representative
copies of all notices, minutes, consents, and other materials that it provides
to its directors; provided, however, that such representative shall agree to
hold in confidence and trust and to act in a fiduciary manner with respect to
all information so provided; and, provided further, that the Company reserves
the right to withhold any information and to exclude such representative from
any meeting or portion thereof if access to such information or attendance at
such meeting could adversely affect the attorney-client privilege between the
Company and its counsel or would result in disclosure of trade secrets to such
representative or if such Investor or its representative is a direct competitor
of the Company.
14
<PAGE>
2.7 Termination of Certain Covenants. The covenants set forth in
--------------------------------
Sections 2.4, 2.5 and 2.6 shall terminate and be of no further force or effect
upon the earlier to occur of:
(i) the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm commitment
underwritten offering of its securities to the general public is consummated,
resulting in at least $15,000,000 in aggregate proceeds to the Company; or
(ii) the date upon which the Company first becomes subject to the
periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act.
2.8 Confidentiality. Each Holder shall agree to use, and to
---------------
its best efforts to insure that its authorized representatives use, the same
degree of care as such Holder uses to protect its own confidential information
to keep confidential any information furnished to it, which the Company
identifies as being confidential or proprietary (so long as such information is
not in the public domain), except that such Holder may disclose such
confidential and proprietary information to any partner, subsidiary or parent of
such Holder for the sole purpose of evaluating its investment in the Company so
long as such partner, subsidiary or parent is advised and agrees to the
confidentiality provisions of this Section 2.8; provided, however, that the
obligations under this Section 2.8 shall not apply to a Holder with respect to
any information after five years following the disclosure thereof or any
information that such Holder can document (i) is or becomes (through no improper
action or inaction by such Holder or any affiliate, agent, consultant or
employee thereof) generally available to the public, (ii) was in its possession
or known by such Holder prior to receipt from the Company, (iii) was rightfully
disclosed to such Holder by a third party, or (iv) was independently developed
without use of any confidential information of the Company. Each Holder may make
disclosures required by law or court order provided such Holder uses diligent
reasonable efforts to limit disclosure and to obtain confidential treatment or a
protective order and has allowed the Company to participate in the proceeding.
3. Miscellaneous.
--------------
3.1 Successors and Assigns. Except as otherwise provided herein,
----------------------
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any path than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of Delaware as applied to agreements among
Delaware residents entered into and to be performed entirely within Delaware.
3.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15
<PAGE>
3.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
3.6 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Entire Agreement: Amendments and Waivers. This Agreement
----------------------------------------
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof. Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Registrable
Securities. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities each future
holder of all such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 Aggregation of Stock. All shares of Registrable Securities
--------------------
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ARISTOTLE PUBLISHING, INC.
By: /s/ John Phillips
________________________________
Name: John Phillips
______________________________
Title: CEO
_____________________________
16
<PAGE>
INVESTORS:
W. R. Hambrecht/Aristotle, LLC
------------------------------
Name of Investor
By: /s/ W. R. Hambrecht/Aristotle
Management LLC, Manager
Name: M. Scott Gibbs
--------------
Title: Manager
-------
Address: 550 15/th/ Street, 2nd Floor
San Francisco, Ca 94103
------------------------
17
<PAGE>
INVESTORS:
EPARTNERS
---------
Name of Investor
By: /s/ News American Incorporated,
General Partner
Name: Lawrence A. Jacobs
Title: Senior Vice President
Address: 1211 Avenue of the Americas
New York, New York 10036
18
<PAGE>
INVESTORS:
Odyssey Capital II, LLC
Name of Investor
By: Odyssey Capital management, LLC
Its: Managing Member
Name: /s/ Nicholas Donatiello, Jr.
Title: Management Member
Address: 550 Fifteenth Street
San Francisco, Ca 94103
19
<PAGE>
FOUNDERS:
/s/ John Phillips
__________________________________
NAME
__________________________________
NAME
20
<PAGE>
FOUNDERS:
___________________________________
NAME
/s/ Dean A. Phillips
___________________________________
NAME
21
<PAGE>
SCHEDULE A
----------
List of Investors
<TABLE>
<CAPTION>
Number of Series A
Name and Address Shares Purchased
---------------- -----------------
<S> <C> <C>
WR Hambrecht/Aristotle, LLC $ 2,000,000.00 727,273
ePartners $ 1,000,000.00 363,636
Odyssey Capital II, LLC $ 500,000.00 181,818
Total $ 3,500,000.00 1,272,727
</TABLE>
22
<PAGE>
SCHEDULE B
----------
List of Founders
<TABLE>
<CAPTION>
Number of Common
Name and Address Shares Held
---------------- -----------
<S> <C>
John A. Phillips 1,500,000
Dean A. Phillips 1,500,000
</TABLE>
23
<PAGE>
EXHIBIT 10.1
ARISTOTLE PUBLISHING, INC
-------------------------
1999 STOCK OPTION PLAN
----------------------
1. PURPOSE. This 1999 Stock Option Plan/1/ ("Plan") is established as a
-------
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of Aristotle Publishing, Inc., a
corporation organized under the laws of the District of Columbia (the
"Company"). Capitalized terms not previously defined herein are defined in
Section 17 of this Plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
---------------------------
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(b) nonqualified stock options ("NQSOs"), as designated at the time of grant.
The shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of the common stock of the Company.
3. NUMBER OF SHARES. The aggregate number of Shares that may be issued
----------------
pursuant to Options granted under this Plan is Fifty-five (55) Shares, subject
to adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, the unexercised or released Shares
from such Option shall be available for future grant and purchase under this
Plan. At all times during the term of this Plan, the Company shall reserve and
keep available such number of Shares as shall be required to satisfy the
requirements of outstanding Options under this Plan.
4. ELIGIBILITY.
-----------
(a) General Rules of Eligibility. Options may be granted to
----------------------------
employees, officers, directors, consultants, independent contractors and
advisors (provided such consultants, contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a capital-
raising transaction) of the Company or any Parent, Subsidiary or Affiliate of
the Company. ISOs may be granted only to employees (including officers and
directors who are also employees) of the Company or a Parent or Subsidiary of
the Company. The Committee (as defined in Section 14) in its sole discretion
shall select the recipients of Options ("Optionees"). An Optionee may be
granted more than one Option under this Plan.
(b) Company Assumption of Options. The Company may also, from time
-----------------------------
to time, assume outstanding options granted by another company, whether in
connection with an acquisition of such other company or otherwise, by either (i)
granting an Option under this Plan in replacement of the option assumed by the
Company, or (ii) treating the assumed option as if it
_____________
/1/ Approved by the Company Board of Directors on March 16, 1999.
Approved by the Company shareholders on March 16, 1999.
1
<PAGE>
had been granted under this Plan if the terms of such assumed option could be
applied to an option granted under this Plan. Such assumption shall be
permissible if the holder of the assumed option would have been eligible to be
granted an option hereunder if the other company had applied the rules of this
Plan to such grant.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine
-------------------------------
whether each Option is to be an ISO or an NQSO, the number of Shares subject to
the Option, the exercise price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
(a) Form of Option Grant. Each Option granted under this Plan shall
--------------------
be evidenced by a written Stock Option Grant (the "Grant") in substantially the
form attached hereto as Exhibit A or such other form as shall be approved by the
Committee.
(b) Date of Grant. The date of grant of an Option shall be the date
-------------
on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee and subject to applicable provisions of the
Code. The Grant representing the Option will be delivered to the Optionee with a
copy of this Plan within a reasonable time after the date of grant; provided,
however that if, for any reason, including a unilateral decision by the Company
not to execute an agreement evidencing such option, a written Grant is not
executed within sixty (60) days after the date of grant, such option shall be
deemed null and void. No Option shall be exercisable until such Grant is
executed by the Company and the Optionee.
(c) Exercise Price. The exercise price of an NQSO shall be not less
--------------
than eighty-five percent (85%) of the Fair Market Value of the Shares on the
date the Option is granted. The exercise price of an ISO shall be not less than
one hundred percent (100%) of the Fair Market Value of the Shares on the date
the Option is granted. The exercise price of any Option granted to a person
owning more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary of the Company ("Ten
Percent Shareholders") shall not be less than one hundred and ten percent (110%)
of the Fair Market Value of the Shares on the date the Option is granted.
(d) Exercise Period. Options shall be exercisable within the times
---------------
or upon the events determined by the Committee as set forth in the Grant;
provided, however that each Option must become exercisable at a rate of at least
twenty percent (20%) per year over five (5) years from the date the Option is
granted; and provided, however, that no Option shall be exercisable after the
expiration of ten (10) years from the date the Option is granted, and provided
further that no ISO granted to a Ten Percent Shareholder shall be exercisable
after the expiration of five (5) years from the date the Option is granted.
(e) Limitations.
-----------
(i) ISO Limitations. The aggregate Fair Market Value (determined
as of the time an Option is granted) of stock with respect to which ISOs
are exercisable for the first time by an Optionee during any calendar year
(under this Plan or under any other
2
<PAGE>
incentive stock option plan of the Company or any Parent or Subsidiary of
the Company) shall not exceed one hundred thousand dollars ($100,000). If
the Fair Market Value of stock with respect to which ISOs are exercisable
for the first time by an Optionee during any calendar year exceeds
$100,000, the Options for the amount in excess of $100,000 shall be treated
as not being ISOs and shall be NQSOs. The foregoing shall be applied by
taking Options into account in the order in which they were granted. In the
event that the Code or the regulations promulgated thereunder are amended
after the effective date of this Plan to provide for a different limit on
the Fair Market Value of Shares permitted to be subject to ISOs, such
different limit shall be incorporated herein and shall apply to any Options
granted after the effective date of such amendment.
(ii) NQSO Limitations.
Limitations on Grants. The foregoing provisions of this Plan
---------------------
notwithstanding, no Optionee shall be granted Options under this Plan in
any one fiscal year which in the aggregate shall permit the Optionee to
purchase more than _____ [sic] shares of Common Stock, provided that a
newly-hired Optionee may in addition receive a one-time Option grant to
purchase up to an additional _____ [sic] shares of Common Stock upon
acceptance of employment with the Company or any Parent, Subsidiary or
Affiliate of the Company. To the extent the Board of Directors of the
Company determines that the limitations such as the provisions of this
Section 5(e)(ii) are no longer required to preserve the deductibility for
the Company of option-related compensation under Section 162(m) of the
Code, the Board of Directors may modify or eliminate the limitations
contained in this Section 5(e)(ii).
(f) Options Non-Transferable. Options granted under this Plan, and
------------------------
any interest therein, shall not be transferable or assignable by the Optionee,
and may not be made subject to execution, attachment or similar process,
otherwise than by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionee only by the Optionee or any
permitted transferee.
(g) Assumed Options. In the event the Company assumes an option
---------------
granted by another company in accordance with Section 4(b) above, the terms and
conditions of such option shall remain unchanged (except the exercise price and
the number and nature of shares issuable upon exercise, which will be adjusted
appropriately pursuant to Section 424 of the Code and the Treasury Regulations
applicable thereto). In the event the Company elects to grant a new option
rather than assuming an existing option (as specified in Section 4), such new
option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
(h) Termination of Options. Except as otherwise provided in an
----------------------
Optionee's grant, options granted under the Plan shall terminate and may not be
exercised if the Optionee ceases to be employed by, or provide services to, the
Company or any Parent or Subsidiary of the Company (or, in the case of a NQSO,
by or to any Affiliate of the Company). An Optionee shall be considered to be
employed by the Company for all purposes under this Section 5(h) if the
3
<PAGE>
Optionee is an officer, director or full-time employee of the Company or any
Parent, Subsidiary or Affiliate of the Company or if the Committee determines
that the Optionee is rendering substantial services as a part-time employee,
consultant, contractor or advisor to the Company or any Parent, Subsidiary or
Affiliate of the Company. The Committee shall have discretion to determine
whether an Optionee has ceased to be employed by the Company or any Parent,
Subsidiary or Affiliate of the Company and the effective date on which such
employment terminated (the "Termination Date").
(i) Termination Generally. If an Optionee ceases to be employed
---------------------
by the Company and all Parents, Subsidiaries or Affiliates of the Company
for any reason except death or disability, the Options which are vested
(the "Vested Options"), to the extent (and only to the extent) exercisable
by the Optionee on the Termination Date, may be exercised by the Optionee,
but only within three months after the Termination Date or such shorter
period of time as provided in the Grant, but in no event less than thirty
(30) days; provided that the Option may not be exercised in any event after
the expiration date of the Option (the "Expiration Date").
(ii) Death or Disability. If an Optionee's employment with the
-------------------
Company and all Parents, Subsidiaries and Affiliates of the Company is
terminated because of the death of the Optionee or the permanent and total
disability of the Optionee within the meaning of Section 22(e)(3) of the
Code, the Vested Options, to the extent (and only to the extent)
exercisable by the Optionee on the Termination Date, may be exercised by
the Optionee (or the Optionee's legal representative), but only within
twelve (12) months after the Termination Date; and provided further that
the Option may not be exercised in any event later than the Expiration
Date. If an Optionee's employment with the Company and all Parents,
Subsidiaries and Affiliates of the Company is terminated because of a
disability of the Optionee which is not permanent and total within the
meaning of Section 22(e)(3) of the Code, the Vested Options, to the extent
(and only to the extent) exercisable by the Optionee on the Termination
Date, may be exercised by the Optionee or the Optionee's legal
representative, but only within six (6) months after the Termination Date;
and provided further that the Option may not be exercised in any event
later than the Expiration Date.
6. EXERCISE OF OPTIONS.
-------------------
(a) Notices. Options may be exercised only by delivery to the
Company of a written exercise agreement in a form approved by the Committee
(which need not be the same for each Optionee), stating the number of Shares
being purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made in cash (by check)
-------
or, where approved by the Committee in its sole discretion at the time of grant
and where permitted
4
<PAGE>
by law: (i) by cancellation of indebtedness of the Company to the Optionee, (ii)
by surrender of shares of Common Stock of the Company already owned by the
Optionee, having a Fair Market Value equal to the exercise price of the Option;
(iii) by waiver of compensation due or accrued to Optionee for services
rendered; (iv) through delivery of a promissory note for the full exercise price
bearing interest at such rate with the note due at such time, on a secured or
unsecured basis, as determined by the Committee; (v) through a guaranty by the
Company of a loan to the Optionee by a third party of all or part of the option
price (but not more than the option price), and such guaranty may be on an
unsecured or secured basis as the Committee shall approve (including, without
limitation, by a security interest in the shares of the Company); (vi) provided
that a public market for the Company's stock exists, through a "same day sale"
commitment from the Optionee and a broker-dealer that is a member of the
National Association of Securities Dealers, Inc. (an "NASD Dealer") whereby the
Optionee irrevocably elects to exercise the Option and to sell a portion of the
Shares so purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; (vii) provided that a public market for the Company's
stock exists, through a "margin" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; or (viii) by any combination of the
foregoing.
(c) Withholding Taxes. At the discretion of the Company, prior to
-----------------
issuance of the Shares upon exercise of an Option, the Optionee shall pay or
make adequate provision for any federal or state withholding obligations of the
Company, if applicable. Where approved by the Committee in its sole discretion,
the Optionee may provide for payment of withholding taxes upon exercise of the
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the minimum amount of taxes required to be withheld. In such case, the
Company shall issue the net number of Shares to the Optionee by deducting the
Shares retained from the Shares exercised. The Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined in accordance with Section 83 of the Code (the "Tax
Date"). All elections by Optionees to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Committee and shall be
subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date;
(ii) once made, the election shall be irrevocable as to the
particular Shares as to which the election is made;
(iii) all elections shall be subject to the consent or disapproval of
the Committee;
(iv) if the Optionee is an officer or director of the Company or
other person (in each case, an "Insider") whose transactions in the
Company's Common Stock are subject
5
<PAGE>
to Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and if the Company is subject to Section 16(b) of the
Exchange Act, the election must comply with Rule 16b-3 as promulgated by
the Securities and Exchange Commission ("Rule 16b-3").
(d) Limitations on Exercise. Notwithstanding anything else to the
-----------------------
contrary in the Plan or any Grant, no Option may be exercisable later than the
expiration date of the Option.
7. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Grant (a) a right of
first refusal to purchase all Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and/or (b) for so long as
the Company's stock is not publicly traded, a right to repurchase a portion of
or all Shares held by an Optionee upon the Optionee's termination of employment
or service with the Company or its Parent, Subsidiary or Affiliate of the
Company for any reason within a specified time as determined by the Committee at
the time of grant at the higher of (i) the Optionee's original purchase price,
(ii) the Fair Market Value of such Shares or (iii) a price determined by a
formula or other provision set forth in the Grant.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee shall
----------------------------------------------
have the power to modify, extend or renew outstanding Options and to authorize
the grant of new Options in substitution therefor, provided that any such action
may not, without the written consent of the Optionee, impair any rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee shall have the power to reduce the exercise price of
outstanding options; provided, however, that the exercise price per share may
not be reduced below the minimum exercise price that would be permitted under
Section 5(c) of this Plan for options granted on the date the action is taken to
reduce the exercise price. Notwithstanding any other provision of this Plan,
the Committee may accelerate the earliest date or dates on which outstanding
Options (or any installments thereof) are exercisable.
9. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
-----------------------------
rights of a shareholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. The Company shall provide annually to each
Optionee a copy of the annual financial statements of the Company.
10. NO OBLIGATION TO EMPLOY; NO RIGHT TO FUTURE GRANTS. Nothing in this
--------------------------------------------------
Plan or any Option granted under this Plan shall confer on any Optionee any
right (a) to continue in the employ of, or other relationship with, the Company
or any Parent or Subsidiary of the Company or limit in any way the right of the
Company or any Parent, Subsidiary or Affiliate of the Company to terminate the
Optionee's employment or other relationship at any time, with or without cause
or (b) to have any Option(s) granted to such Optionee under this Plan, or any
other plan, or to acquire any other securities of the Company, in the future.
6
<PAGE>
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
---------------------------
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar transaction, to the shareholders of the
Company, the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per share of such Options
shall be proportionately adjusted, subject to any required action by the Board
or shareholders of the Company and compliance with applicable securities laws;
provided, however, that a fractional share shall not be issued upon exercise of
any Option and any fractions of a Share that would have resulted shall either be
cashed out at Fair Market Value or the number of Shares issuable under the
Option shall be rounded down to the nearest whole number, as determined by the
Committee; and provided further that the exercise price may not be decreased to
below the par value, if any, for the Shares.
12. ASSUMPTION OF OPTION BY SUCCESSORS.
----------------------------------
(a) In the event of (i) a merger or consolidation in which the
Company is not the surviving corporation (other than a merger or consolidation
with a wholly-owned subsidiary or a Parent or where there is no substantial
change in the shareholders of the corporation and the Options granted under this
Plan are assumed by the successor corporation), or (ii) the sale of all or
substantially all of the assets of the Company, any or all outstanding Options
shall be assumed by the successor corporation, which assumption shall be binding
on all Optionees, an equivalent option shall be substituted by such successor
corporation or the successor corporation shall provide substantially similar
consideration to Optionees as was provided to shareholders (after taking into
account the existing provisions of the Optionees' options such as the exercise
price and the vesting schedule), and, in the case of outstanding shares subject
to a repurchase option, issue substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Optionee.
(b) In the event (i) such successor corporation, if any, refuses to
assume or substitute, as provided above, pursuant to an event described in
subsection (a) above, or (ii) in the event of both (A) (x) a consolidation or
merger in which the Company is not the surviving corporation (other than a
consolidation or merger with a wholly owned subsidiary or a Parent), or any
other corporate reorganization, in which the shareholders of the Company
immediately prior to such consolidation, merger or reorganization, own less than
fifty percent (50%) of the Company's voting power immediately after such
consolidation, merger or reorganization, or any transaction or series of related
transactions in which in excess of fifty percent (50%) of the Company's voting
power is transferred, or (y) a sale, lease or other disposition of all or
substantially all of the assets of the Company, and (B) an Optionee who is an
employee of the Company prior to such consolidation, merger, other corporate
reorganization or sale, lease, or other disposition and whose employment with
the Company or such successor corporation is terminated within twelve (12)
months of such consolidation, merger, other corporate reorganization or sale,
lease or other disposition, then, notwithstanding any contrary terms in the Plan
or Grant, the Options of each such Optionee so terminated shall become fully
exercisable
7
<PAGE>
for the entire number of Shares under such Option and be deemed to be "Vested
Options" under the Grant. Such Vested Options may be exercised (1) in case of
the event described in subsection (b)(i) above, after notice of refusal to
assume or substitute (which notice must be given at least twenty (20) days prior
to consummation of the event described in subsection (a) above) and at any time
prior to the consummation of such event, or (2) in the case of the event
described in subsection (b)(ii) above, within three (3) months after such
termination.
(c) In the event of a dissolution or liquidation of the Company, the
Options shall, notwithstanding any contrary terms in the Grant, expire on a date
specified in a written notice given by the Committee to the Optionees specifying
the terms and conditions of such termination (which date must be at least twenty
(20) days after the date the Committee gives the written notice).
13. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective
---------------------------------
on the date that it is adopted by the Board of the Company (the "Board"). This
Plan shall be approved by the shareholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board.
14. ADMINISTRATION. This Plan may be administered by the Board or a
--------------
Committee appointed by the Board (the "Committee"). If, at any time after the
Company registers under the Exchange Act, the Board desires the Plan to be
administered by a Committee, the Board shall appoint a Committee consisting of
not less than two directors, each of whom is a Nonemployee Director. As used in
this Plan, references to the "Committee" shall mean either such Committee or the
Board if no committee has been established. The interpretation by the Committee
of any of the provisions of this Plan or any Option granted under this Plan
shall be final and binding upon the Company and all persons having an interest
in any Option or any Shares purchased pursuant to an Option.
15. TERM OF PLAN. Options may be granted pursuant to this Plan from time
------------
to time on or prior to February 28, 2009, a date which is less than ten years
after the earlier of the date of approval of this Plan by the Board or the
shareholders of the Company pursuant to Section 13 of this Plan.
16. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors or Committee
--------------------------------
may, at any time, amend, alter, suspend or discontinue the Plan, but no
amendment, alteration, suspension or discontinuation shall be made which would
impair the rights of any Optionee under any Option theretofore granted, without
his or her consent, or which, without the approval of the shareholders of the
Company would:
(a) except as provided in Section 11 of the Plan, increase the total
number of Shares reserved for the purposes of the Plan,
(b) extend the duration of the Plan;
8
<PAGE>
(c) extend the period during and over which Options may be exercised
under the Plan.
Without limiting the foregoing, the Committee may at any time or from
time to time authorize the Company, with the consent of the respective
Optionees, to issue new options in exchange for the surrender and cancellation
of any or all outstanding Options.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
-------------------
have the following meanings:
(a) "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
(b) "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for Common Stock of the Company on the
last trading day prior to the date of determination or, in the event the Common
Stock of the Company is listed on a stock exchange or is a Nasdaq National
Market security, the Fair Market Value shall be the closing price on such
exchange or system on the last trading day prior to the date of determination.
(c) "Nonemployee Director" shall have the meaning set forth in Rule
16b3(b)(3) as promulgated by the Securities and Exchange Commission under
Section 16(b) of the Exchange Act, as such rule is amended from time to time and
as interpreted by the Securities and Exchange Commission.
(d) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of the corporations other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
(e) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
9
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AND STOCK REPURCHASE AGREEMENT FOR
JOHN A. PHILLIPS
THIS EMPLOYMENT AND STOCK REPURCHASE AGREEMENT (this "Agreement"), dated as
of September 17, 1999 (the "Effective Date"), between ARISTOTLE PUBLISHING,
INC., a Delaware corporation (the "Company"), having its principal place of
business located at 205 Pennsylvania Avenue, S.E., Washington, D.C. 20003 and
John A. Phillips, an individual and a founder of the Company (the "Founder").
R E C I T A L S
A. The Founder is currently serving as the President and a Director of the
Company.
B. The parties acknowledge the valuable contributions Founder has made to
the success of the Company, that the Founder's abilities and services are unique
and essential to the continued success of the Company and that future investors
will invest in the Company in partial reliance on the Founder's serving the
Company pursuant to this Agreement.
C. In light of the foregoing, the Company desires to employ the Founder as
its Chairman of the Board, Chief Executive Officer and a Director, and the
Founder desires to accept such employment.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the Founder's past services to the
Company, the parties hereto, intending to be legally bound, agree as follows:
1. Employment. The Company hereby employs the Founder and the Founder
----------
hereby accepts employment upon the terms and conditions hereinafter set forth.
2. Duties. The Founder shall be engaged initially with the title and
------
functions of Chairman of the Board, Chief Executive Officer and Director and,
subject to the direction of the Board of Directors, shall perform and discharge
faithfully and to the best of his ability the duties, which may be assigned to
him from time to time by the Company in connection with such title and
functions. The Founder shall devote substantially all of his time, attention and
energies to the business of the Company as is reasonably necessary, appropriate
or advisable to carry out the duties assigned to him. During the term of this
Agreement, nothing shall prohibit the Founder from engaging (whether or not
during normal business hours) in any other business or professional activity,
whether or not such activity is pursued for gain, profit or other pecuniary
advantage so long as such activity does not compete, directly or indirectly,
with the Company's business as currently conducted or proposed to be conducted;
including, without limitation, (a) investing his personal assets in businesses
that do not compete with the Company's business as currently conducted or
proposed to be conducted; (b) providing services as a director, consultant or
advisor to businesses that do not compete with the Company's business as
currently conducted
1
<PAGE>
or proposed to be conducted; (c) purchasing securities in any corporation or
other entity that do not compete with the Company's business as currently
conducted or proposed to be conducted; (d) purchasing securities in any
corporation whose securities are regularly traded (provided that such purchase
shall not result in his collectively owning beneficially at any time five
percent (5%) or more of the equity securities of any corporation engaged in a
business competitive to that of the Company's business as currently conducted or
proposed to be conducted; and (e) engaging in charitable activities,
participating in conferences, preparing or publishing papers or books or
teaching.
3. Compensation. For all services rendered under this Agreement:
-------------
(a) The Company shall pay the Founder a base salary ("Base Salary") of
Two Hundred Twenty Thousand Dollars ($220,000) per annum in equal semi-monthly
installments, subject to applicable payroll tax withholding and any applicable
contributions to employee benefit programs. The Board of Directors will review,
at least annually, the Founder's compensation with a view to increasing it if,
in the sole judgment of the Board of Directors, the results of operations of the
Company or the services of the Founder merit such an increase.
(b) During the term of this Agreement, the Founder shall be entitled
to participate in any and all incentive compensation plans of the Company.
(c) During the term of his employment, the Founder shall be entitled
to participate in employee benefit plans or programs of the Company, including,
without limitation, any plans or programs for Founders of the Company, subject
to the rules and regulations applicable thereto.
(d) During the terms of his employment, the Company will lease an
automobile, reasonably satisfactory to Founder, for use by Founder.
(e) The Founder shall be entitled to prompt reimbursement of all
expenses incurred by him in the performance of his duties, subject to the
presenting of appropriate vouchers in accordance with the Company's policy.
4. Term. This Agreement shall commence on the Effective Date and
----
shall terminate as of the earlier of:
(a) two (2) years from the date hereof (the "Initial Term") unless
either the Founder or the Company notifies the other that he or it elects to
extend the term hereof for an additional one (1) year (the "Renewal Period"),
such notice to be given within 90 days before the end of the Initial Term hereof
or within 90 days before the end of each successive Renewal Period;
(b) the death of the Founder;
(c) thirty (30) days after notice is given by the Company to the
Founder; or
2
<PAGE>
(d) thirty (30) days after notice is given by the Founder to the
Company, after a material breach of this Agreement by the Company.
5. Proprietary Information. Founder shall execute and abide by the
------------------------
Company's standard form of proprietary information and inventions agreement as
set forth on Exhibit A, the terms of which are hereby incorporated by reference;
provided, however, in the event that the terms of this Agreement conflict with
the terms of such proprietary information and inventions agreement, the terms of
this Agreement shall control.
6. Location of Performance: Relocation.
-----------------------------------
(a) The Founder's services will be performed in San Francisco,
California or its environs. The parties acknowledge, however, that the Founder
may be required to travel extensively in connection with the performance of his
duties hereunder.
(b) If the Founder is required to change his place of residence from
San Francisco, California to another location in order to perform hereunder and
the Founder agrees to do so, then Company shall pay all the costs and expenses
of the Founder and his family connected with such relocation, including
reasonable moving and travel expenses and reasonable temporary dwelling costs
(for a period not to exceed 180 days) and costs associated with purchasing and
selling a permanent place of residence, all such expenses not to exceed
$150,000.
7. Repurchase Option. Pursuant to this Agreement, One Million Five
-----------------
Hundred Thousand (1,500,000) shares of Common Stock of the Company owned by
Founder (the "Stock") shall be subject to the repurchase option of the Company
set forth below ("Purchase Option"):
(a) In the event that either (i) the Founder voluntarily ceases to be
an employee of or associated with the Company or (ii) the Founder is terminated
for Cause (as defined below), then the Company shall have the right at any time
within sixty (60) days after such cessation to exercise its option to repurchase
from the Founder or his personal representative, as the case may be, at the
Founder's cost, up to but not exceeding the number of shares of stock which have
not vested under the provisions of subsection (b) below. Engagement of the
Founder solely as a director, consultant or advisor to the Company shall not be
deemed as cessation of employment or association with the Company. As used
herein, employment with the Company shall include employment with a "parent" or
"subsidiary" of the Company as those terms are defined in Sections 424(e) and
(f) of the Internal Revenue Code of 1986, as amended.
(b) The Company may exercise its Purchase Option as to the maximum
portion of the Stock specified in the following table:
3
<PAGE>
<TABLE>
<CAPTION>
If employment ceases: Stock subject to Purchase Option:
____________________ ________________________________
- ----------------------------------------------------------------------------------------------
<S> <C>
At the Effective Date 750,000 shares
- ----------------------------------------------------------------------------------------------
From the Effective Date until thirty (30) 750,000 minus (25,000 multiplied by number of
_____ __________
- ----------------------------------------------------------------------------------------------
months after the Effective Date full months since the Effective Date)
- ----------------------------------------------------------------------------------------------
Thereafter None
- ----------------------------------------------------------------------------------------------
</TABLE>
(c) The Purchase Option shall be exercised by written notice signed by
an officer of the Company or by any assignee or assignees of the Company and
delivered or mailed as provided in Section 11. Such notice shall identify the
number of shares to be purchased and shall notify the Founder of the time, place
and date for settlement of such purchase, which shall be scheduled by the
Company within ninety (90) days from the date of cessation of employment or
association.
(d) The Founder shall not transfer by sale, assignment, hypothecation,
donation or otherwise any of the Stock or any interest therein subject to the
Purchase Option without the prior express written consent of the issuer of the
shares. The parties agree to execute and deliver such further instruments and
agreements and take such further actions as may reasonably be necessary to carry
out the intent of this Agreement.
(e) The Company shall not be required (i) to transfer on its books any
shares of Stock of the Company which shall have been transferred in violation of
any of the provisions set forth in this Agreement or (ii) to treat as owner of
such shares or to accord the right to vote as such owner or to pay dividends to
any transferee to whom such shares shall have been so transferred.
(f) The Founder shall exercise all rights and privileges of a
shareholder of the Company with respect to the Stock.
(g) This Section 7 shall terminate upon the exercise in full or
expiration of the Purchase Option or the closing of a firm commitment
underwritten public offering of the Company's common stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
whichever first occurs.
8. Severance.
---------
(a) If the Founder's employment or association with the Company
terminates due to an Involuntary Termination Without Cause at any time after the
Effective Date or a Constructive Termination at any time after a Change in
Control, the Founder shall be entitled to receive the benefits set forth in this
Section 8. As used herein, employment or association with the Company shall
include employment with a "parent" or "subsidiary" of the Company as those terms
are defined in Sections 424(e) and (f) of the Internal Revenue Code of 1986, as
amended.
4
<PAGE>
(b) Within ten (10) days of Involuntary Termination Without Cause or a
Constructive Termination, the Founder shall receive from the Company the first
of a series of cash payments to occur twice monthly over a four-month period and
which, in the aggregate, shall equal one hundred percent (100%) of the Founder's
then Base Salary plus any other incentive compensation payable to the Founder,
subject to applicable tax withholding.
(c) Notwithstanding the language of the Founder's option agreement(s)
or any other language to the contrary, the vesting of the Founder's stock
option(s) shall accelerate and immediately become vested and exercisable with
respect to all of those option shares, which otherwise would not be vested and
exercisable on the date of such Founder's Involuntary Termination Without Cause
or Constructive Termination. Notwithstanding any language to the contrary, the
vesting of the Founder's Stock described in Section 7 above shall accelerate and
immediately become vested and the Purchase Option will lapse with respect to all
of Stock, which otherwise would not be vested on the date of the Founder's
Involuntary Termination Without Cause or Constructive Termination.
(d) The Founder and his covered dependents shall be eligible to
continue their health care benefit coverage as permitted by COBRA (I. R. C.
Section 4980B) at no cost to the Founder and his covered dependents for a period
of twelve (12) months after the Founder's Involuntary Termination Without Cause
or Constructive Termination; provided, however, that payment of such COBRA
premiums by the Company shall cease upon the Founder commencing employment with
a new employer that provides comparable benefits to the Founder and his covered
dependents.
(e) The Founder shall not be required to mitigate damages or the
amount of any payment provided under this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment provided for under this
Agreement be reduced by any compensation earned by the Founder as a result of
employment by another employer or by any retirement benefits received by the
Founder after the date of the Founder's Involuntary Termination Without Cause or
Constructive Termination.
(f) Upon the occurrence of the Founder's Involuntary Termination
Without Cause or Constructive Termination, and prior to the receipt of any
benefits under this Agreement on account of such termination, the Founder shall
execute a release for the benefit of the Company in form and substance
reasonably acceptable to the Company and in compliance with applicable law.
(g) If the Employee has been disabled for a period of at least twelve
(12) months during which period he was disabled for two hundred seventy (270)
consecutive days, the Company may elect, upon notice to the Founder, to pay the
Founder one-half (1/2) of the compensation the Founder would otherwise be
entitled to pursuant to clause (i) above. Disability shall mean the Founder's
inability, due to sickness or injury, to perform effectively his duties
hereunder.
5
<PAGE>
9. Registration Rights. The Founder shall be entitled to those
-------------------
rights set forth in Section 1.3 (Piggy-back Rights) of that certain Investors'
Rights Agreement, dated as of September 17, 1999 by and among the Company and
its holders of its shares of Series A Preferred Stock (the "IRR"). Capital stock
of the Company now owned or hereinafter acquired by the Founder shall be deemed
Registrable Securities (as defined under the IRR) and the Founder shall be
deemed a Holder (as defined under the IRR) for purposes of Section 1.3. The
Company shall obtain the consents necessary to add the Founder as a party to the
IRR.
10. Non-Compete. For the period of one year after termination of
------------
employment (other than for termination without Cause or Constructive
Termination), Founder shall not enter into or engage generally in direct
competition with the Company or its subsidiaries anywhere in the business of
operating, creating, designing, programming, marketing, or selling political
products, professional campaign services, campaign software, advertising, or
databases derived from registered voter lists, for any other person or entity,
including, specifically, but not limited to, any competitor, client, or former
client of the Company, or any governmental entity.
11. Assignment: Notices. This Agreement may not be assigned by any
-------------------
party hereto. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and sent by registered mail to the Founder at
2237 Union Street, San Francisco, CA 94123 or the Company at its address set
forth above, Attention: Secretary.
12. Waiver of Breach. A waiver by the Company or the Founder of a
----------------
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other party.
13. Entire Agreement. This Agreement contains the entire agreement of
----------------
the parties with respect to the subject matter hereof, and supersedes any and
all prior agreements relating to the subject matter hereof. It may be changed
only by an agreement in writing signed by a party against whom enforcement of
any waiver, change, modification, extension or discharge is sought.
14. Governing Law. This Agreement shall be governed by, interpreted
-------------
and construed in accordance with the laws of the State of California without
regard to principles of conflicts of laws. The parties agree that any action
brought by either party to interpret or enforce any provision of this Agreement
shall be brought in, and each party agrees to, and does hereby, submit to the
personal jurisdiction and venue of, the appropriate state or federal court for
the district encompassing the Company's principal place of business.
15. Headings: Counterparts. The headings of the Sections hereof are
-----------------------
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof. This Agreement may be executed in one
or more counterparts, each of which shall be an original and all of which taken
together shall constitute one agreement.
16. Attorneys Fees. If either party hereto brings any claim or
--------------
action to enforce his or its rights hereunder, the prevailing party shall be
entitled to recover from the other party reasonable attorneys fees and costs
incurred in connection with such claim or action, whether or
6
<PAGE>
not a legal proceedings is actually commenced in connection with enforcing such
party's rights hereunder.
17. Miscellaneous Definitions.
-------------------------
(a) "Cause" shall mean (i) an act of dishonesty by Founder intended to
result in gain or personal enrichment of Founder which causes material harm to
the reputation of the Company; (ii) Founder personally engaging in illegal
conduct which causes material harm to the reputation of the Company; (iii)
Founder's continued failure to substantially perform the duties and obligations
of his employment which are not remedied within twenty (20) days after notice
thereof from the Board of Directors; (iv) Founder being convicted of a felony,
misdemeanor or gross misdemeanor relating to, an act of dishonesty or fraud
against, or a misappropriation of property belonging to, the Company; (v)
Founder's engagement in substance abuse which substantially impairs his ability
to perform the duties and obligations of Founder's employment or causes material
harm to the reputation of the Company; (vi) Founder personally engaging in any
act of moral turpitude that causes material harm to the reputation of the
Company; or (vii) Founder knowingly and intentionally breaching in any material
respect the terms of this Agreement (or any confidentiality agreement or
invention or proprietary information agreement with the Company); provided,
however, Cause shall not include any act or omission undertaken or omitted to be
taken by the Founder that was done so at the direction of the Board of
Directors, or that he believed in good faith at the time was not illegal after
reasonable inquiry; it shall be deemed reasonable and in good faith for the
Founder to rely on advice provided by the Company's legal counsel, with respect
to legal issues, and the Company's accountants, with respect to accounting or
accounting related issues.
(b) "Change in Control" means the consummation of a merger or
consolidation of the Company with or into another entity or any other corporate
reorganization, if more than 40% of the combined voting power of the continuing
or surviving entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
shareholders of the Company immediately prior to such merger, consolidation or
other reorganization; or the sale, transfer other disposition of all or
substantially all of the Company's assets. A transaction shall not constitute a
Change in Control if its sole purpose is to change the state of the Company's
incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Company's securities
immediately prior to such transaction.
(c) "Constructive Termination" means that the Founder voluntarily
terminates employment with the Company after any of the following are undertaken
without the Founder's express written consent:
(i) the assignment to the Founder of any duties or
responsibilities that result in a material diminution or materially adverse
change of the Founder's position, status or circumstances or employment;
provided, however, that a mere change in the Founder's title or reporting
relationship shall not constitute a Constructive Termination;
7
<PAGE>
(ii) a reduction by the Company in the Founder's Base Salary;
(iii) any failure by the Company to maintain in effect any
benefit plan, including incentive plans, in which the Founder is
participating, or the taking of any action by the Company that would
materially adversely affect the Founder's participation in or reduce the
Founder's benefits under any of such plans or deprive the Founder of any
fringe benefit then enjoyed by the Founder; provided, however, that any
such failure shall not be deemed a Constructive Termination if (A) the
Company offers a range of benefit plans and programs that taken as a whole
are comparable to existing benefit plans and programs of the Company, or
(B) all similarly situated executive officers of the Company are affected
in the same manner,
(iv) a relocation of the Founder's business office to a location
more than twenty-five (25) miles from the location at which the Founder
performs duties as of the Effective Date, or such other location thereafter
that the Founder consents to, except for required travel by the Founder
contemplated in Section 6(a) hereof;
(v) any material breach of this Agreement by the Company or any
other agreement between the Founder and the Company that remains uncured
for twenty (20) days after written notice thereof to the Chairman or any
two members of the Company's Board of Directors; and
(vi) after a Change in Control and failure by the Company to
obtain the assumption by the Company's successor-in-interest or assignee of
this Agreement or any other material agreement between the Founder and the
Company relating to the Founder's employment.
(d) "Involuntary Termination Without Cause" means the Founder's
dismissal or discharge from the Company other than for Cause. The termination of
the Founder's employment as a result of death or disability will not be deemed
to be an Involuntary Termination Without Cause.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first hereinabove written.
ARISTOTLE PUBLISHING, INC.
BY: /s/ John Phillips
___________________________________
Name: John Phillips
____________________________
Title: CEO
___________________________
FOUNDER
_________________________________________
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first hereinabove written.
ARISTOTLE PUBLISHING, INC.
BY:
___________________________________
Name:
____________________________
Title:
___________________________
FOUNDER
/s/ John Phillips
_________________________________________
10
<PAGE>
EXHIBIT A
FORM OF PROPRIETARY INFORMATION AGREEMENT
[see Exhibit 10.13]
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AND STOCK REPURCHASE AGREEMENT FOR
DEAN A. PHILLIPS
THIS EMPLOYMENT AND STOCK REPURCHASE AGREEMENT (this "Agreement"),
dated as of September 17, 1999 (the "Effective Date"), between ARISTOTLE
PUBLISHING, INC., a Delaware corporation (the "Company"), having its principal
place of business located at 205 Pennsylvania Avenue, S.E., Washington, D.C.
20003 and Dean A. Phillips, an individual and a founder of the Company (the
"Founder").
R E C I T A L S
A. The Founder is currently serving as the Chief Executive Officer
and a Director of the Company.
B. The parties acknowledge the valuable contributions Founder has
made to the success of the Company, that the Founder's abilities and services
are unique and essential to the continued success of the Company and that future
investors will invest in the Company in partial reliance on the Founder's
serving the Company pursuant to this Agreement.
C. In light of the foregoing, the Company desires to employ the
Founder as its President and a Director, and the Founder desires to accept such
employment.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the Founder's past services to the
Company, the parties hereto, intending to be legally bound, agree as follows:
1. Employment. The Company hereby employs the Founder and the
----------
Founder hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Duties. The Founder shall be engaged initially with the title and
------
functions of President and Director and, subject to the direction of the Board
of Directors, shall perform and discharge faithfully and to the best of his
ability the duties, which may be assigned to him from time to time by the
Company in connection with such title and functions. The Founder shall devote
substantially all of his time, attention and energies to the business of the
Company as is reasonably necessary, appropriate or advisable to carry out the
duties assigned to him. During the term of this Agreement, nothing shall
prohibit the Founder from engaging (whether or not during normal business hours)
in any other business or professional activity, whether or not such activity is
pursued for gain, profit or other pecuniary advantage so long as such activity
does not compete, directly or indirectly, with the Company's business as
currently conducted or proposed to be conducted; including, without limitation,
(a) investing his personal assets in businesses that do not compete with the
Company's business as currently conducted or proposed to be conducted; (b)
providing services as a director, consultant or advisor to businesses that do
not compete with the Company's business as currently conducted or proposed to be
conducted; (c)
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<PAGE>
purchasing securities in any corporation or other entity that do not compete
with the Company's business as currently conducted or proposed to be conducted;
(d) purchasing securities in any corporation whose securities are regularly
traded (provided that such purchase shall not result in his collectively owning
beneficially at any time five percent (5%) or more of the equity securities of
any corporation engaged in a business competitive to that of the Company's
business as currently conducted or proposed to be conducted; and (e) engaging in
charitable activities, participating in conferences, preparing or publishing
papers or books or teaching.
3. Compensation. For all services rendered under this Agreement:
--------------
(a) The Company shall pay the Founder a base salary ("Base
Salary") of Two Hundred Twenty Thousand Dollars ($220,000) per annum in equal
semi-monthly installments, subject to applicable payroll tax withholding and any
applicable contributions to employee benefit programs. The Board of Directors
will review, at least annually, the Founder's compensation with a view to
increasing it if, in the sole judgment of the Board of Directors, the results of
operations of the Company or the services of the Founder merit such an increase.
(b) During the term of this Agreement, the Founder shall be
entitled to participate in any and all incentive compensation plans of the
Company.
(c) Within thirty (30) days of the Effective Date, the Company
shall pay to the Founder a lump sum, cash payment of Eighty-Five Thousand Two
Hundred eighty-One Dollars and Twelve Cents ($85,281.12), which amount
constitutes deferred salary and loans to the Company, less applicable payroll
tax withholding and any applicable contributions to employee benefit programs.
(d) During the term of his employment, the Founder shall be
entitled to participate in employee benefit plans or programs of the Company,
including, without limitation, any plans or programs for Founders of the
Company, subject to the rules and regulations applicable thereto.
(e) The Founder shall be entitled to prompt reimbursement of all
expenses incurred by him in the performance of his duties, subject to the
presenting of appropriate vouchers in accordance with the Company's policy.
4. Term. This Agreement shall commence on the Effective Date and
----
shall terminate as of the earlier of:
(a) two (2) years from the date hereof (the "Initial Term")
unless either the Founder or the Company notifies the other that he or it elects
to extend the term hereof for an additional one (1) year (the "Renewal Period"),
such notice to be given within 90 days before the end of the Initial Term hereof
or within 90 days before the end of each successive Renewal Period;
(b) the death of the Founder;
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<PAGE>
(c) thirty (30) days after notice is given by the Company to the
Founder; or
(d) thirty (30) days after notice is given by the Founder to the
Company, after a material breach of this Agreement by the Company.
5. Proprietary Information. Founder shall execute and abide by the
--------------------------
Company's standard form of proprietary information and inventions agreement as
set forth on Exhibit A, the terms of which are hereby incorporated by reference;
provided, however, in the event that the terms of this Agreement conflict with
the terms of such proprietary information and inventions agreement, the terms of
this Agreement shall control.
6. Location of Performance: Relocation.
-----------------------------------
(a) The Founder's services will be performed in Washington, D.C.
or its environs. The parties acknowledge, however, that the Founder may be
required to travel extensively in connection with the performance of his duties
hereunder.
(b) If the Founder is required to change his place of residence
from Washington, D.C. to another location in order to perform hereunder and the
Founder agrees to do so, then Company shall pay all the costs and expenses of
the Founder and his family connected with such relocation, including reasonable
moving and travel expenses and reasonable temporary dwelling costs (for a period
not to exceed 180 days) and costs associated with purchasing and selling a
permanent place of residence, all such expenses not to exceed $150,000.
7. Repurchase Option. Pursuant to this Agreement, One Million Five
-----------------
Hundred Thousand (1,500,000) shares of Common Stock of the Company owned by
Founder (the "Stock") shall be subject to the repurchase option of the Company
set forth below ("Purchase Option"):
(a) In the event that either (i) the Founder voluntarily ceases
to be an employee of or associated with the Company or (ii) the Founder is
terminated for Cause (as defined below), then the Company shall have the right
at any time within sixty (60) days after such cessation to exercise its option
to repurchase from the Founder or his personal representative, as the case may
be, at the Founder's cost, up to but not exceeding the number of shares of stock
which have not vested under the provisions of subsection (b) below. Engagement
of the Founder solely as a director, consultant or advisor to the Company shall
not be deemed as cessation of employment or association with the Company. As
used herein, employment with the Company shall include employment with a
"parent" or "subsidiary" of the Company as those terms are defined in Sections
424(e) and (f) of the Internal Revenue Code of 1986, as amended.
(b) The Company may exercise its Purchase Option as to the
maximum portion of the Stock specified in the following table:
3
<PAGE>
<TABLE>
<S> <C>
If employment ceases: Stock subject to Purchase Option:
- --------------------- ---------------------------------
- -------------------------------------------------------------------------------------------
At the Effective Date 750,000 shares
- -------------------------------------------------------------------------------------------
From the Effective Date until thirty (30) 750,000 minus (25,000 multiplied by number
----- ----------
months after the Effective Date of full months since the Effective Date)
- -------------------------------------------------------------------------------------------
Thereafter None
- -------------------------------------------------------------------------------------------
</TABLE>
(c) The Purchase Option shall be exercised by written notice
signed by an officer of the Company or by any assignee or assignees of the
Company and delivered or mailed as provided in Section 11. Such notice shall
identify the number of shares to be purchased and shall notify the Founder of
the time, place and date for settlement of such purchase, which shall be
scheduled by the Company within ninety (90) days from the date of cessation of
employment or association.
(d) The Founder shall not transfer by sale, assignment,
hypothecation, donation or otherwise any of the Stock or any interest therein
subject to the Purchase Option without the prior express written consent of the
issuer of the shares. The parties agree to execute and deliver such further
instruments and agreements and take such further actions as may reasonably be
necessary to carry out the intent of this Agreement.
(e) The Company shall not be required (i) to transfer on its
books any shares of Stock of the Company which shall have been transferred in
violation of any of the provisions set forth in this Agreement or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
(f) The Founder shall exercise all rights and privileges of a
shareholder of the Company with respect to the Stock.
(g) This Section 7 shall terminate upon the exercise in full or
expiration of the Purchase Option or the closing of a firm commitment
underwritten public offering of the Company's common stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
whichever first occurs.
8. Severance.
---------
(a) If the Founder's employment or association with the Company
terminates due to an Involuntary Termination Without Cause at any time after the
Effective Date or a Constructive Termination at any time after a Change in
Control, the Founder shall be entitled to receive the benefits set forth in this
Section 8. As used herein, employment or association with the Company shall
include employment with a "parent" or "subsidiary" of the Company as those terms
are defined in Sections 424(e) and (f) of the Internal Revenue Code of 1986, as
amended.
4
<PAGE>
(b) Within ten (10) days of Involuntary Termination Without Cause
or a Constructive Termination, the Founder shall receive from the Company the
first of a series of cash payments to occur twice monthly over a four-month
period and which, in the aggregate, shall equal one hundred percent (100%) of
the Founder's then Base Salary plus any other incentive compensation payable to
the Founder, subject to applicable tax withholding.
(c) Notwithstanding the language of the Founder's option
agreement(s) or any other language to the contrary, the vesting of the Founder's
stock option(s) shall accelerate and immediately become vested and exercisable
with respect to all of those option shares, which otherwise would not be vested
and exercisable on the date of such Founder's Involuntary Termination Without
Cause or Constructive Termination. Notwithstanding any language to the contrary,
the vesting of the Founder's Stock described in Section 7 above shall accelerate
and immediately become vested and the Purchase Option will lapse with respect to
all of Stock, which otherwise would not be vested on the date of the Founder's
Involuntary Termination Without Cause or Constructive Termination.
(d) The Founder and his covered dependents shall be eligible to
continue their health care benefit coverage as permitted by COBRA (I. R. C.
Section 4980B) at no cost to the Founder and his covered dependents for a period
of twelve (12) months after the Founder's Involuntary Termination Without Cause
or Constructive Termination; provided, however, that payment of such COBRA
premiums by the Company shall cease upon the Founder commencing employment with
a new employer that provides comparable benefits to the Founder and his covered
dependents.
(e) The Founder shall not be required to mitigate damages or the
amount of any payment provided under this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment provided for under this
Agreement be reduced by any compensation earned by the Founder as a result of
employment by another employer or by any retirement benefits received by the
Founder after the date of the Founder's Involuntary Termination Without Cause or
Constructive Termination.
(f) Upon the occurrence of the Founder's Involuntary Termination
Without Cause or Constructive Termination, and prior to the receipt of any
benefits under this Agreement on account of such termination, the Founder shall
execute a release for the benefit of the Company in form and substance
reasonably acceptable to the Company and in compliance with applicable law.
(g) If the Employee has been disabled for a period of at least
twelve (12) months during which period he was disabled for two hundred seventy
(270) consecutive days, the Company may elect, upon notice to the Founder, to
pay the Founder one-half (1/2) of the compensation the Founder would otherwise
be entitled to pursuant to clause (i) above. Disability shall mean the Founder's
inability, due to sickness or injury, to perform effectively his duties
hereunder.
5
<PAGE>
9. Registration Rights. The Founder shall be entitled to those
-------------------
rights set forth in Section 1.3 (Piggy-back Rights) of that certain Investors'
Rights Agreement, dated as of September 17, 1999 by and among the Company and
its holders of its shares of Series A Preferred Stock (the "IRR"). Capital stock
of the Company now owned or hereinafter acquired by the Founder shall be deemed
Registrable Securities (as defined under the IRR) and the Founder shall be
deemed a Holder (as defined under the IRR) for purposes of Section 1.3. The
Company shall obtain the consents necessary to add the Founder as a party to the
IRR.
10. Non-Compete. For the period of one year after termination of
-----------
employment (other than for termination without Cause or Constructive
Termination), Founder shall not enter into or engage generally in direct
competition with the Company or its subsidiaries anywhere in the business of
operating, creating, designing, programming, marketing, or selling political
products, professional campaign services, campaign software, advertising, or
databases derived from registered voter lists, for any other person or entity,
including, specifically, but not limited to, any competitor, client, or former
client of the Company, or any governmental entity.
11. Assignment: Notices. This Agreement may not be assigned by any
-------------------
party hereto. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and sent by registered mail to the Founder at
[__________________________] [sic] or the Company at its address set forth
above, Attention: Secretary.
12. Waiver of Breach. A waiver by the Company or the Founder of a
----------------
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other party.
13. Entire Agreement. This Agreement contains the entire agreement
----------------
of the parties with respect to the subject matter hereof, and supersedes any and
all prior agreements relating to the subject matter hereof. It may be changed
only by an agreement in writing signed by a party against whom enforcement of
any waiver, change, modification, extension or discharge is sought.
14. Governing Law. This Agreement shall be governed by, interpreted
-------------
and construed in accordance with the laws of the State of California without
regard to principles of conflicts of laws. The parties agree that any action
brought by either party to interpret or enforce any provision of this Agreement
shall be brought in, and each party agrees to, and does hereby, submit to the
personal jurisdiction and venue of, the appropriate state or federal court for
the district encompassing the Company's principal place of business.
15. Headings: Counterparts. The headings of the Sections hereof are
-----------------------
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof. This Agreement may be executed in one
or more counterparts, each of which shall be an original and all of which taken
together shall constitute one agreement.
16. Attorneys Fees. If either party hereto brings any claim or
--------------
action to enforce his or its rights hereunder, the prevailing party shall be
entitled to recover from the other party reasonable attorneys fees and costs
incurred in connection with such claim or action, whether or
6
<PAGE>
not a legal proceedings is actually commenced in connection with enforcing such
party's rights hereunder.
17. Miscellaneous Definitions.
-------------------------
(a) "Cause" shall mean (i) an act of dishonesty by Founder
intended to result in gain or personal enrichment of Founder which causes
material harm to the reputation of the Company; (ii) Founder personally engaging
in illegal conduct which causes material harm to the reputation of the Company;
(iii) Founder's continued failure to substantially perform the duties and
obligations of his employment which are not remedied within twenty (20) days
after notice thereof from the Board of Directors; (iv) Founder being convicted
of a felony, misdemeanor or gross misdemeanor relating to, an act of dishonesty
or fraud against, or a misappropriation of property belonging to, the Company;
(v) Founder's engagement in substance abuse which substantially impairs his
ability to perform the duties and obligations of Founder's employment or causes
material harm to the reputation of the Company; (vi) Founder personally engaging
in any act of moral turpitude that causes material harm to the reputation of the
Company; or (vii) Founder knowingly and intentionally breaching in any material
respect the terms of this Agreement (or any confidentiality agreement or
invention or proprietary information agreement with the Company); provided,
however, Cause shall not include any act or omission undertaken or omitted to be
taken by the Founder that was done so at the direction of the Board of
Directors, or that he believed in good faith at the time was not illegal after
reasonable inquiry; it shall be deemed reasonable and in good faith for the
Founder to rely on advice provided by the Company's legal counsel, with respect
to legal issues, and the Company's accountants, with respect to accounting or
accounting related issues.
(b) "Change in Control" means the consummation of a merger or
consolidation of the Company with or into another entity or any other corporate
reorganization, if more than 40% of the combined voting power of the continuing
or surviving entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
shareholders of the Company immediately prior to such merger, consolidation or
other reorganization; or the sale, transfer other disposition of all or
substantially all of the Company's assets. A transaction shall not constitute a
Change in Control if its sole purpose is to change the state of the Company's
incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Company's securities
immediately prior to such transaction.
(c) "Constructive Termination" means that the Founder
voluntarily terminates employment with the Company after any of the following
are undertaken without the Founder's express written consent:
(i) the assignment to the Founder of any duties or
responsibilities that result in a material diminution or materially adverse
change of the Founder's position, status or circumstances or employment;
provided, however, that a mere change in the Founder's title or reporting
relationship shall not constitute a Constructive Termination;
7
<PAGE>
(ii) a reduction by the Company in the Founder's Base
Salary;
(iii) any failure by the Company to maintain in effect any
benefit plan, including incentive plans, in which the Founder is
participating, or the taking of any action by the Company that would
materially adversely affect the Founder's participation in or reduce the
Founder's benefits under any of such plans or deprive the Founder of any
fringe benefit then enjoyed by the Founder; provided, however, that any
such failure shall not be deemed a Constructive Termination if (A) the
Company offers a range of benefit plans and programs that taken as a whole
are comparable to existing benefit plans and programs of the Company, or
(B) all similarly situated executive officers of the Company are affected
in the same manner,
(iv) a relocation of the Founder's business office to a
location more than twenty-five (25) miles from the location at which the
Founder performs duties as of the Effective Date, or such other location
thereafter that the Founder consents to, except for required travel by the
Founder contemplated in Section 6(a) hereof;
(v) any material breach of this Agreement by the Company
or any other agreement between the Founder and the Company that remains
uncured for twenty (20) days after written notice thereof to the Chairman
or any two members of the Company's Board of Directors; and
(vi) after a Change in Control and failure by the Company
to obtain the assumption by the Company's successor-in-interest or assignee
of this Agreement or any other material agreement between the Founder and
the Company relating to the Founder's employment.
(d) "Involuntary Termination Without Cause" means the Founder's
dismissal or discharge from the Company other than for Cause. The termination of
the Founder's employment as a result of death or disability will not be deemed
to be an Involuntary Termination Without Cause.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first hereinabove written.
ARISTOTLE PUBLISHING, INC.
BY: /s/ John Phillips
__________________________________
Name: John Phillips
_________________________
Title: CEO
________________________
FOUNDER
_____________________________________
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first hereinabove written.
ARISTOTLE PUBLISHING, INC.
BY:
__________________________________
Name:
_________________________
Title:
________________________
FOUNDER
/s/ John Phillips
______________________________________
10
<PAGE>
EXHIBIT A
FORM OF PROPRIETARY INFORMATION AGREEMENT
[see Exhibit 10.13]
<PAGE>
EXHIBIT 10.5
Aristotle Publishing, Inc.
October 6, 1999
Rob Christ
19000 Gallop Drive
Germantown, MD 20874
Dear Rob:
Aristotle Publishing, Inc. (the "Company") is pleased to offer you
employment on the following terms:
1. Position. You will serve in a full-time capacity as Chief Financial
Officer of the Company. You will report to Chief Executive Officer. By signing
this letter agreement, you represent and warrant to the Company that you are
under no contractual commitments inconsistent with your obligations to the
Company.
2. Salary. You will be paid a salary at the annual rate of $110,000,
payable in semi-monthly installments in accordance with the Company's standard
payroll practices for salaried employees. This salary will be subject to
adjustment pursuant to the Company's employee compensation policies in effect
from time to time. During your employment with the Company, you will also be
eligible to receive (i) a cash bonus of $10,000 in the event the Company equals
or exceeds its internal budgeted financial projections for the fourth fiscal
quarter of 1999, and (ii) a cash bonus of $15,000 in the event the Company
consummates a firmly underwritten initial public offering of the Company's
common stock, payable in accordance with the Company's bonus policies in effect.
After 90 days of continuous employment, you will be entitled to participate in
the Company's employee medical and other benefit plans and programs, subject to
the rules and regulations applicable thereto.
<PAGE>
3. Stock Options. Subject to the approval of the Company's Board of
Directors or its Compensation Committee, I will recommend to the Board of
Directors that an option to purchase 52,147 shares of the Company's Common Stock
be granted to you. The exercise price per share will be equal to the fair market
value per share on the date the option is granted or on your first day of
employment, whichever is later (which I anticipate will be $2.75 per share). The
option will be subject to the terms and conditions applicable to options granted
under the Company's 1999 Stock Option Plan, as described in that Plan and your
stock option agreement. You will vest in 25% of the option shares after 12
months of service, and the balance will vest monthly over the next 4 years of
service, as described in the applicable stock option agreement.
4. Proprietary Information And Inventions Agreement. Like all Company
employees, you will be required as a condition to your employment with the
Company to sign the Company's standard Proprietary Information and Inventions
Agreement, a copy of which is attached hereto as Exhibit A.
5. Period Of Employment. Your employment with the Company will be "at
will," meaning that either you or the Company will be entitled to terminate your
employment at any time and for any reason, with or without cause. Any contrary
representations which may have been made to you are superseded by this offer.
This is the full and complete agreement between you and the Company on this
term. Although your job duties, title, compensation and benefits, as well as the
Company's personnel policies and procedures, may change from time to time, the
"at will" nature of your employment may only be changed in an express written
agreement signed by you and a duly authorized officer of the Company. If within
the first twelve (12) months of your employment with the Company, you are
terminated without cause, (i) you will be entitled to receive a pro rated
portion of your annual salary that you otherwise would have
2
<PAGE>
received had your employment not been terminated payable on a semi-monthly
installments in accordance with the Company's standard payroll practices for
salaried employees and (ii) 25% of your option shares will vest immediately and
you shall be entitled to exercise such options pursuant to the terms and
conditions applicable to options granted under the Company's 1999 Stock Option
Plan, as described in that Plan and your stock option agreement. Thereafter,
your option shares shall no longer vest and you shall not be entitled to
exercise any additional options. Prior and as a condition to the receipt of any
severance benefits or acceleration of option shares contemplated above, you will
execute a release for the benefit of the Company, its directors, officers,
agents and affiliates satisfactory to the Company and in compliance with
applicable law.
6. Outside Activities. While you render services to the Company, you will
not engage in any other gainful employment, business or activity without the
written consent of the Company. While you render services to the Company, you
also will not assist any person or organization in competing with the Company in
preparing to compete with the Company or in hiring any employees of the Company.
For the period of one year after your employment, you shall not enter into or
engage generally in direct competition with the Company or its subsidiaries
anywhere in the United States in the business of operating, creating, designing,
programming, marketing or selling political products, professional campaign
services, campaign software, advertising, or databases derived from registered
voter lists, whether for your own business or for any other person or entity,
including, specifically, but not limited to, any competitor, client, or former
client of the Company, or any governmental entity.
7. Withholding Taxes. All forms of compensation referred to in this
letter are subject to reduction to reflect applicable withholding and payroll
taxes.
3
<PAGE>
8. Entire Agreement. This letter and the Exhibit attached hereto contain
all of the terms of your employment with the Company and supersede any prior
understandings or agreements, whether oral or written, between you and the
Company.
9. Amendment And Governing Law. This letter agreement may not be amended
or modified except by an express written agreement signed by you and a duly
authorized officer of the Company. The terms of this letter agreement and the
resolution of any disputes will be governed by the laws of the District of
Columbia.
We hope that you find the foregoing terms acceptable. You may indicate your
agreement with these terms and accept this offer by signing and dating both the
enclosed duplicate original of this letter and the enclosed Proprietary
Information and Inventions Agreement and returning them to me. As required by
law, your employment with the Company is also contingent upon your providing
legal proof of your identity and authorization to work in the United States.
We look forward to having you join us on November 1, 1999.
If you have any questions, please call me at (415) 440-1012.
Very truly yours,
Aristotle Publishing, Inc.
By: /s/ John A. Phillips
______________________________
Name: John A. Phillips
Title: Chief Executive Officer
I have read and accept this employment offer:
/s/ Rob Christ
__________________________________
Name: Rob Christ
Dated: October 10, 1999
___________________________
4
<PAGE>
Exhibit A
Form of Proprietary Information and Inventions Agreement
[see Exhibit 10.13]
<PAGE>
EXHIBIT 10.6
Aristotle Publishing, Inc.
November 2, 1999
Blair Richardson
Dear Blair:
Aristotle Publishing, Inc. and its subsidiaries (the "Company") is
pleased to offer you employment on the following terms:
1. Position. You will serve in a full-time capacity as Legal Counsel
of the Company. Your primary duties will be Business and Legal Affairs. By
signing this letter agreement, you represent and warrant to the Company that you
are under no contractual commitments inconsistent with your obligations to the
Company. You shall work those hours necessary to accomplish the functions of
your job but not less than (40) hours a week during the normal hours that the
Company is open for business. You shall devote substantially all of this time,
attention and energies to the business of the Company as is reasonably
necessary, appropriate or advisable to carry out the duties assigned to you.
2. Salary/Commissions. You will be paid a salary at the annual rate
of $130,000, payable in semi-monthly installments in accordance with the
Company's standard payroll practices for salaried employees. This salary will
be subject to adjustment pursuant to the Company's employee compensation
policies in effect from time to time. In the event the company executes an
agreement with one or more of the following listed prospective partners prior to
12/31/99, you will receive a $5,000 bonus for each executed agreement, up to a
maximum cumulative amount of $15,000 for 3 or more executed agreements. The
listed
<PAGE>
prospective partners are: ATT, 24/7, Juno, NYT, DNC, DCCC, DSCC, RNC, RCCC, and
NRSC.
3. Stock Options. Subject to the approval of the Company's Board of
Directors or its Compensation Committee, I have recommended to the Board of
Directors that an option to purchase an additional 24,100 shares of the
Company's Common Stock be granted to you, in addition to the option to purchase
15,000 shares already granted. The exercise price per share will be $2.75. The
option will be subject to the terms and conditions applicable to options granted
under the Company's 1999 Stock Option Plan, as described in that Plan and your
stock option agreement. You will vest in 25% of the option shares after 12
months of service, and the balance will best monthly over the next 4 years of
service, as described in the applicable stock option agreement.
4. Benefits. Under Company policy, benefits are available only to
full time employees. You shall be entitled to annual vacation leave of four
weeks, at full pay. Commencing immediately, paid vacation time will be earned
on an accrual basis as determined by established Company policy (.42 day per pay
period worked for salaried employees and .42 day per eighty (80) hours worked
for hourly employees). The Company management reserves the right to determine
your vacation time in order to assure the efficient and orderly operation of the
Company. All annual computations for benefits are based on your date of hire.
You shall be entitled to two (2) days personal leave annually at your base
salary rate. Vacation time and personal leave not used within each year of
employment may be rolled over to the next year according to established
Aristotle policy. You do not have the right to take compensation in lieu of
said time. In addition to paid annual vacation leave and annual personal leave,
the Company management may, at management's sole discretion and governed by
applicable local, state and
2
<PAGE>
federal laws, grant you and unpaid leave. You shall be entitled to take all
normal paid holidays as established by Company policy, other days the office is
officially closed, and up to three (3) sick days at your base salary rate as
established by Company policy. Please refer to your employee manual for more
details.
5. Proprietary Information and Inventions Agreement. Like all
Company employees, you have been required, as a condition to your employment
with the Company, to sign the Company's standard Proprietary Information and
Inventions Agreement, a copy of which is on file.
6. Period of Employment. Your employment with the Company will be
"at will," meaning that either you or the Company will be entitled to terminate
your employment at any time and for any reason, with or without cause, upon two
(2) weeks written notice. Any contrary representations which may have been made
to you are superseded by this offer. This is the full and complete agreement
between you and the Company on this term. Although your job duties, title,
compensation and benefits, as well as the Company's personnel policies and
procedures, may change from time to time, the "at will" nature of your
employment may only be changed in an express written agreement signed by you and
a duly authorized officer of the Company. You shall be entitled only to such
compensation that is fully accrued by you prior to the date of termination,
except as explicitly provided for in this agreement, including accrued vacation
time, personal days, and commissions. Upon termination, you will surrender all
supplies, records, equipment and other property of the Company business.
7. Outside Activities. While you render services to the Company, you
will not engage in any other gainful employment, business or activity without
the written consent of the
3
<PAGE>
Company. While you render services to the Company, you also will not assist any
person or organization in competing with the Company, in preparing to compete
with the Company or in hiring any employees of the Company. You agree further
that for the period of your employment by the Company and for one (1) year after
the date of termination of such employment by the Company you will not solicit
the business of any client or customer of the Company (other than on behalf of
the Company) or misuse in any way any Trade Secret of the Company (as such term
is defined in the Proprietary Information and Inventions Agreement, attached
hereto as Exhibit A).
8. Withholding Taxes. All forms of compensation referred to in this
letter are subject to reduction to reflect applicable withholding and payroll
taxes.
9. Entire Agreement. This letter and the Exhibit attached hereto
contain all of the terms of your employment with the Company and supersede any
prior understandings or agreements, whether oral or written, between you and the
Company.
10. Amendment And Governing Law. This letter agreement may not be
amended or modified except by an express written agreement signed by you and a
duly authorized officer of the Company. The terms of this letter agreement and
the resolution of any disputes will be governed by
[California/Delaware/Washington D.C.] [sic] law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
We hope that you find the foregoing terms acceptable. You may indicate
your agreement with these terms and accept this offer by signing and dating both
the enclosed duplicate original of this letter and the enclosed Proprietary
Information and Inventions Agreement and returning them to me. As required by
law, your employment with the Company is also contingent upon your providing
legal proof to your identity and authorization to work in the United States.
This offer, if not accepted, will expire at the close of business on November
15, 1999.
Very truly yours,
Aristotle Publishing, Inc.
By: /s/ John Phillips
___________________________
Name: John Phillips
Title: CEO
I have read and accept this employment offer:
/s/ Blair Richardson
____________________________________________
Name:
Dated: 11/2, 1999
5
<PAGE>
EXHIBIT A
FORM OF PROPRIETARY INFORMATION AGREEMENT
[see Exhibit 10.13]
<PAGE>
EXHIBIT 10.9
AGREEMENT
---------
AGREEMENT, dated as of February 9, 1998 between ARISTOTLE INDUSTRIES,
205 Pennsylvania Avenue, SE, Washington, D.C. 20003 and CENTRAL ADDRESS
SYSTEMS, INC. (Hereinafter referred to as "CAS", a Nebraska corporation with its
principal place of business at 10303 Crown Point Avenue, Omaha, Nebraska 68134.
WITNESSETH:
WHEREAS, CAS is a direct mail data processor which provides a variety of
data processing services for the industry.
WHEREAS, CAS desires to process Consumer Phone Number Appending/Verifying
Inferred Income Overlay, County FIPS, Presence of Children, Homeowner/Renter,
Mail Order Buyer Code, Computer Owner, Census Tract Overlay, and Block Group
Overlay for Aristotle Industries.
WHEREAS, Aristotle Industries desires CAS to provide above mentioned data
processing services.
NOW, THEREFORE, in consideration of the mutual premises and subject to
the following terms and conditions, the parties agree as follows:
1. CAS will process Phone Number Appending/Verifying, Block Group
Overlay, Census Tract Overlay, Inferred Income Overlay, County FIPS, Presence of
Children, Homeowner/Renter, Mail Order Buyer Code, Computer Owner, Census Tract
Overlay, and
<PAGE>
Block Group Overlay for Aristotle Industries in accordance with the
price schedule as annexed as Exhibit "A", which prices will be maintained during
the term of this agreement.
2. TERM. This Agreement shall remain in effect for a period of
twelve (12) months from the date hereof and shall be renewed for successive
twelve (12) month period unless either party shall given written notice of its
intent not to renew within ninety (90) days of the date of scheduled
termination.
3. LAW GOVERNING. This Agreement shall be subject to and governed by
the laws of the District of Columbia.
4. ARBITRATION. All disputes arising under this Agreement shall be
settled by arbitration at a Nebraska office of the American Arbitration
Association in accordance with the rules and provisions of the American
Arbitration Association.
5. CHANGES. This Agreement may not be changed or modified except by
a writing signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
ARISTOTLE INDUSTRIES
/s/ John Phillips
______________________________
John Phillips, President
CAS, INC.
/s/ Ken M. Strassberg
______________________________
Ken M. Strassberg, President
2
<PAGE>
EXHIBIT "A"
Pricing Agreement between CAS, Inc. and Aristotle Industries.
Inferred Income Overlay
Census Tract Overlay,
Black Group Overlay, County FIPS
Presence of Children, Homeowner/Rental
Mail Order Buyer Code, Computer Owner,
Census Tract Overlay, Block Group Overlay $ .20/M Hits
Phone Append/Verify $ 3.90/M
New Phones
Output Cartridges $15.00/Cartridge
Courier Costs
Exchange of data on Exabyte tape or other AI compatible cartridge tape format.
<PAGE>
EXHIBIT 10.10
[LOGO]
LEASE
(STANDARD FORM)
THIS LEASE, made this 28th day of September, 1999, between Colleen Brent,
Leland Dobbs, Barrett G. Levine hereinafter called "LESSOR", and Aristotle
Publishing, Inc., a Delaware corporation hereinafter called "LESSEE".
(The word "Lessor" and the word "Lessee" as used herein shall include the
plural as well as the singular, and shall include, apply to and bind and benefit
the heirs, executors, administrators, successors and assigns of Lessor and
Lessee. If there are more than one Lessor or Lessee, the obligations hereunder
imposed upon Lessor or Lessee shall be joint and several.)
WITNESSETH: Upon the terms, covenants and conditions set forth herein, Lessor
hereby leases to Lessee, and Lessee hires from Lessor, the following premises,
situated in the City and of San Francisco, State of California:
That certain commercial space located behind that certain 3 story
building located on the northerly line of Union Street between
Fillmore and Steiner Streets, together with the second floor
bathroom, as found in San Francisco Assessor's Block #534, Lot
#17, and commonly know and designated as 2266 Union Street.
It is further mutually agreed between the Lessor and Lessee as follows:
1. TERM: The term of this Lease shall be for three (3) years, one (1)
months, commencing November 1, 1999, and ending November 30, 2002.
2. RENT: Lessee agrees to pay to Lessor as minimum monthly rent for the
premises the following in lawful money of the United States of America:
See Page 1A.
Rent is payable in advance of the first day of each and every month during
the term of this Lease to Lessor without notice or demand and without deduction
or offset. Said rent shall be paid at such place or places as may be designated
in writing from time to time by Lessor, the first of said payments to be made
upon execution of this Lease. Rent for any period during the term hereof which
is for less than one month shall be a pro rata portion of the monthly
installment. Lessee shall pay, as additional rental, all rentals, charges and
other sums of money required to be paid by Lessee under this Lease (all such
rentals, charges and sums other than minimum monthly rental being referred to in
this Lease as "Additional Rental"), whether or not the same may be designated
"Additional Rental". If such amounts are not paid at the time provided in this
Lease, they shall nevertheless be collectible, together with any interest or
late charge provided for herein, as Additional Rental with the next installment
of minimum monthly rental thereafter following due, but nothing herein contained
shall be deemed to suspend or delay the payment of any amount of money or charge
at the time the same becomes due and payable hereunder, or limit any other
remedy of Lessor. Where the time for payment of any Additional Rental is not
specified herein, the same shall be due and payable ten (10) days after Lessor's
invoice or demand is given.
<PAGE>
RENT: Lessee agrees to pay Lessor as minimum monthly rent for the premises the
following in lawful money on the United States of America:
For the first month of the lease term, namely from November 1, 1999, through
November 30, 1999, no rent shall be due.
For the next thirty-six months of the lease, namely from December 1, 1999,
through November 30, 2002, in equal monthly payments of FIVE THOUSAND FIVE
HUNDRED AND 00/100THS ($5,500.00) DOLLARS.
1A
<PAGE>
3. USE OF PREMISES: Lessee shall use said premises continuously and
constantly during the term hereof for the purposes of conducting therein the
following and only the following business:
General Office Use
Lessee agrees not to conduct or permit to be conducted any fire sale, any
bankruptcy sale, or any sale by auction on said premises. Lessee shall not
display or sell merchandise nor allow carts, portable signs, devices or any
other object to be stored or to remain outside the defined exterior walls, roof
or permanent doorways of the premises, or in public hallways. Lessee
acknowledges that no warranties or representations have been made by Lessor or
Lessor's Agent regarding the fitness or suitability of the premises for the
conduct of Lessee's business, and Lessee has made Lessee's own independent
investigation to determine the fitness and suitability of the premises for
Lessee's use, and Lessee takes possession hereunder subject to all laws,
ordinances and regulations applicable to the premises and their use, and any
covenants or restrictions of record.
5. LESSEE'S INSURANCE: Lessee shall purchase and maintain at Lessee's
own expense the following types of minimum insurance which shall be in full
force and effect during the term of this Lease and any extension thereto in a
responsible company authorized to do business in the state where the demised
premises are situated:
(a) Bodily Injury, Personal Injury, and Property Damage Insurance with
limits not less than $1,000,000, combined single limit, covering the demised
premises and sidewalks in front of same, which shall name Lessor as an
additional insured (agreeing that this insurance is considered primary for the
protection of Lessor), and to furnish a certificate (or a full copy, if
requested) of such policy to Lessor. Said policy shall contain a provision
requiring thirty (30) days written notice from the insurance company to Lessor
prior to reduction or cancellation, and each policy or certificate thereof shall
be delivered to Lessor by Lessee upon commencement of the term of this Lease and
upon each renewal of said insurance. No more frequently than each three (3)
years, if, in the opinion of Lessor's lender or of the insurance broker retained
by Lessor, the amount of Bodily Injury, Personal Injury, and Property Damage
liability insurance coverage at that time is not adequate, Lessee shall, at
Lessee's sole cost, increase the insurance coverage as required by either
Lessor's lender or Lessor's insurance broker.
(b) Full glass insurance for all glass in or on the premises, including
coverage for upgrading where required by governmental code.
(c) Worker's Compensation insurance as required by law.
(d) Insurance covering Lessee's leasehold improvements, alterations,
additions, and improvements permitted herein, trade fixtures, equipment,
merchandise, inventory and other personal property of Lessee from time to time
in, or upon, the premises in an amount not less than ninety (90%) percent of the
full replacement cost thereof providing protection against any peril included
within the classification, "Fire and Extended Coverage" together with insurance
against sprinkler damage, vandalism and malicious mischief. Any proceeds shall
be used for the repair or replacement of the property damaged or destroyed
unless this Lease is terminated pursuant to the provisions of Paragraph 18 of
this Lease.
(e) Adequate insurance to cover any loss or damage caused by burglary,
vandalism, forced entry or riot to Lessee's property, fixtures, merchandise,
leasehold improvements, or to the demised premises, or to property, fixtures, or
merchandise belonging to Lessee's agents, servants, contractors, employees,
licensees, invitees or customers.
The failure of Lessee to effect said insurance in the names herein called
for and to pay the premiums therefor or to deliver certificates to Lessor shall
permit Lessor to effect said insurance and pay the requisite premiums therefor,
which premiums shall be repayable unto Lessor immediately upon notice to Lessee.
The limits of said insurance shall not, however, limit the liability of Lessee.
Lessee's failure to provide said insurance or to provide a certificate thereof
to Lessor, or to reimburse Lessor for the costs in effecting said insurance,
shall be a material breach of this Lease.
2
<PAGE>
6. WAIVER OF SUBROGATION: Lessor and Lessee hereby waive any right that
each may have against the other on account of any loss or damage arising in any
manner which is covered by policies of insurance for fire and extended coverage,
theft, public liability, worker's compensation or other insurance now or
hereafter existing during the term of this Lease covering the property of which
the demised premises are a portion or the demised premises or any portion
thereof or operations therein, and the parties shall each have their respective
insurance companies waive any rights of subrogation where possible that such
companies may have against Lessor or Lessee, as the case may be. Each party
shall obtain any special endorsements, if required by their insurer, to evidence
compliance with the waiver of any rights of subrogation. Lessor and Lessee
shall each indemnify the other against any loss or expense, including reasonable
attorney's fees, resulting from the failure to obtain such a waiver when the
same is reasonably available.
7. POSSESSION: Lessee agrees that in the event of the failure or
inability of Lessor to deliver possession of said premises at the time herein
agreed that Lessor shall not be liable for any damages of any kind caused
thereby nor shall this Lease be void, nor shall the expiration date hereof be
changed, but in such event there shall be a proportionate reduction of rent
covering the period between the commencement of the said term and the time when
Lessor can deliver possession. If Lessor has not tendered possession of the
premises to Lessee within ninety (90) days after the commencement date, Lessee
may terminate this Lease at any time after said ninety (90) day period by giving
ten (10) days advance written notice to Lessor. In the event Lessor has not
delivered possession of the premises within six (6) months after the
commencement date as a result of causes beyond Lessor's control, Lessor may
terminate this Lease by giving Lessee ten (10) days advance written notice. If
either party terminates this Lease in accordance with this Paragraph, all money
paid by Lessee to Lessor shall be refunded and both parties shall be released
from all obligations under this Lease.
8. INDEMNIFICATION OF LESSOR: Lessee agrees to indemnify and hold Lessor
harmless from and against any and all claims, actions, damages, liability and
expense, including but not limited to reasonable attorney's fees, in connection
with loss of life, personal injury, and/or damage to property arising from or
out of any occurrence in, upon or at the leased premises, or any part thereof,
or occasioned wholly or in part by any act or omission of Lessee, its agents,
contractors, employees, servants, customers, invitees, tenants, or subtenants.
Lessor shall not be liable for any damage to property of Lessee or of others
located on the leased premises, nor for the loss of or damage to any property of
Lessee or of others by theft or otherwise. Lessor shall not be liable for any
injury or damage to persons or property resulting from fire, earthquake, flood,
explosions, falling plaster, steam, gas, electricity, water, rain or snow, or
leaks from any part of the leased premises or from the pipes, appliances or
plumbing works or by any other cause of whatever nature. Lessor shall not be
liable for any such damage caused by any other tenants or persons in the leased
premises or the building of which the demised premises are a portion, occupants
of adjacent property, or the public, or caused by operations in construction of
any private, public or quasi-public work. Notwithstanding the above, this
Paragraph shall not apply where such damage, loss of injury is caused by the
willful act or gross negligence of Lessor. The provisions of this Paragraph
shall survive the expiration or early termination of this Lease, except that any
liability of Lessor shall be limited as set forth in Paragraph 31 hereof.
9. BURGLARY, THEFT, ROBBERY, VANDALISM, FORCED ENTRY, RIOT: Lessee shall
not hold Lessor responsible for any loss or damage to Lessee's property,
fixtures, merchandise, leasehold improvements, or to the demised premises, or to
property, fixtures, or merchandise belonging to Lessee's agents, servants,
contractors, employees, licensees, invitees or customers caused by burglary,
theft, robbery, vandalism, forced entry or riot, and Lessee shall promptly
repair any damage or loss on or about the premises caused by burglary, theft,
robbery, vandalism, forced entry or riot at Lessee's sole cost and expense in
accordance with Paragraph 13 of this Lease.
10. SIGNS: Lessor reserves the exclusive right to the roof and exterior
walls of said premises; and no signs or notices shall be inscribed, painted or
affixed by Lessee on or to the outside of the herein demised premises without
the prior written consent of Lessor. All permitted signs, if any, shall satisfy
all governmental code requirements. Upon the expiration of this Lease or
earlier termination thereof, Lessee shall, at Lessor's option, remove all
Lessee's signs and repair any damage caused by the erection or removal of said
signs.
11. CONCESSIONS: Lessee agrees not to give, grant or otherwise permit a
taxicab stand, video game machine, newspaper stand, public telephone, or any
other street concession in or adjacent to said premises, without the prior
written consent of Lessor.
12. LIENS: Lessee shall promptly pay or cause to be paid all costs of
work done by Lessee or caused to be done by Lessee on the leased premises and
shall keep the leased premises free and clear of all mechanic's and other liens.
Lessee shall indemnify and hold Lessor and the leased premises harmless against
loss, damage, interest, cost, attorney's fees and other expenses on account of
claims of such liens. If Lessee shall desire to contest any claim of lien,
Lessee shall first furnish Lessor a cash security in the amount of the claim,
plus estimated costs and interest, or a bond from a responsible corporate surety
in such amount conditioned on the discharge of the lien. If a final judgment
establishing the validity or existence of a lien for any amount is entered,
Lessee shall pay and satisfy the same not later than 30 days after entry of
judgment. If Lessee shall be in default in paying any charge for which a
mechanic's lien claim and suit to foreclose the lien have been filed and shall
not have given Lessor security to protect the property and the Lessor against
such claim of lien, Lessor may pay said claim and any costs. The amount so
paid, together with reasonable attorney's fees incurred in connection therewith,
shall be immediately due and owing from Lessee to Lessor.
3
<PAGE>
13. CONDITION OF PREMISES, REPAIRS AND LAW OBSERVANCE: By entry
hereunder, Lessee acknowledges to have received the demised premises in its "AS
IS" condition. No alterations shall be made on any part of said demised
premises without the written consent of Lessor first had and obtained, except as
may be hereinafter provided. Lessee shall give Lessor written notice not less
than five (5) working days prior to any work or improvements to be performed by
Lessee to the demised premises thereby permitting Lessor to record and post
Notices of Non-Responsibility. All applicable permits, authorizations and
governmental approvals shall be obtained before commencement of the alterations,
and the alterations shall be completed with due diligence in compliance with the
plans and specifications approved by Lessor. Lessor shall not be required to do
any construction whatsoever (save as required by Paragraph 18 hereof) after
delivery of possession and shall not be required to install, maintain or repair
any fixtures, plumbing or furnishings required by Lessee in the use of said
premises and in connection with the business or occupations transacted therein,
all of which shall be furnished solely by Lessee. Lessee agrees to conform to
and comply with all laws, ordinances, rules and regulations of Federal, State,
County and Municipal authority in the use and occupation and repair of the
demised premises and to keep and maintain (except as hereinafter provided) the
demised premises and appurtenances and every part thereof including glazing,
interior surface of exterior walls, doors and appurtenances to doors, and
showcases in good and sanitary order, condition and repair at Lessee's sole cost
and expense during the entire term of this Lease. Lessor shall, during the term
of this Lease, at Lessor's sole cost and expense, maintain in good condition and
repair the roof (including any skylights) of said premises, the exterior walls
(other than glazing and doors, door jambs, door frames, locks, bolts, door
hardware, door closers, or appurtenances), foundations, sub-surface plumbing and
sub-surface electrical systems within the walls or foundations of the premises
(providing Lessee has not negligently used nor over-loaded said systems), and
the sidewalks surrounding said premises except for any damage caused by the
wrongful act of Lessee or its agents and except for loss or damage, the repair
of which is Lessee's responsibility under Paragraph 8 and this Paragraph 13 of
this Lease. Lessor shall not, however, be obligated to paint such exterior, nor
shall Lessor be required to maintain the interior surface, windows, doors or
glass, nor any electrical, plumbing, or other systems installed by Lessee.
Lessor shall have no obligation to make repairs under this Paragraph until a
reasonable time after receipt of written notice of the need for such repairs.
Lessee expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
premises in good order, condition and repair.
14. CHARGES FOR PUBLIC UTILITIES AND SERVICES: Lessee hereby agrees to
pay for all heat, air conditioning, water, sewer service charge, light, gas,
power, telephone, custodial services, pest control, trash and garbage collection
and other services supplied to said demised premises, together with any taxes
thereon, during the term of this Lease. If any such services are not separately
metered to Lessee, Lessee shall pay within five (5) days, after written demand
is received from Lessor, a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises. Lessor shall not be liable in
damages or otherwise for any failure or interruption of any service being
furnished the demised premises.
15. HAZARDOUS MATERIALS: Lessee shall not bring upon or generate toxic or
hazardous substances within the demised premises, and should Lessee so act, then
Lessee shall, at its sole cost and expense, comply with all Federal, State or
local laws from time to time in effect ("Hazardous Materials Laws") concerning
the management, use, generation, storage, transportation, presence, discharge or
disposal of hazardous, toxic, radioactive or carcinogenic materials, substances
or waste ("Hazardous Materials"). Lessee shall cause any and all hazardous
materials brought onto or used, generated, stored or discharged in the demised
premises to be removed from the premises and transported for disposal in
accordance with applicable Hazardous Materials Laws. Lessor shall have the right
to enter the demised premises from time to time to conduct tests, inspections
and surveys concerning Hazardous Materials and to monitor Lessee's compliance
with its obligations concerning Hazardous Materials and Hazardous Materials
Laws. Lessee shall immediately notify Lessor in writing of any clean-up or
removal action instituted or proposed by Lessee, any enforcement, clean-up,
removal or other governmental or regulatory action instituted or threatened, or
any claim made or threatened by any person against Lessee, the demised premises,
or the building relating to Hazardous Materials or Hazardous Materials Laws.
Lessee shall also supply to Lessor as promptly as possible, and in any event
within five (5) business days after Lessee receives or sends same, copies of all
claims, reports, complaints, notices, warnings or asserted violations relating
in any way to the demised premises or Lessee's use thereof and concerning
Hazardous Materials or Hazardous Materials laws. Lessee shall not negotiate or
enter into any settlement agreement, consent decree or other compromise in
respect to Hazardous Materials or Hazardous Materials Laws affecting the demised
premises except after giving Lessor prior written notice and a full and fair
opportunity to appear, intervene or otherwise assert and protect Lessor's rights
and interests.
Lessee shall indemnify, defend and hold Lessor harmless from any claims,
causes of action, liabilities, costs or expenses (including all attorney's fees
and costs) arising from or in connection with personal injury or death or
property damage or clean-up costs caused or alleged to have been caused by the
presence of Hazardous Materials brought upon or generated by Lessee within the
demised premises including, without limitation, any personal injury, death or
property damage caused or alleged to have been caused by the release of
Hazardous Materials or other toxic substances into the air as a result of such
contamination, whether such claims, causes of action or liabilities are first
asserted during the term hereof or thereafter, and including without limitation
claims made against the Lessor with respect to personal injury, death or
property damage sustained by third parties caused or alleged to have been caused
by the presence of Hazardous Materials or other toxic substances.
16. INCREASED DANGER OF HAZARD: Lessee shall not permit or suffer any
public or private nuisance upon said premises. No use shall be made or
permitted to be made of the demised premises nor acts done which will cause the
cancellation of any insurance policy covering said premises or any building of
which the premises may be a part, and if Lessee's use of the premises causes an
increase in the cost of insurance premiums, Lessee shall pay the entirety of any
such increase.
4
<PAGE>
17. RIGHT OF LESSOR TO PERFORM: All covenants and agreements to be
performed by Lessee under any of the terms of this Lease shall be performed by
Lessee at Lessee's sole cost and expense and without any abatement of rent. If
Lessee fails to pay any sum of money, other than rent, required to be paid by it
hereunder or shall fail to perform any other act on Lessee's part to be
performed hereunder, and such failure shall continue for ten (10) days after
notice by Lessor, the Lessor may, without waiving or releasing Lessee from any
obligations of Lease, make any such payment or perform any such act on Lessee's
part to be made or performed as provided in this Lease, but Lessor shall not be
obligated to take any such action. All sums so paid by Lessor and all necessary
incidental costs together with interest thereon at the maximum rate permitted by
law from the date of such payment by Lessor shall be payable as additional rent
to Lessor on demand, and Lessee covenants to pay any such sums, and Lessor shall
have, in addition to any other right or remedy of Lessor, the same rights and
remedies in the event of the non-payment thereof by Lessee as in the case of
default by Lessee in the payment of the rent.
18. DESTRUCTION OF PREMISES: (a) In the event of a partial destruction of
said premises prior to the commencement of or during the said term hereof by any
cause covered by the typical standard form fire, extended coverage, and
malicious mischief insurance, Lessor shall, to the extent such insurance
proceeds are made available to Lessor, forthwith repair the same, provided such
repairs can be made within 120 days after the destruction under the laws and
regulations of Federal, State, County or Municipal authorities. Such partial
destruction shall in no way annul or void this Lease, except that Lessee shall
be entitled to a proportionate reduction of rent while such repairs are being
made, provided that such damage is not the result, in whole or in part, of the
negligence or willful misconduct of Lessee or Lessee's agents, contractors,
employees, invitees, or licensees. Such proportionate reduction shall be based
upon the extent to which the making of such repairs interfere with the business
carried on by Lessee in the said premises. If such repairs cannot be made within
120 days after the destruction, Lessor may, at its option, make same within a
reasonable period of time, this Lease continuing in full force and effect and
the rent to be proportionately abated as provided in this Paragraph. In the
event that Lessor does not so elect to make the repairs which cannot be made in
120 days after the destruction, or such repairs cannot be made under such laws
and regulations, this Lease may be terminated at the option of either party
giving written notice to the other within thirty (30) days after the occurrence
of such damage. In the event that the building in which the demised premises
are situated may be destroyed to the extent of more than 33 1/3% of the
replacement cost thereof, Lessor may elect to terminate this Lease, whether the
demised premises be injured or not. A total destruction of the building,
excluding foundations, in which the said premises are situated shall terminate
this Lease. If the premises are partially destroyed or damaged during the last
twelve months of the term of this Lease, Lessor or Lessee may, at either party's
option, with no liability to the other party, cancel and terminate this Lease as
of the date of occurrence of such damage by giving written notice to the other
party of Lessee's or Lessor's election to do so within thirty (30) days after
the date of occurrence of such damage. If the premises are to be repaired by
Lessor under this Paragraph, such repairs shall not include, and Lessor shall
not be required to repair, any damage by fire or other cause to the property of
Lessee or any repairs or replacements of any paneling, decorations, railings,
floor coverings, or any alterations, additions, fixtures or improvements
installed on the premises by or at the expense of Lessee; Lessee shall repair
and replace those items at its own cost and expense if Lessor repairs the damage
to the building under this Paragraph. In the event this Lease is terminated
under the provisions of this Paragraph, the portion of any rentals paid in
advance by Lessee to Lessor covering the period following such termination shall
be repaid by Lessor to Lessee. Lessee waives any right to terminate this Lease
as a result of any statutory provisions now or hereafter in effect pertaining to
the damage or destruction of demised premises of the building of which demised
premises are a portion except as expressly provided herein.
(b) ARBITRATION OF DISPUTES: In the event of any dispute between Lessor
and Lessee relative to the provisions of this Paragraph 18, they shall each
select an arbitrator, the two arbitrators so selected shall select a third
arbitrator and the three arbitrators so selected shall hear and determine the
controversy, and their majority decision thereon shall be final and binding upon
both Lessor and Lessee. In the event Lessor's and Lessee's arbitrators cannot
agree to a third arbitrator, the President of the Board of Realtors or court of
the city in which the demised premises are located shall be asked to designate
said third arbitrator. Lessor and Lessee shall use their best efforts to bring
the dispute to an expeditious conclusion and shall each bear the cost of their
respective arbitrators, and they shall equally bear the cost of the third
arbitrator.
(c) NOTICE: BY INITIALLING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE
ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
COURT OR JURY TRIAL. BY INITIALLING IN THE SPACE BELOW YOU ARE GIVING UP YOUR
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY
-----
INCLUDED IN THE ARBITRATION OF DISPUTES PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT
TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THE
FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN
THE ARBITRATION OF DISPUTES PROVISION TO NEUTRAL ARBITRATION.
LESSOR'S INITIALS /s/ P/S LESSEE'S INITIALS ________________
____________________
5
<PAGE>
19. ASSIGNMENT AND SUBLETTING: Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, hypothecate or otherwise
transfer or encumber all or any part of Lessee's interest in this Lease without
Lessor's prior written consent. Lessor shall not unreasonably withhold consent
to the subletting of demised premises or the assignment of this Lease in the
event the proposed sublessee or assignee meets reasonable credit,
business/qualification and reputation requirements and the occupancy resulting
from such subletting or assignment is consistent with the general character of
the business as described in Paragraph 3 of this Lease. Any of the foregoing
acts without Lessor's prior written consent shall be void and shall, at the
option of Lessor, terminate this Lease. Any transfer or change in ownership of
fifty (50%) percent or more of the stock or interest in Lessee shall constitute
an assignment for purpose of this Paragraph. No consent by Lessor to any
assignment or subletting by Lessee shall release Lessee of Lessee's obligation
to pay the rent and to perform all the obligations to be performed by Lessee
hereunder for the term of this Lease or any extension thereof. The acceptance
of rent by Lessor from any other party shall not be deemed to be a waiver by
Lessor of any provisions hereof. A consent to one assignment or subletting
shall not be deemed to be a consent to any subsequent assignment or subletting.
Lessee shall reimburse Lessor for any expense incurred by Lessor in connection
with the assignment or subletting of this Lease, such as, but not limited to,
the cost of review of any documents by Lessor's attorney.
20. EMINENT DOMAIN: If the whole or any part of the premises shall be
taken or condemned by any competent authority for any public or quasi-public
use, then this Lease and all rights and liabilities of the parties thereafter
accruing shall cease after the date when such possession shall be required or
title to be vested, without apportionment to Lessee of the award or other
compensation, if any, by reason of such requisition, taking or condemnation; but
nothing herein contained shall deprive Lessee of the right, if any, to receive
from the requisitioning or condemning authority award for compensation or loss
of or damage to any of Lessee's tangible property or business, provided the same
is not in diminution of the award or compensation payable to Lessor; and Lessee
shall make payment of all rent and other charges accrued and pro-rated to the
date of such requisition, taking or condemnation. In the event this Lease is
terminated under the provisions of this Paragraph, the pro-rata portion of any
rentals paid in advance by Lessee to Lessor covering the period following such
termination shall be repaid by Lessor to Lessee. For purposes of this
Paragraph, a voluntary sale or conveyance in lieu of condemnation, under threat
of condemnation, shall be deemed a taking under the power of eminent domain.
21. ENTRY BY LESSOR: Lessee shall permit Lessor, or the agents of
Lessor, to enter into and upon said premises at all reasonable times for the
purpose of inspecting the same or for the purpose of maintaining the building in
which the same premises are situated, or for the purpose of making repairs,
alterations or additions to any other portion of said building, including the
erection and maintenance of scaffolding as may be required (without the same
constituting an eviction of Lessee in whole or in part), providing that all such
work shall be performed as promptly and with as little interference to Lessee as
reasonably possible, or for the purpose of posting notices of non-responsibility
for alterations, additions or repairs, or for the purpose of placing upon the
property in which the said premises are located any usual or ordinary "for sale"
signs without any rebate of rent to Lessee for any loss of occupancy or quiet
enjoyment of the premises thereby occasioned. Lessor, or the agents of Lessor,
shall have the right during the last thirty (30) days of the term, to enter upon
said premises, and to affix upon any suitable part thereof a notice for re-
letting the same, and Lessee will not remove said notice.
22. INABILITY TO PERFORM: This Lease and the obligations of the Lessee
under this Lease shall not be affected or impaired because Lessor is unable to
fulfill any of his obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of G'd,
or any other cause beyond the reasonable control of the Lessor.
23. LATE CHARGES: IT IS AGREED BETWEEN THE PARTIES HERETO THAT LATE
PAYMENT BY LESSEE OF RENT, ADDITIONAL RENT, OR OTHER SUM DUE HEREUNDER WILL
CAUSE LESSOR TO INCUR COSTS NOT CONTEMPLATED BY THIS LEASE, SUCH COSTS INCLUDE,
WITHOUT LIMITATION, PROCESSING AND ACCOUNTING CHARGES, LOSS OF USE OF FUNDS, AND
UNFORESEEN ADVANCEMENTS BY LESSOR FOR MORTGAGES AND OTHER FINANCING COSTS. IN
THE EVENT OF ANY SUCH DEFAULT BY LESSEE (I) IT WOULD BE IMPRACTICABLE OR
EXTREMELY DIFFICULT TO DETERMINE AND FIX THE ACTUAL DAMAGES SUFFERED BY LESSOR,
AND (II) THE CHARGES HEREINBELOW SET FORTH ARE, AS OF THE DATE HEREOF, A FAIR
AND REASONABLE ESTIMATE OF LESSOR'S DAMAGES. SHOULD LESSOR NOT RECEIVE ANY
PAYMENT WHEN DUE, LESSEE AGREES TO PAY LESSOR FORTHWITH A LATE CHARGE FOR EACH
SUCH LATE PAYMENT IN AN AMOUNT EQUAL TO TEN (10%) PER CENT OF THE DELINQUENT
SUM. ACCEPTANCE OF ANY LATE CHARGE SHALL NOT CONSTITUTE A WAIVER OF THE DEFAULT
WITH RESPECT TO THE OVERDUE AMOUNT AND SHALL NOT PREVENT LESSOR FROM EXERCISING
ANY OF ITS RIGHTS AND REMEDIES UNDER THIS LEASE, OR APPLICABLE LAW.
LESSOR'S INITIALS /s/ PS LESSEE'S INITIALS ________________
___________________
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24. DEFAULTS AND REMEDIES:
A. Definition of Default. Without limitation thereto, each of the
following events is deemed to be a default hereunder:
(1) Lessee's interest, or any part of Lessee's interest, in this
Lease is assigned or transferred in whole or in part, voluntarily or by
operation of law, except with Lessor's prior written consent.
(2) A finding or judgment of insolvency of Lessee is made, or a
voluntary or involuntary petition in bankruptcy is filed; or a writ of execution
of the business of Lessee or on the assets of Lessee located on the leased
premises is levied, which is not discharged within five (5) days after the date
of said levying; or a petition for reorganization, or for an arrangement, is
filed by or against Lessee, or any member of Lessee if Lessee is a partnership
or joint venture; or a receiver is appointed of the business or of the assets of
Lessee (except a receiver appointed at the instance or request of Lessor); or
Lessee makes a general assignment, or any assignment for the benefit of its
creditors.
(3) Lessee abandons or vacates the leased premises.
(4) Lessee fails (a) to make any payment of rent or any other
payment required to be made by Lessee herein, as and when due or (b) in keeping
of any other term, covenant or condition of this Lease, when such failure
continues for ten (10) days after notice thereof by Lessor.
(5) Within one calendar year, Lessee shall have been in default in
the payment of any sum due under this Lease more than two times and, as a result
thereof, Lessor shall have served Lessee within said calendar year two or more
three-day notices to quit or pay rent (which default shall be deemed a non-
curable default).
(6) The commission by Lessee of waste and/or nuisance.
(7) The failure of Lessee to perform in accordance with the
provisions of Paragraph 15 hereof.
B. Lessor's Remedies: In the event of Lessee's defaults as defined in
Paragraph 24 A hereof, in addition to all other rights and remedies which
Lessor may have in equity or in law, Lessor shall have all of the following
remedies:
(1) Lessor shall have the right, without any further demand or
notice, to terminate this Lease, re-enter the leased premises and eject all
persons from the leased premises, using all necessary force to do so, without
prejudice to any other remedies that Lessor may have.
(2) In the event of any such termination, Lessor shall have all the
rights and remedies of a lessor provided by law. The amount of damages which
Lessor may recover includes: (a) the worth at the time of award of the unpaid
rent or other charges which had been earned at the time of termination; (b) the
worth at the time of award of the amount by which the unpaid rent or other
charges which would have been earned after termination until the time of award
exceeds the amount of loss of such rental and other charges that Lessee proves
could have been reasonably avoided; (c) the worth at the time of award of the
amount by which the unpaid rent and other charges for the balance of the term
after the time of award exceeds the amount of the loss of such rental and other
charges for such period that Lessee proves could be reasonably avoided; (d) any
other amount necessary to compensate Lessor for all detriment proximately caused
by Lessee's failure to perform Lessee's obligations under this Lease, including,
by way of illustration and not limitation, real estate commissions, or which in
the ordinary course of events would be likely to result therefrom. The "worth
at the time of award" as utilized in sub-parts (a), (b), (c) and (d) hereinabove
shall be computed by allowing interest at the rate which is the maximum
permitted by law.
(3) The Lessor has the remedy described in California Civil Code
Section 1951.4 (Lessor may continue Lease in effect after Lessee's breach and
abandonment and recover rent as it becomes due, if Lessee has right to sublet or
assign, subject only to reasonable limitations).
(4) In the event Lessor gives Lessee written notice that Lessor
elects not to terminate this Lease, Lessee shall have the right to sublease the
leased premises or assign Lessee's interest in this Lease, or both, subject to
all other provisions of this Lease pertaining to assignments and subleasing, and
Lessor shall have all the remedies of a lessor provided by law. Notwithstanding
any such election by Lessor not to terminate this Lease, Lessor may at any time
thereafter elect to terminate this Lease for any subsequent breach or default.
(5) Lessor shall have the right to cause a receiver to be appointed
in any action against Lessee to take possession of the leased premises and/or to
collect the rents or profits derived therefrom. Said receiver may, if it is
necessary or convenient in order to collect such rents or profits, take
possession of any property belonging to Lessee and used in the conduct of such
business and may use the same in conducting such business on the leased premises
without compensation to Lessee for such use. Neither the application for the
appointment of such receiver nor the appointment of such receiver shall
constitute an election on the part of Lessor to terminate this Lease unless a
written notice of such intention is given to Lessee.
25. ATTORNEY'S FEES: In the event of any action at law or in equity to
interpret or enforce the provisions of this Lease, the prevailing party shall be
entitled to recover from the other reasonable attorney's fees and costs. If
Lessor, without fault on Lessor's part, be made a party to any litigation
instituted by or against Lessee, Lessee shall pay to Lessor all costs and
expenses incurred by Lessor, including attorney's fees. In the event that
Lessor should be required to retain counsel for the collection of rent or the
enforcement of any provision hereof, and such collection of rent or enforcement
hereof does not necessitate the bringing of an action at law or equity, then
Lessor shall be entitled to any and all costs and attorney's fees incurred by
Lessor, and the same shall be paid by Lessee within five (5) days after receipt
by Lessee of written demand by Lessor for the same. Lessee agrees to indemnify,
defend and hold harmless Lessor from and against any liability arising from any
breach by Lessee hereof, including attorney's fees and costs incurred in
connection therewith, whether such claim arises before or after the expiration
or termination of this Lease.
7
<PAGE>
26. In the event Lessor and Lessee extend or renow the term provided for
in this Lease. Lessor shall pay Blatteis Realty Co., Inc. an additional real
estate commission of four (4%) percent of the rent for the extended term upon
the commencement of the extended term. Furthermore, if Lessee purchases or
otherwise acquires all or any portion of the property of which the demised
premises is a portion, Lessor agrees to pay Blatteis Realty Co., Inc. a real
estate commission equal to six (6%) percent of the gross sale price, payable
upon the consummation of such sale and purchase.
27. TRANSFER OF LESSOR'S INTEREST: In the event of a sale or conveyance
by Lessor of Lessor's interest in the property of which said demised premises
are the whole or a portion, after the date of such transfer Lessor shall be
relieved from all liability as respect to Lessor's obligations thereafter to be
performed, provided that any funds in the hands of Lessor at the time of
transfer in which Lessee has an interest, shall be delivered to the successor of
Lessor. The obligations contained in this Lease to be performed by Lessor shall,
subject to the foregoing, be binding on Lessor's successor only during their
respective periods of ownership.
28. SUBORDINATION. Lessee expressly agrees that this Lease is and shall
be subject and subordinate to all mortgages, deeds of trust, or other
encumbrances now or hereafter placed upon the demised premises or property by
Lessor, provided that such mortgages, deeds of trust, or other encumbrances
contain Lessee non-disturbance clauses in standard form. Lessee further agrees
that within ten (10) days after being requested in writing to do so by Lessor,
Lessee will execute, acknowledge, and deliver any documents prepared by Lessor
that are required to effect such subordination. Should Lessee fail to execute,
acknowledge, and deliver such instruments within the ten (10) day period, Lessee
shall be deemed to have irrevocably appointed Lessor, and each of Lessor's
successors and assigns, to be Lessee's attorney-in-fact to execute, acknowledge
and deliver any such instruments for and on behalf of Lessee.
29. ESTOPPEL CERTIFICATE: Upon written notice from Lessor, the Lessee
shall execute, acknowledge and deliver within ten (10) days to Lessor a
certificate certifying:
(a) That this Lease is unmodified and in full force and effect (or, if
there have been modifications, that this Lease is in full force and effect, as
modified, and stating the date and nature or each modification);
(b) The date to which the rental and other sums payable hereunder have
been paid;
(c) That no notice has been received by Lessee of any default which has
not been cured, except as to defaults specified in said certificate; and
(d) Such other matters as may be reasonably requested by Lessor or any
lender or buyer of the land underlying the property of which the demised
premises are a portion.
Any such certificate may be relied upon by any prospective purchaser,
mortgagee or beneficiary under the deed of trust on the property of which the
demised premises is a portion or any part thereof.
30. WAIVER: The waiver by Lessor of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Lessor shall not be deemed to be a waiver of any preceding breach
by Lessee of any term, covenant or condition of this Lease, other than the
failure of Lessee to pay the particular rental so accepted, regardless of
Lessor's knowledge of such preceding breach at the time of acceptance of such
rent. No covenant, term or condition of this Lease shall be deemed to have been
waived by Lessor, unless such waiver be in writing by Lessor. No payment by
Lessee or receipt by Lessor of a lesser amount than the rent and additional rent
herein provided shall be deemed to be other than on account of the earliest
amount due and payable hereunder, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment be deemed an accord and
satisfaction, and Lessor may accept any such check or payment without prejudice
to Lessor's right to recover the balance of such rent or additional rent or to
pursue any other remedy provided for in this Lease.
31. DEFAULT BY LANDLORD: Lessee's Remedies.
(a) In the event that Lessor shall be liable to Lessee for any damages
sustained by Lessee as a result of Lessor's breach, it is expressly understood
and agreed that any money judgment resulting from any default or other claim
arising under this Lease shall be satisfied out of the rents, profits and other
income "Income" for the purposes of this Paragraph 31 only) actually received
from the operation of the subject property in which the demised premises are
located, and no other real, personal or mixed property of the Lessor wherever
situated shall be subject to levy on any such judgment obtained against Lessor,
and if the Income is insufficient for the payment of such judgment, Lessee will
not institute any further action, suits, claim or demand, in law or in equity,
against Lessor for or on account of such deficiency. Lessee hereby waives, to
the extend waivable under law, any rights to satisfy said money judgment against
Lessor except from income received by Lessor from the operation of the property
in which the demised premises are located.
8
<PAGE>
(b) Notwithstanding anything herein contained to the contrary, Lessee
hereby waives, to the extent waivable under any law, any right to specific
performance in the event of Lessor's default referred to herein, and Lessee
expressly agrees that except as provided in the immediately following sentence,
Lessee's remedy shall be limited to the monetary damages referred to in this
Paragraph 31. Notwithstanding the foregoing, in the event of failure by Lessor
to give any consent as provided in Paragraph 19 Lessee shall be entitled to
specific performance at law, but in no event shall Lessor be responsible in
monetary damages for failure to give such consent unless said consent is
withheld maliciously or in bad faith.
32. SURRENDER: Lessee agrees that on the last day of said term, or other
sooner termination of this Lease, to surrender said premises in the same
condition as received subject to reasonable use and wear thereof will permit
(damage by act of G'd excepted), swept broom clean, and to remove all rubbish
from said premises. All locks, bolts, alterations and additions which may be
affixed to or made by either of the parties hereto upon the said premises,
except movable furniture and movable fixtures put in at the expense of Lessee,
shall be the property of Lessor, at the option of Lessor, and shall remain upon
and be surrendered with the premises as part thereof at the termination of this
Lease, without disturbance, molestation or injury unless Lessor instructs Lessee
to remove any of said items; and immediately upon receipt of notice from Lessor,
Lessee shall, at Lessee's sole cost, remove any such items. Lessee shall repair
any damage to the demised premises occasioned by the removal of Lessee's
fixtures, furnishings and equipment.
33. HOLDING OVER: Any holding over after the expiration of the said term
shall be construed to be a tenancy from month to month only, and shall otherwise
be upon the same terms and conditions herein specified, so far as applicable,
except the rent shall be at a monthly rate equal to two hundred (200%) percent
of the monthly rent in effect at the termination of this Lease. Lessee shall
indemnify and hold Lessor harmless, for any loss, damage or liability resulting
from Lessee's delay in surrendering the premises, including without limitation
any claims made by any succeeding tenant based upon such delay. Nothing
contained in this Paragraph shall waive Lessor's right of re-entry or any other
right, and Lessee shall be only a lessee at sufferance while Lessee is holding
over without Lessor's written consent.
34. NO REDEMPTION: Lessee hereby expressly waives any and all rights
of redemption or relief from forfeiture granted by or under any present or
future laws in the event of any judgment declaring a forfeiture of or
terminating this Lease for any cause, or in the event of Lessor obtaining
possession of the demised premises by reason of the violation of the Lessee of
any of the covenants and conditions of this Lease or otherwise. The rights
given to Lessor herein are in addition to any rights that may be given to Lessor
by any statute or otherwise.
35. ENTIRE AGREEMENT: Lessee hereby acknowledges that there are no
written or oral agreements between Lessor and Lessee affecting this Lease, and
this Lease may not be modified except by written instrument by the parties or
their successors in interest. This Lease supersedes and cancels all previous
negotiations, arrangements, brochures, agreements and other statements, if any,
between Lessor and Lessee made or displayed by Lessor to Lessee with respect to
the subject matter of this Lease, or of the demised premises. This Lease shall
not be modified by an oral agreement, either express or implied, and all
modifications hereof shall be in writing and signed by both Lessor and Lessee.
Submission of this instrument for examination or signature by Lessee does not
constitute a reservation of or option for the Lease, and this instrument is not
effective as a Lease or otherwise until execution and delivery by both Lessor
and Lessee.
36. SEPARABILITY: If any term, covenant or condition of this Lease or
the application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the other application
of such term, covenant or condition shall not be affected thereby and each term,
covenant or condition of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
37. LAW GOVERNING: This Lease shall be governed by the laws of the state
in which the demised premises are located.
38. PARAGRAPH CAPTIONS: Paragraph captions are not a part hereof and are
for reference purposes only.
39. TIME IS OF THE ESSENCE: Time is of the essence of this Lease in the
performance of each and every term, covenant and condition of this Lease except
in respect to the delivery of possession of the demised premises at the
commencement of the term hereof.
40. PLATS AND RIDERS: Clauses, plats and riders, if any, signed by the
Lessor and the Lessee and endorsed upon or affixed to this Lease become a part
of this Lease.
41. RECORDING: Lessee shall not record this Lease without the prior
written consent of Lessor. Lessee agrees to sign a short form Lease in
recordable form at Lessor's request which may be recorded by Lessor.
42. CORPORATE AUTHORITY: If Lessor or Lessee is a corporation, each
individual executing this Lease on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation in accordance with the By-laws of said corporation and that
this Lease is binding upon said corporation in accordance with its terms, and
that Lessee is qualified to do business in the state in which the premises is
located.
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43. SECURITY DEPOSIT: Upon execution of this Lease, Lessee has
deposited with Lessor the following sum:
Eleven Thousand Dollars and no/100ths Dollars ($11,000.00),
receipt of which is hereby acknowledged by Lessor. Said sum shall be held by
Lessor as security for the faithful performance of Lessee of all the terms,
covenants and conditions of this Lease by said Lessee to be kept and performed
during the term hereof. If at any time during the term of this Lease any of the
rent herein reserved, or any other sum payable by Lessee to Lessor hereunder,
shall be overdue and unpaid, then Lessor may, at the option of Lessor, (but
Lessor shall not be required to) appropriate and apply any portion of this
Security Deposit to the payment of any such overdue rent or other sum. In the
event of the failure of Lessee to keep and perform all of the terms, covenants
and conditions of this Lease to be kept and performed by Lessee, then at the
option of Lessor, the Lessor may, after terminating this Lease, appropriate and
apply the entire Security Deposit, or so much thereof as may be necessary, to
compensate Lessor for all loss or damage sustained or suffered by Lessor, due to
such breach on the part of Lessee. Should the entire Security Deposit, or any
portion thereof, be appropriated and applied by Lessor for the payment of
overdue rent or other sums due and payable to Lessor by Lessee hereunder, the
Lessee shall, upon the written demand of Lessor, forthwith remit to Lessor a
sufficient amount in cash to restore said Security Deposit to the original sum,
and Lessee's failure to do so within five (5) days after receipt of such demand
shall constitute a breach of this Lease. Should Lessee comply with all of said
terms, covenants and conditions and promptly pay all of the rental herein
provided for as it falls due, and all other sums payable by Lessee to Lessor
hereunder, said Secirity Deposit shall be returned in full to Lessee at the end
of the term of this Lease or upon the earlier termination of this Lease under
the provisions of Paragraph 18 hereof. Lessee acknowledges that this Security
Deposit is not prepaid rent and shall not be applied by Lessee to the payment of
any rent due Lessor herein. No interest shall be paid on this Security Deposit
by Lessor to Lessee. In the event that Lessor transfers said Security Deposit
to Lessor's successor in interest, Lessor shall be discharged from any further
liability with respect to such Security Deposit.
44. NOTICES: Whenever it is required that any notice be given herein,
the same shall be sufficiently served by depositing the same in the United
States Mail, Certified and Return Receipt Requested, postage prepaid, and
addressed to the addresses set forth below:
To Lessor at: 2266 Union Street, SF, CA 94123
----------------------------------------------------------
To Lessee at: 2266 Union Street, SF, CA 94123
----------------------------------------------------------
or to such other addresses as a party may designate by written notice to the
other party in the manner herein provided.
Paragraphs 45 through 54 were added to and made a part hereof prior to execution
by Lessor and Lessee.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease the day and
year first above written.
LESSOR LESSEE
/s/ Colleen Brent Aristotle Publishing, Inc., a Delaware Corp.
- ------------------------------
Colleen Brent
/s/ Leland Dobbs /s/ John Phillips
- ------------------------------ --------------------------------------------
Leland Dobbs By: John Phillips
/s/ Barrett Levine
- ------------------------------ ____________________________________________
Barrett Levine Its: CEO
______________________________ ____________________________________________
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL.
NO REPRESENTATION OR RECOMMENDATION IS MADE BY BLATTEIS REALTY COMPANY, INC. OR
ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO.
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<PAGE>
45. NOISE: Lessee agrees that Lessee will at all times conduct and carry on
said business in such a manner that a minimum of noise shall emanate from the
demised premises and not be offensive or objectionable to the Lessor or to the
other Tenants of the building of which demised premises are a portion.
46. IMPROVEMENTS: Prior to possession by the Lessee, Lessor will do the
following improvements:
a. Ensure that the current gas line going into the space is functional
b. Provide 50 amps of electrical power in the space
c. Install a new roof
d. Provide a second floor restroom in good, usable condition (paint and
put in new floor, new toilet, new sink, new shower/tub, new linoleum
flooring)
e. Install slip-resistant tread on the stairway leading to the restroom.
47. SECURITY: Lessee hereby acknowledges that the rental payable to Lessor
does not include the cost of guard service or other security measures, and that
Lessor shall have no obligation whatsoever to provide same. Lessee assumes
all responsibility for the protection of the premises, Lessee, its agents,
invitees and their party from the act of third parties.
48. FIRE EXTINGUISHERS: During the term of this lease, Lessee shall keep at
least one approved fire extinguishers in operable condition on the demised
premises at all times. Said fire extinguishers shall comply with the San
Francisco Fire Department codes and regulations.
49. GARBAGE, JANITORIAL, AND UTILITIES: Lessee, at its sole expense, is
responsible for its own garbage removal, janitorial, and utilities for the
premises.
50. ACCESS: Lessee shall have unrestricted access to the premises twenty-four
hours a day, seven days a week, subject to Lessor's reasonable security
provisions.
51. RESTROOM: Lessee shall have the exclusive use of the restroom located at
the northerly side of the second floor of the three story building located
directly south of and adjacent to the premises. Lessee shall be responsible for
cleaning said restroom and maintaining the restroom pursuant to Paragraph 13 of
this Lease.
The Lessor may, after the initial 3-year base term, recover the second floor
restroom. However, should this occur, the Lessor, at its sole cost and expense,
will provide another restroom on the first floor for the Lessee. Said restroom
will also contain a toilet, sink, and shower.
52. AWNING: Subject to Paragraph 10, the Lessee has the exclusive use of the
street awning.
53. SPRINKLER SYSTEM: Prior to possession by the Lessee, Lessor will ensure
that the existing sprinkler system in the front ramp area is in good operable
condition.
54. OPTION: Providing Lessee is in possession of the demised premises at 2266
Union Street, San Francisco, California on November 30, 2002, and is not in
default of the terms and conditions of the lease, then Lessee shall be entitled
to an option to renew this Lease for an additional term of TWO (2) YEARS, namely
from December 1, 2002, to November 30, 2004. If Lessee desires to avail itself
of this option, Lessee must so notify Lessor in writing by certified mail no
earlier than June 1, 2002, and no later than August 31, 2002. All of the terms
and conditions of this Lease shall apply during this option period except that
the rent during this option period shall be increased by 10% above the base rent
for the previous 3-year term.
11
<PAGE>
EXHIBIT 10.11
OFFICE LEASE
THIS LEASE AGREEMENT made this 15th day of January, 2000 between COUNCIL ON
AMERICAN-ISLAMIC RELATIONS, (hereinafter referred to as "Landlord"), and
ARISTOTLE PUBLISHING INC., (hereinafter referred to as "Tenant").
1. DEFINITIONS
For purposes of this Lease:
A. "Lease Year" shall mean a twelve-month period during the
Term, commencing on the Commencement Date or anniversary
thereof, and ending on the last day of the twelfth month
thereafter (e.g., January 15/th/, 2000 to January 15th, 2001
equals one "Lease Year").
B. "Net Rentable Square Feet" shall mean the "rentable area" as
that term is defined and measured in conformity with the
ANSI/BOMA American National Standard of Measurement
(ANSIIBOMA Z65.1-1996).
C. "Normal Business Hours" shall mean between the hours of 8:00
A.M. and 6:00 P.M., Monday through Friday and 8:00 A.M. to
6:00 P.M. on Saturday (but not including Legal Holidays).
D. "Real Estate Taxes" shall mean all taxes, assessments and
public charges of every kind and nature, general and
special, extraordinary as well as ordinary, foreseen and
unforeseen, which may be levied, assessed or imposed by any
governmental entity having jurisdiction to impose such taxes
or assessments upon the Building and all improvements and on
the underlying real property.
2. DEMISE AND TERM: Landlord does hereby lease to Tenant, and Tenant
does hereby hire and take from Landlord, all that certain space
depicted on Exhibit A, attached hereto and made a part hereof,
being, more particularly described as commercial office space
containing approximately 2,299 square feet of basic rentable area
(the "Premises") and being a portion of the third floor of the
office building located at 5O E Street, S. E., in the City of
Washington, in the District of Columbia (the "Building").
The term of this Lease shall be twelve ( 12) months (the "Term"),
beginning on January 15th, 2000 (the "Commencement Date") and
ending, without the necessity of further notice from either party
to the other, on January 15th, 2001 (the "Termination Date").
3. RENT
A. Minimum Rent: The Minimum Rent payable by Tenant during the Term
shall be Sixty Eight thousand nine hundred seventy and 00/100
Dollars ($68,970.00) per annum, payable in equal monthly
installments
<PAGE>
of five thousand seven hundred forty seven and 50/100 Dollars
($5,747.50).
B. Minimum Rent is due on the first day of each month of the Term,
commencing on the Commencement Date. Payments received after the
10th day of the month are subject to a late charge of 10% of the
amount due.
C. Place of Payment: All rentals and other sums payable hereunder
shall be payable to Landlord without demand, notice or setoff,
during normal business hours at the address set forth in Article
21 hereof, or at such other place as Landlord may direct, in
writing, from time to time.
4. OPTION TO EXTEND: Tenant has no option to extend the term.
5. USE OF PREMISES: The Premises are to be used for general office use,
including administrative and executive offices, secretarial, computer
support, word processing and such other incidental uses that are
commonly associated with an executive, administrative or professional
office, and for no other use. Tenant shall have 24 hour daily access
to the Demised Premises, seven (7) days a week.
6. POSSESSION: Tenant acknowledges that Tenant is in possession of the
Premises as of the Commencement Date of the Lease.
7. SERVICES: Landlord covenants and agrees to furnish the following
services, the cost of which are included in Tenant's Minimum Rent:
(A) Lighting and electricity for the operation of customary
electrical office equipment, provided, however, that, Tenant
shall not install or connect systems or other heavy electrical
equipment of any type which may overtax the Building's electrical
system to the detriment of the Building or other tenants therein.
If Tenant requires special or extraordinary electrical power,
Tenant may, with Landlord's prior written approval and at
Tenant's sole expense, upgrade the electrical system as needed.
The cost of electricity resulting from the use of such heavy
equipment approved by Landlord shall be charged to and paid by
Tenant as Additional Rent hereunder.
(B) Heat and Air-Conditioning for comfortable occupancy during Normal
Business Hours.
(C) Passenger elevator service during Normal Business Hours and an
elevator subject to call at all other times when normal passenger
service is not furnished.
(D) Hot and Cold Water.
Should Tenant require air-conditioning and heating service,
electrical service or any services other than those specified
above outside of
<PAGE>
Normal Business Hours, Landlord, upon reasonable advance notice
by Tenant, shall furnish such additional services and Tenant
agrees to pay to Landlord, within ten (10) days after billing,
Landlord's cost to provide such additional services. Landlord
shall not be liable for any failure to furnish any of the above
services if such failure is due to a shortage of materials,
supplies, labor, services or other cause reasonably beyond its
control. Furthermore, Landlord reserves the right to interrupt,
curtail or suspend the services required to be furnished by
Landlord under this Section when the necessity therefore arises
by reason of accident, emergency, mechanical breakdown or when
required by law, order or regulation of any federal, state or
municipal authority, or for any cause beyond the reasonable
control or authority of Landlord.
8. REPAIRS: Tenant shall, at its expense, maintain the Premises and make
all repairs and replacements to the Premises itself, the fixtures and
appurtenances thereto and to its personal property and equipment. In
addition, Tenant shall repair all damage or injury to the Premises or
to the Building caused by Tenant moving property in or out of the
Building or by installation or removal of furniture, fixtures or other
property or caused by the negligence of Tenant, its employees, agents
or invitees. Repairs, restorations and replacements shall be in
quality and class equal to the original work or installation.
9. ALTERATIONS: Tenant shall not make any alterations, additions or
improvements to the Premises without the prior written consent of
Landlord. In no event shall any structural change or any change or
modification to the heating, electrical or plumbing elements be
undertaken by Tenant or any employee or agent of Tenant without
Landlord's prior, written consent. Any approved alterations,
additions or improvements shall be performed in a good and workmanlike
manner and in accordance with the applicable laws and ordinances of
any public authority having jurisdiction over the Building and in
accordance with the building and zoning rules and regulations of any
such authority. Tenant hereby expressly assumes full responsibility
for all damages and for injuries which may result to any person or
property by reason of, or resulting from said alterations, additions
or improvements. All alterations, improvements, additions or
fixtures, whether installed before or after the execution of this
Lease, and to the extent they represent "fixtures" as that term is
generally understood, shall remain upon the Premises at the expiration
or sooner termination of this Lease and shall become the property of
Landlord. In making any approved alterations, additions or
improvements, Tenant shall promptly pay all contractors, materialmen,
and laborers so as to eliminate the possibility of a lien attaching to
the Building or the underlying real property. Should any such lien be
made or filed, Tenant shall bond against or discharge same within
twenty (20) days after written request by Landlord and provide
Landlord with evidence of same.
10. LIMITATION OF LANDLORD'S LIABILITY: Unless caused solely by
Landlord's negligence, or the negligence Landlord's agents, servants
and employees, Landlord shall not be liable for, and Tenant hereby
releases
<PAGE>
Landlord and Landlord's agents, servants and employees from, all
claims for injury to persons or damage to property (including loss or
interruption of business) sustained by Tenant or any person claiming
through Tenant, resulting from any fire, accident or occurrence or
condition in or upon the Premises or the Building, including, but not
limited to, claims for damage resulting from:
A. Any defect in or failure of the plumbing, sprinkler systems,
heating or air conditioning equipment, elevator, electrical
wiring or installation thereof, water pipes, stairs, railings or
walks;
B. Any equipment or appurtenances becoming out of repair;
C. Bursting, leaking or running of any water pipe, tubing, radiant
panel, electric fixture, valve, fitting, tank, washstand, water
closet, waste pipe, drain or any other pipe or tank in or upon
the Premises or the Building;
D. Backing-up of any sewer pipe or downspout;
E. Escape of steam, gas, or hot or cold water;
F. Water, snow or ice being upon or coming through the roof, walls
or foundation of the Building or any other place upon or near the
Premises or otherwise;
G. Failure or falling of any fixture, plaster or stucco;
H. Broken glass;
I. Any act or omissions of co-tenants or other occupants of the
Building or any act or omission of parties other than Landlord,
its employees or agents and/or;
J. The exercise of any rights by Landlord under this Lease.
In addition to the foregoing, Landlord's liability under this Lease
shall be limited to its estate in the Building and the rents derived
therefrom, it being agreed and understood that no other assets of
Landlord shall be subject to levy, execution or other procedures for
the satisfaction of any judgment or any other remedy or claim of
Tenant hereunder.
11. ASSIGNMENT AND SUBLETING: Tenant may not assign this Lease nor sublet
the whole or any part of the Premises without the prior, written
consent of Landlord, which consent shall not be unreasonably withheld.
In the event of an assignment or sublease, Tenant shall remain liable
for the performance of any and all obligations under the Lease.
<PAGE>
12. CASUALTY LOSS:
A. Major Destruction. In the event that the Premises are totally
destroyed or so damaged by fire or other casualty, not occurring
through fault or negligence of the Tenant or those employed by or
acting for Tenant, that the same cannot, in Landlord's reasonable
opinion, be repaired or restored within 120 days of the date of
destruction, this Lease shall absolutely cease and terminate as
of the date of such casualty. In such event, Tenant will be
liable for Minimum Rent and Additional Rent up to and including
the date of such casualty.
B. Partial Destruction. If the damage caused by fire or other
casualty be only partial and such that, in Landlord's reasonable
opinion, the Premises can be restored within 120 days to their
condition existing immediately prior to the damage, then Landlord
shall restore the same with reasonable promptness reserving the
right to enter upon the Premises for that purpose. The Landlord
also reserves the right to enter upon the Premises whenever
necessary to repair damage caused by fire or other casualty to
the Building, even though the effect of such entry may be to
render the Premises or a part thereof untenantable. In such
event the Minimum Rent and Additional Rent shall be apportioned
and/or suspended during the time the Landlord is in possession,
taking into account the proportion of the Premises rendered
untenantable and the duration of Landlord's possession.
C. Election to Repair. Landlord shall make its election to repair
the Premises or terminate this Lease as set forth herein by
giving notice thereof to Tenant within thirty (30) days from the
date Landlord receives notice that the Premises have been
destroyed or damaged by fire or other casualty. Moreover, and
notwithstanding anything herein to the contrary, Landlord or
Tenant may cancel this Lease if any casualty covered by this
Section occurs within the last 180 days of the Term, irrespective
of whether Landlord elects to repair.
D. No Liability. Landlord shall not be liable for any damage
compensation or claim by reason of inconvenience or annoyance
arising from the necessity of repairing any p
13. INSURANCE: Tenant will procure and maintain in full force and effect,
at its sole cost and expense, as long as this Lease remains in effect,
the following types of insurance coverage:
A. Public liability insurance, including contractual liability with
respect to the Leased Premises, with companies and in form
acceptable to Landlord, having a minimum limit of one million
Dollars ($1,000,000) on account of bodily injuries to or death of
one person and Three Million Dollars ($3,000,000) on account of
bodily injuries or death as a result of any occurrence, accident
or disaster; and
<PAGE>
B. Property damage insurance with minimum limits of One Million
Dollars ($1,000,000); and
C. Fire and extended coverage insurance on Tenant's personal
property, including inventory, trade fixtures, floor coverings,
furniture and other property, and Tenant's leasehold
improvements.
Tenant will deliver the policy or policies of such insurance, or
certificates evidencing the existence of same, to Landlord prior
to Tenant taking occupancy of the Premises. Such policies shall
name Landlord and Landlord's mortgagee, if any, as additional
insureds and such policy or policies shall contain a provision
stating that such policy or policies shall not be cancelled
except after thirty (30) days written notice to Landlord. If the
nature of Tenant's operation is such as to place any or all of
its employees under the coverage of local workmen's compensation
or similar statutes, Tenant shall also keep in force, at its sole
cost and expense, and so long as this Lease remains in effect,
workman's compensation or similar insurance affording statutory
coverage at statutory limits.
If Tenant shall not comply with the covenants made in this
section of the Lease, Landlord may cause insurance as aforesaid
to be issued and, in such event, Tenant agrees to pay, as
Additional Rent, the premium paid by Landlord for such insurance
upon written demand. In addition, Landlord reserves the right to
increase the policy limits set forth herein as Landlord, in its
reasonable discretion, deems appropriate.
14. QUIET ENJOYMENT/LANDLORD'S RIGHT OF ENTRY: Tenant, upon paying the
Minimum Rent and Additional Rent, if any, and observing and performing
all the terms, covenants and conditions on its part to be observed and
performed, may peaceably and quietly enjoy the Premises without
hindrance or molestation. Notwithstanding the foregoing, Landlord and
persons designated by Landlord have the right to enter the Premises at
reasonable hours and upon reasonable advance notice to examine same
and to do such work as Landlord is obligated to do under the terms
hereof or to do such work as Landlord shall deem necessary for the
safety or preservation of the Premises or Building provided, however,
that except in the case of an emergency, the same shall not interfere
unreasonably with the conduct of Tenant's business.
15. DEFAULT BY TENANT/ REMEDIES: The occurrence of one or more of the
following events shall constitute a default and breach of this Lease
by Tenant: (a) the vacating or abandonment of the Premises; (b) the
failure by Tenant to make any payment of rent within five (5) days
after such payment falls due; (c) the failure by Tenant to make any
other payment required to be made by Tenant hereunder, as and when
due, where such failure shall continue for a period of 10 days after
notice from Landlord that said payment is due and payable; or (d) the
failure by tenant to observe or perform any of the covenants,
conditions or provisions of this Lease, to be observed or performed
<PAGE>
by the Tenant, other than those described above, where such failure
shall continue for a period of 30 days after written notice thereof by
Landlord to Tenant. In the event of any default or breach by Tenant,
Landlord may at any time, without waiving or limiting any other right
or remedy available to it, terminate Tenant's rights under this Lease
by written notice or by any lawful means, or reenter and take
possession of the Premises (with or without terminating this Lease) in
which event all Minimum Rent and Additional Rent due hereunder shall
be accelerated and become immediately due and payable, or itself pay
or perform the obligation as, to which Tenant is in default (in which
event Landlord's cost of so doing shall be immediately reimbursed to
it by Tenant), or pursue any remedy allowed by law. Tenant agrees to
pay to Landlord the cost of recovering possession of the Premises, all
expenses associated with reletting, and any other costs or damages
arising out of Tenant's default. Notwithstanding any re-entry or
termination, the liability of Tenant for the Minimum Rent and
Additional Rent provided for herein shall not be extinguished for the
balance of the term of this Lease, and Tenant agrees to make good to
Landlord any deficiency arising from reletting the Premises at a
lesser rent than applies under this Lease. Any rent or other charges
under this Lease not paid by Tenant when due shall bear interest from
the due date thereof at the rate of eighteen percent (18%) per annum
or the maximum contract rate allowed by law, whichever is less.
16. CONDEMNATION: If the whole of the Building or Premises shall be
acquired or condemned by eminent domain for any public or quasi-public
use or purpose, then the term of the Lease shall cease and terminate
as of the date of title vesting pursuant to such proceeding and all
rentals shall be paid up to that date. If any part of the Building
shall be acquired or condemned as aforesaid, and such partial taking
or condemnation shall render the Premises unsuitable for the business
of the Tenant, then the term of this Lease shall cease and terminate
as of the date of title vesting pursuant to such proceeding. In the
event of a partial taking or condemnation, which is not extensive
enough to render the entire Premises unsuitable for the business of
the Tenant, then this Lease shall continue in full force and effect,
provided, however that where the Premises are partially taken or the
area of the Building reduced, the Minimum Rent and Additional Rent
shall be adjusted based upon the square footage of the remaining area
of the Premises or Building, as the case may be. In the event of
either a complete or partial taking, Tenant shall have no claim
against Landlord or the condemning authority for any compensation for
any such taking awarded the Landlord, whether through a negotiated
settlement or through formal condemnation proceedings.
17. SUBORDINATION: This Lease is automatically, and without further
action by Tenant, subject and subordinate to the lien of any mortgage,
ground lease, and/or other encumbrances which may now or hereafter
affect such leases or the Premises, and also to all renewals,
modifications consolidations and replacements of said underlying
mortgages and leases or other encumbrances and Tenant further agrees
at the election of any such mortgagee to attorn to any holder of any
mortgage to which this Lease is subordinate. Notwithstanding the
foregoing, Tenant shall execute and deliver upon demand such further
<PAGE>
instrument or instruments confirming such subordination of this Lease
to the lien of any such mortgage and/or other encumbrance as shall be
desired by any mortgagee or proposed mortgagee, or by any other person
to whose interest this Lease is required to be subordinated.
Notwithstanding the foregoing, any holder of any mortgage may at
anytime subordinate its mortgage to this Lease without Tenant's
consent by notice in writing to Tenant and without regard to their
respective dates of execution and delivery.
18. ESTOPPEL CERTIFICATES. Tenant, upon request of Landlord, Landlord's
mortgagee or any prospective purchaser shall, without charge, execute
and deliver to the Landlord, in recordable form, a certificate stating
that this Lease is unmodified and in full force and effect or, if
modified, setting forth the modifications.
19. SURRENDER OF PREMISES: Tenant shall surrender the Premises to
Landlord at the termination of this Lease in the same condition as the
Premises are in at the beginning of the Lease Term, reasonable wear
and tear excepted.
20. NOTICES: Any notice by either party to the other shall be in writing
and shall be mailed by registered or certified mail in a postpaid
envelope or sent by a generally recognized "overnight courier", such
as Federal Express, to the following addresses:
A. To Landlord: Council on American Islamic Relations C/O Sealander
--------------------------------------
Brokerage Ltd., 200 G Street N.E., Washington, D.C. 20002
B. To Tenant: Aristotle Publishing Inc., 50 E. Street S.E.,
Washington, DC. 20003.
C. Every notice shall be deemed to have been given (i) if by
certified mail, at the time it shall be deposited in the mail or
(ii) if by overnight courier, upon delivery to the party to whom
addressed.
21. HOLDING OVER: If Tenant remains in possession of the Premises after
the expiration of the term hereof, without the written consent of
Landlord, such occupancy shall be construed to be a tenancy from month
to month under the same terms and conditions existing on the day prior
to the termination date.
22. PARKING: Landlord and Tenant have entered into a separate agreement
for parking in the Building pa [sic] rights to Tenant in the Building.
23. CAPTIONS: The captions and headings used herein are for convenience
and reference only and shall not constitute a part of this Lease, nor
shall they affect the meaning, construction or effect of this Lease.
24. FORCE MAJEURE: Neither party shall be liable or responsible for any
delays due to strikes, riots, fire, acts of God, shortages of labor or
materials,
<PAGE>
failure of power, insurrection, governmental laws, regulations,
restrictions or any other cause whatsoever beyond its control.
25. RECORDING: The parties agree that this Lease may be recorded. In the
alternative, each party shall, at the request of the other party and
without charge, execute and acknowledge a short form lease or
memorandum of lease. The parties agree that the recording of this
Lease, short form Lease, or a memorandum of lease shall be at the
expense of the recording party.
26. GOVERNING LAWS: This lease shall be governed exclusively by the
provisions hereof and by the laws of the District of Columbia.
27. NO IMPLIED WAIVERS: The failure of Landlord or Tenant to insist at
any time upon the strict performance of any term, covenant or
condition or to exercise any option, right or remedy contained in this
Lease shall not be deemed a waiver or a relinquishment of such option,
right, power or remedy.
28. NO PARTNERSHIP: Nothing contained in this lease shall be deemed or
construed by parties hereto or by any third parties to create the
relationship of principal and agent or of partnership of joint venture
or of any other association between the parties hereto, except the
relationship of Landlord and Tenant.
29. ATTORNEY'S FEE: If one party is required to commence litigation in
order to enforce the covenants and agreements in this Lease the party
prevailing in such litigation shall have the right to reimbursement
from the other party of all reasonable costs, expenses and attorney's
fees.
30. PARTIAL INVALIDITY: Any term or condition of this Lease which is
found to be invalid, void or illegal by court decision or other
governmental authority shall not impair or invalidate any other term
or condition hereof and such other terms and conditions shall remain
in full force and effect.
31. SIGNATORY AUTHORITY: If either party is a business organization
(i.e., a corporation, partnership, LLC, etc.), each individual
executing this Lease on behalf of such organization represents and
warrants that he/she is duly authorized to execute and deliver this
Lease on behalf of said organization in accordance with a duly adopted
resolution of the governing body of such organization in accordance
with the rules, by-laws or agreement governing its operations, and
that this Lease is binding upon said organization in accordance with
its terms. Each party that is a corporation, at the request of the
other party, shall deliver, within thirty (30) days of such request, a
certified copy of a resolution of its Board of Directors authorizing
such execution.
32. SUBMISSION OF LEASE: The submission of a copy of this Lease for
examination does not constitute a reservation, option or offer. This
Lease shall be effective only upon its complete execution and delivery
by both Landlord and Tenant.
<PAGE>
33. PRIOR AGREEMENT: This Lease incorporates any and all previous
negotiations, arrangements, agreements and undertakings pertaining to
the Premises, if any, between the parties hereto, all of which shall
be deemed superseded by, and incorporated in, this Lease Agreement.
The Exhibits and/or Documents listed below shall be deemed part of
this Lease Agreement;
Exhibit A: Floor Plan of Premises
Exhibit B: Parking Agreement
34. SECURITY DEPOSIT: Tenant shall provide Landlord a security deposit of
five thousand seven hundred forty seven 50/100 dollars ($5,747.50) to
assure Tenant's full and faithful compliance with the terms of this
lease. The deposit is to be held as collateral security and applied
on any rent or unpaid bill that may remain due and owing at the
expiration of this lease, any extension thereof or holdover period, or
applied to any damages of the premises caused by the Tenant, its
employees or customers or other damages and expenses suffered by the
Landlord as a result of a breach of any covenant or provision of this
lease. Tenant may not utilize the security deposit as rent and it
shall not apply the same as the last month's rent. In the event that
any part of the security deposit shall be utilized by the Landlord in
accordance with the terms hereof or applicable law, the Tenant shall,
upon delivery of notice of said utilization, immediately deposit with
the Landlord the amount so applied by the Landlord so that the
Landlord shall have the full deposit on hand at all times during the
term of this lease and any renewal thereof or holding over. The
Landlord shall provide the Tenant within thirty (30) days after the
end of the tenancy by first class mail directed to the last known
address of the Tenant, a written list of any damages to the premises
together with a statement of costs actually incurred. Within forty
five (45) days after the end of the tenancy, the Landlord shall return
the deposit to the Tenant less any expenses for damages properly
withheld. In the event of a sale of the property upon which the
premises is situated or the transfer or assignment by the Landlord of
this lease, the Landlord shall have the right to transfer the security
deposit to the transferee and the Landlord shall be considered
released from all liability for the return of the security deposit and
the Tenant shall look solely to the new Landlord for the return of the
security deposit.
IN WITNESS OF, the parties have caused this Lease to be executed and sealed on
the date first above written.
d: COUNCIL ON AMERICAN-ISLAMIC RELATIONS
_____________________ By:________________________________________________
Attest: Tenant: ARISTOTLE PUBLISHING INC.
/s/ illegible By: /s/ Rob Christ
______________ _______________________________________________
<PAGE>
LICENSE AGREEMENT FOR PARKING
EXHIBIT "B"
This Agreement is made and entered into on this 15TH day of January, 2000
between Council on American-Islamic Relations, (hereafter referred to as "CAIR")
and Aristotle Publishing Inc., (hereafter referred to as "Licensee").
Recitals
A. Licensee is a Tenant of CAIR in a three story building (the
"Building") owned by CAIR at 50 E. Street S.E., in the City of
Washington, District of Columbia, under a Lease Agreement dated
January 15th, 2000. The Building includes a basement having an area
of approximately 3,000 square feet, which CAIR has made available for
the parking of 12 automobiles (the "Parking Area").
B. The January 15th, 2000 Lease conveys no parking privileges.
C. CAIR desires to grant to Licensee a Parking Permit for one or more
parking spaces for the consideration hereinafter set forth and upon
the terms and conditions set forth in this License Agreement.
Agreement
1. CAIR hereby grants permission to Licensee to use two (2) assigned
parking spaces in the Faring Area. The location of the assigned spaces
shall be designated by CAIR.
2. As consideration for the two assigned parking spaces covered by this
License Agreement, Licensee shall pay CAIR a monthly fee of $250.00
($125.00 per parking space), subject to change as set forth in
paragraph 5, below.
3. This License Agreement shall cover a period of twelve ( 12) months,
commencing January 15th, 2000 and ending, without further notice, on
January 15th, 2001.
4. In order to obtain access to the Parking Area, CAIR shall supply
Licensee with one Genie electric door opener relay console ("Genie")
for each parking space covered by this License Agreement. For each
Genie supplied, Licensee shall deposit with CAIR the sum of $25.00.
In the event the Licensee misplaces or loses a Genie, or a Genie is
rendered unusable, Licensee shall pay CAIR the full replacement cost
of the Genie. Should CAIR revoke the License granted herein, Licensee
shall deliver the Genies to CAIR and CAIR will refund the amount
deposited.
5. Licensee shall be responsible for ensuring that it uses only the
spaces assigned to Licensee. CAIR reserves the right to enforce the
parking of vehicles in only those spaces designated hereunder, as well
as to change the designated spaces, provided Licensee is at all time
granted the right to use the number of spaces contemplated hereunder.
<PAGE>
6. By executing this Licensee Agreement, the licensee releases CAIR from
any claims or liability for loss, damage to Licensee's vehicles, their
contents and/or accessories, resulting from theft, fire, collision,
vandalism or any other cause.
7. This Agreement supersedes and replaces any prior Agreements for
Parkhog Permit between CAIR and Licensee.
Licensee:
ARISTOTLE PUBLISHING, INC.
By: /s/ Rob Christ
__________________________________
Rob Christ - Chief Financial Officer
COUNCIL ON AMERICAN-ISLAMIC RELATIONS (CAIR)
By: _______________________________________________
<PAGE>
Exhibit 10.12
AGREEMENT OF LEASE
THIS LEASE made as of the 30/th/ day of September, 1996, effectively as of
June 1, 1996, by and between Sydney S. ZLOTNICK and RENEE Z. KRAFT (hereinafter
referred to as the "Landlord" or "Lessors" or "Lessor"); and JOHN PHILLIPS, an
individual trading as Aristotle Industries (hereinafter referred to as the
"Tenant" or "Lessee").
RECITALS.
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(A) Landlord is the owner of certain land situate in the District of
Columbia now known for assessment and taxation purposes as Lots 807 and 808 in
Square 762 (said Lots 87 and 808 being collectively herein referred to as the
"Land") and the buildings and other improvements thereon consisting of a three-
story building with basement now known by street addresses as 205 and 207
Pennsylvania Avenue, S.E. (said "buildings" or "Building" or "Buildings"). The
Land and the Buildings are herein sometimes herein collectively referred to as
the "Real Property".
(B) Pursuant to a certain Sublease (the "Sublease") between Tenant and
Capitol Hill Management Corporation ("Sublessor"), Tenant as sublessee
heretofore sublet from Sublessor and heretofore occupied a portion of the space
in 205 Pennsylvania Avenue, S.E. (the "205 Building"), said space being only
that portion of the 205 Building now occupied by Tenant and located on the
Second (2/nd/) and Third (3/rd/) Floors and in the Penthouse of the 205
Building, and including the existing stairway which connects said 3/rd/ Floor
to said Penthouse, and also the separate stairway and street entry vestibule
which affords access from the street to the 2/nd/ and 3/rd/ floors of the 205
Building (the space in the 205 Building now occupied by Tenant is described
above, being herein referred to as the "Original Premises").
(C) Tenant confirms that the Sublease expired by its terms as of May 31,
1996, and has not been renewed or extended, and that Tenant has not and will not
enter into any extension, renewal or replacement sublease or other arrangement
of any kind with Sublessor concerning the Premises.
(D) It is recognized that, without Landlord's permission or consent,
Tenant has continued to occupy and use the Original Premises (and the New
Premises, described below) during the period from June 1, 1996 through and
including September 30, 1996 (the "Interim
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Period"), without payment of any rentals, use and occupancy payments,
passthrough share of Impositions and of premiums for Insurance, and without any
lessor and lessee relationship existing between Landlord and Tenant during said
Interim Period. Nevertheless, Tenant confirms that it has received the benefit
of the use and occupancy of the Original Premises and said New Premises during
the Interim Period, and Tenant agrees to pay to Landlord rentals, passthroughs
of Impositions and of premiums for Insurance allocable to said Interim Period,
all as hereinafter provided, as a material inducement to and in consideration
for Landlord's execution of this Lease.
(E) Tenant further confirms that it has occupied and used certain space in
the Buildings comprising a portion of the space in 207 Pennsylvania Avenue, S.E.
(The "207 Building"), said space (the "New Space") comprising all of that space
formerly sublet by Sublessor to and formerly occupied by Dan R. Williams (the
"Williams Sublease"), and located on the Second (2/nd/) and Third (3/rd/) Floors
of the 207 Building, and including as part thereof the existing stairway and
street level vestibule entry which affords access from the street to the 2/nd/
and 3/rd/ floors of the 207 Building. The New Space does not include any space
which is now leased to the existing store tenants of the first floor level
stores in the Buildings or which is used by said store tenants for street access
to their space.
(F) Tenant has requested that Landlord lease to Tenant all of the Original
Premises and all of the New Space described above, under a direct lease (namely,
this instrument) from Landlord as lessor to Tenant as lessee, for the rentals
and upon the terms and conditions herein set forth; and Landlord is willing to
do so upon and subject to the terms, conditions and provisions herein contained.
(G) Landlord owns the Land the Buildings. However, in no event shall
Landlord have any liability for any defaults, acts, omissions or obligations of
Sublessor under the Sublease or under the Williams Sublease (together, the
"Subleases"), nor for refund of any security deposit of Tenant or any prepaid
rents or other amounts posted or paid by Tenant under the Subleases or either of
them, nor for any matters involving the Subleases. Tenant confirms and agrees
that it has no rights to offset or defenses against rentals, nor any rights to
any waivers, credits or abatements with respect to any rentals or other amounts,
nor any claims of any kind, against Landlord; and the Tenant hereby expressly
and irrevocably waives any and all such claims.
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(H) The Original Premises and New Premises are herein collectively
referred to as the "demised premises", the "premises", the "Premises", the
"Demised Premises", the "Leased Premises", or the "leased premises."
The foregoing Recitals are made an integral part of this Lease.
NOW, THEREFORE, in consideration of the foregoing Recitals and of the
rentals and other sums herein reserved by Landlord to be paid by Tenant, and for
other good and valuable consideration paid by each of the undersigned parties to
the other, the sufficiency and receipt of which are hereby acknowledged, the
parties intending to be legally bound do hereby covenant and agree as follows:
FIRST: Demised Premises.
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(A) Landlord hereby rents, demises and leases the Premises to Tenant, and
Tenant hereby takes, hires and rents the Premises from Landlord, for the term,
at the rental and upon the conditions, covenants and agreements hereinafter set
forth.
(B) This leasing of the Premises to Tenant is made subject to all
applicable zoning, building, fire and other codes, laws, ordinances, rules,
orders and regulations now or hereafter in force, and subject to the use in
common (by Tenant and the present and any future lessees or occupants of the
Buildings, and the customers, employees and invitees of all such other lessees
and occupants) of all common areas serving the Buildings, including but not
limited to stairways, entrances, entry areas, exits and vestibules
(collectively, the "Common Facilities" or the "common areas"). However,
Tenant's use of the Common Facilities shall be limited to the portion thereof
reasonably necessary as a means of pedestrian access to the Premises from the
exterior street entrances of the Building which now provide access therefrom to
the Leased Premises. Tenant agrees that it will obstruct in any manner or
otherwise interfere with or prohibit the use of any Common Facilities by the
other present or future occupants or lessees of the Buildings ("Other Lessees")
or by the customers, invitees, employees or contractors of such Other Lessees.
Tenant confirms that it heretofore has occupied and now occupies the Premises
and conducts its business therein for the purposes herein permitted, and has
inspected and is fully
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satisfied with the physical condition of the Premises and of the structural
elements and all other elements thereof and all mechanical, plumbing, electrical
lines, systems and equipment serving same and the now existing heating,
ventilating, and air conditioning system and equipment thereof and all other
elements and features of the Premises and of the Buildings of which same is a
part, and Tenant hereby accepts the Premises and its use of the Common
Facilities "as is", "where is" and with all faults, and further agrees and
confirms that neither Landlord nor its agents have made any assurances,
representations or warranties of any kind concerning any such matters, whether
of an inducement nature or otherwise. In no event shall Landlord have any
obligation to provide or pay for or contribute to any costs of the maintenance,
alteration, repair, replacement or restoration of the Premises, the Buildings or
any elements thereof (except as may be expressly otherwise provided in this
Lease). In no event shall Landlord be obligated to provide or pay for any public
utilities or other utilities, nor any monitoring, policing, maintenance,
repairs, replacements, servicing, upkeep, janitorial or cleaning or trash
storage or removal services, nor any cleaning, lighting, security or other
services of any kind for the Buildings, the Premises or the Common Facilities;
it being agreed that Tenant alone shall bear, perform and pay for all such
matters for the Premises and for the Common Facilities which serve same, as
herein provided.
SECOND: Term of Lease.
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(A) The term of this Lease (the "term" or the "initial term") shall be
five (5) years, commencing therefor as of June 1, 1996 and fully ending without
notice at midnight on May 31, 20001 (unless sooner terminated pursuant to the
provisions hereof).
(B) In consideration of the execution of this Lease by Landlord, the
Tenant does hereby expressly waive and relinquish all rights to receive any and
all statutory or other notices of the expiration of the term of this Lease, and
of the Tenant's obligation to quit and surrender possession of the demised
premises at the aforesaid expiration date of the term hereof, and Tenant agrees
to promptly surrender to Landlord possession of the demised premises on the
expiration date state hereinabove. However, if Tenant shall fail to quit and
vacate the demised premises at the expiration of the stated term of this Lease,
and if Landlord shall not require the
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immediate surrender of possession of said premises on such date then and in such
event any holding over of possession by Tenant shall be deemed to create only a
tenancy from month to month, beginning therefor on the day immediately following
the expiration of the term of this Lease, such monthly hold-over tenancy to be
upon all of the same terms and conditions contained herein, except that such
hold-over tenancy shall be a monthly tenancy terminable by either party upon
giving to the other at least thirty (30) days prior written notice of
termination (except that Tenant shall have no right to, and hereby waives, any
such notice of termination if it is in default hereunder), and further excepting
that the monthly rental payable during such hold-over tenancy shall be at twice
the monthly rate payable during the last month of the initial term of this
Lease.
THIRD: Rental. The Tenant hereby covenants and agrees to take and hold
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the demised premises, as tenant of the Landlord, for the term hereinabove set
forth, and agrees to pay to Landlord basic rental for the demised premises as
follows:
(A) Basic Annual Rental.
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(1) For purposes hereof, the phrase "lease year" shall mean each
separate and successive period of twelve (12) consecutive calendar months
during the term hereof, commencing for each lease year on June 1/st/ and
ending on the following May 31/st/, with the first (1/st/) lease year to
begin on June 1, 1996, and to end on May 31, 1997.
(2) Tenant covenants and agrees to pay to Landlord as basic annual
rental during each lease year of the initial term hereof Forty-Two Thousand
Dollars ($42,000.00) per annum, the same to be due and payable in equal
monthly installments of Three Thousand Five Hundred Dollars ($3,500.00)
each (the "basic monthly rent") in advance without deduction, setoff or
demand on the first (1/st/) day of each and every calendar month during the
term hereof, commencing for the first such monthly installment as of June
1, 1996. The basic monthly rent and all other sums payable by Tenant under
this Lease shall be pro-rated on a per diem basis for any fraction of a
full
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calendar month at the termination of this Lease, as determined by Landlord,
and such pro-rated amounts shall be paid by Tenant to Landlord within seven
(7) days after Landlord's written request. Tenant agrees to make the
following payments with respect to the Interim Period (i.e., the period
from June 1, 1996 through and including September 30, 1996):
(i) Upon execution of this Lease, Tenant shall pay to Landlord
Fourteen Thousand Dollars ($14,000.00) representing basic monthly rental at
the rate of $3,500.00 per month for each of the four (4) months in said
Interim Period.
(ii) Within seven (7) days after the date Landlord sends Tenant any
invoice therefor, Tenant agrees to pay to Landlord the full amount of
Tenant's Proportionate Share (i.e., 22-1/2%) as described in Article Fourth
below) of all Impositions and Insurance Premiums which are allocable to the
Interim period, as determined and invoiced by Landlord.
It is recognized that the Interim Period comprises part of the term of this
Lease, and accordingly, all costs of providing and of use of utilities to, at
and for the entire Premises (including but not limited to electricity, gas if
any, hot and cold water, plumbing, sanitary sewer, and telephone service and
lighting, ventilation, air conditioning and heating) allocable to the Interim
Period or to any other periods within the term of this Lease or any renewal,
extension and holdover terms, shall be borne and paid solely by Tenant without
contribution thereto by Landlord.
In addition to (but not in limitation of) the amounts to be paid by Tenant
to Landlord for the Interim Period as set forth above, Tenant shall continue
payment of basic monthly rental at the rate of Three Thousand Five Hundred
Dollars ($3,500.00) per month throughout the entire initial term hereof,
commencing for the next such payment (following the initial payment aforesaid)
on October 1, 1996 and continuing the 1/st/ day of each calendar month
thereafter
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during the initial term hereof. Tenant shall also pay to Landlord all other
amounts provided for in this Lease, when and as the same become due and payable
hereunder, during the entire term hereof and during any renewal, extended and
holdover terms.
(B) All amounts payable by Tenant under this Lease, other than the basic
monthly rentals specified in Article THIRD (A)(2) above are herein referred to
as "Additional Rent" and shall be deemed additional rental for all purposes
hereof. All rentals, additional rentals and other sums payable by Tenant
hereunder shall be paid in lawful currency of the United States of America which
shall be legal tender for payment of all public and private debts and dues, and
shall be paid by good check (subject to collection) drawn on a federally insured
bank or savings institution having offices in the Metropolitan Area of the
District of Columbia. Payments of all rentals, additional rentals and other
sums due or payable by Tenant hereunder shall be made by checks payable to
Landlord as aforesaid and delivered to Landlord c/o Mr. Sidney S. Zlotnick at
1616 H Street, N.W., Suite 810, Washington, D.C., 20006, or to such other party
and address as Landlord may from time to time designate to Tenant in writing.
Regarding all of Tenant's payments, agreements, covenants, duties and
obligations under this Lease, time is hereby agreed to be of the essence. If
any installment of basic monthly rent or any other sum payable by Tenant
hereunder is not paid in full within ten (10) days after the date due, then (in
addition to but not in limitation of all other available remedies) Landlord at
its option and discretion may require Tenant to pay, in addition to the sums in
arrears, a "late charge" in the amount of five percent (5%) of the sums in
arrears, such late charge to be immediately due and payable upon demand of
Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of the earliest stipulated rent, nor shall any endorsement or statement on any
check or an letter accompanying any check in payment of rent be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's rights to recover the balance of such rent and/or to
pursue any other remedy provided in this Lease, at law and/or in equity.
FOURTH: Real Estate Taxes; Assessments; Insurance; and Other Charges.
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(A) During the term of this Lease the Landlord shall pay directly to the
appropriate governmental authorities all real estate taxes which shall be
assessed upon the Real Property.
(B) For purposes of this Lease, the term "Impositions" shall mean and
refer to any and all real estate taxes and assessments (general and special),
ordinary and extraordinary, and all water and sewer rates and rents and charges,
public subsurface vault space rentals, front foot benefit charges (if any),
governmental rents, fees and other charges for the use of any public sidewalks,
alleys or other public space, personal property taxes assessed, levied or
imposed on any personal property forming a part of the Real Property, or
installed by Tenant, and all other governmental and quasi-governmental charges,
general and special, foreseen and unforeseen, ordinary and extraordinary, and
including also all assessments for public or other improvements or benefits, and
also any taxes, charges, assessments and levies imposed and/or collected by any
governmental or quasi-governmental authority in respect of bus, subway or other
public transportation facilities operating in the Metropolitan Area of the
District of Columbia, any or all of which items described in this paragraph are
or may be assessed, levied, confirmed, imposed on or become or may become a lien
upon all or any part of the Real Property and/or which may be or become payable
by Landlord or by Tenant with respect to the Real Property or any portion
thereof during the term of this Lease or any extension, renewal or holdover
term. If (1) at any time during the term of this Lease, the methods or scope of
taxation prevailing at or after commencement of the term hereof shall be altered
or enlarged so as to cause the whole or any part of the taxes, assessments,
levies, charges or other impositions now or hereafter levied, assessed or
imposed on real estate and the improvements thereon to be levied, assessed or
imposed, wholly or partially as a capital levy, a "value added tax", or
otherwise, on or in respect of all or any part of the Real Property, Landlord's
interest therein and/or rents received therefrom, in substitution of, or in
addition to, a tax levied or imposed against real estate, or if (2) by reason of
any such alteration or enlargement of the methods or scope of taxation, any tax,
unincorporated or corporation franchise tax, assessment, levy (including but not
limited to any municipal, state, or federal levy), charge or any other
imposition or any part thereof, shall be measured by or based in whole or in
part upon all or any part of the Real Property, or the value thereof and/or the
rentals, additional rentals or other sums payable by Tenant hereunder, and shall
be imposed upon Landlord, then all such taxes, assessments, levies, charges or
impositions,
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or the part thereof so measured or based, shall also be deemed to be included
within the term "Impositions" for purposes hereof, and shall be included within
the Impositions covered by and to be paid by Tenant as set forth in following
paragraph (C) of this Article FOURTH.
(C) The phrase "Tenant's Proportionate Share" as used in this Lease shall
mean twenty-two and one-half percent (22-1/2%). Tenant agrees to pay to
Landlord, as additional rent hereunder, Tenant's Proportionate Share of all of
the Impositions which are paid or payable during or are allocable to each lease
year during the term hereof or fractional lease year at the beginning or end of
the term hereof or during any extended or hold-over term; each such payment to
be made by Tenant to Landlord within ten (10) days after each request from
Landlord. Landlord at its sole option may calculate such payments to be made by
Tenant under this Paragraph in respect of the Impositions, by reference to those
Impositions payable during or allocable to the periods measured by a given lease
year or by a given calendar year or measured by a given lease year or by a given
calendar year or fiscal tax year. Tenant's payments under this Paragraph shall
be adjusted, pro rated and paid for any fraction of a lease year, calendar year
or fiscal tax year (as determined by Landlord) at the beginning and at the end
of the term hereof.
(D) Tenant further agrees to pay when due all personal property taxes and
assessments levied or assessed with respect to Tenant's personal property in or
at the demised premises.
(E) Landlord will furnish Tenant a copy of the applicable real estate tax
bills or assessment notices, with each request for payment to be made by Tenant
toward the Impositions or as soon thereafter as same are available; such bills
or notices to be deemed conclusive evidence of the amount thereof.
(F) Tenant further covenants and agrees to pay to Landlord, within ten
(10) days after each request, an amount equal to Tenant's Proportionate Share of
all premiums and other charges (collectively, the "Insurance Premises") for all
general and public liability insurance, and for all hazard and property damage
insurance including vandalism and malicious mischief coverages,
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and all rental interruption insurance, plate glass, boiler and pressure vessel,
and other insurance of any kind maintained from time to time by Landlord with
respect to the Real Property or any portion thereof. Tenant's payments required
under this paragraph are in addition to (but not in limitation of) its payments
to be made to Landlord pursuant to Article Thirteenth (C) of this Lease.
FIFTH: Use of Premises. Tenant covenants and agrees to use and occupy the
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demised during the term hereof only for general office use (the "Permitted
Use"). Tenant's business at the Premises shall in all events shall be conducted
and operated by Tenant in full compliance with all applicable federal, municipal
and other laws, codes, orders, rules, regulations and requirements now or
hereafter in force. Tenant and its assignees and sublessees shall not use,
occupy or operate the demised premises in whole or part for any purpose other
than the Permitted Use, without Landlord's prior written consent, which consent
may be granted, granted with conditions, or withheld and denied in Landlord's
exclusive, absolute and arbitrary discretion without regard to any standards of
reasonableness ("Landlord's Exclusive Consent"). Tenant shall not use or permit
use of all or any part of the premises for sleeping, residential, immoral or
unlawful purposes. Tenant shall not operate at the premises any loudspeaker,
musical or other instruments or equipment emitting sound, noise, vibration or
other features nor allow to emit from or operate at the premises any odors,
smoke, vapors, flashing or bright lights of any kind, which disturb or annoy
other occupants of the building of which the demised premises forms a part or of
neighboring buildings. Tenant at its own expense agrees at all times to keep
all HVAC ducts, fans and equipment, and all drains, plumbing lines and
equipment, and all of its furnishings, fixtures, equipment and supplies and its
business conducted at the Premises in neat, clean, sanitary and proper condition
and in compliance with all applicable health, life/fire/safety and other laws,
codes, orders, rules and regulations now or hereafter in force. Tenant shall
not conduct any cooking or preparation of foods in or at the Premises. Tenant
shall not conduct any soliciting, canvassing or similar activities in the
Buildings with respect to other lessees or occupants thereof or their customers,
employees or visitors, nor otherwise annoy them. All heating, ventilating and
air conditioning equipment ("HVAC") at or serving the Premises, and all
furniture, furnishings, fixtures and equipment shall be provided, maintained,
replaced when and as necessary, and kept in first class operating condition at
all times by and at the sole
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expense of Tenant. Tenant agrees at its own expense to provide removal of trash
and garbage from the Premises by a licensed, competent trash removal service at
least twice each week. Tenant at its own expense agrees to provide regular and
adequate pest exterminating service for the Premises, and will keep the Premises
fee of insects, rodents, vermin, termites and the like. Tenant will provide
Landlord, promptly on receipt, copies of all notices issued by an governmental
authorities concerning the Premises or the business conducted by Tenant thereat;
but nothing herein contained shall obligate Landlord to comply with or pay for
compliance with any such notices. Tenant shall not annoy other lessees and
occupants of the Building in the conduct of its business, by solicitation
thereof or other means. All rest rooms and lavatories serving the Premises shall
be kept in a neat, clean, attractive and sanitary condition and adequately
supplied at all times,, by and at the sole expense of Tenant. Truck and other
deliveries of merchandise, supplies and trade fixtures to Tenant shall be
performed in compliance with all applicable laws, and without obstructing Common
Areas, sidewalks, alleys or stairways.
SIXTH: Assignment and Subletting. Tenant shall not assign this Lease, nor
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sublet the demised premises or any part thereof nor any desk space therein, nor
mortgage or hypothecate this Lease or its interest herein, without the prior
written consent of Landlord in each instance, which consent may be withheld or
denied in Landlord's exclusive, absolute and arbitrary discretion. Consent of
Landlord to any such assignment or subletting shall not operate as a waiver of
the necessity for its consent to any subsequent assignment or subletting, and
the terms of such consent shall be binding upon Tenant and any party holding by,
under or through the Tenant. No assignment or subletting shall relieve Tenant
from its liability hereunder for payment of rent and performance of all other
obligations hereunder during the full term hereof. If Landlord consents to any
assignment or subletting by Tenant, then Tenant agrees to account to Landlord
for and pay to Landlord all amounts by which the rentals and other sums paid to
Tenant by its assignees and sublessees (as the case may be) exceed the rentals
payable to Tenant to Landlord under this Lease; such payments to be made to
Landlord within seven (7) days after Tenant's receipt of payments under any
assignment or sublease. Landlord and its representatives shall have the right
on request to inspect Tenant's books and records to verify the amount of
payments made to Tenant by its assignees and sublessees. Any transaction by
which (a) the shares of corporate stock in Tenant are sold, exchanged,
transferred or otherwise disposed of in
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such manner that the voting and management control of Tenant becomes thereby
vested in parties other than the parties who now own a majority of said shares,
or (b) all or any substantial part of the assets of Tenant are sold, exchanged,
transferred or otherwise disposed of, is herein referred to as a "Transfer
Event". Any Transfer Event shall be deemed for purposes of this Lease to be an
assignment of this Lease, for which the prior written consent of Landlord (in
its sole, absolute and arbitrary discretion) must first be obtained. Any
assignment of this Lease, or any such Transfer Event, or any subletting of the
Premises in whole or part, which is done without the prior written consent of
Landlord as aforesaid, shall constitute a default of Tenant under this Lease,
which shall entitle Landlord at its sole option and discretion to terminate this
Lease and/or to pursue and enforce any and all rights and remedies available
hereunder, at law and/or in equity.
SEVENTH: Utilities, Repairs, Maintenance, Cleaning and Alterations; Net
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Lease.
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(A) Tenant agrees to provide and to pay all costs and expenses of
providing and of all use and consumption of, all utilities serving or used at
the Demised Premises, including but not limited to gas, water, sanitary sewer,
telephone service and electricity, and all lighting (including replacement of
light bulbs and tubes, ballasts, lighting fixtures and equipment), and all hot
and cold water, and all heating, ventilation, air cooling and air conditioning,
and for all maintenance, repairs and replacements of and costs to use and
operate all hot water heaters, water coolers, and all heating, ventilation, air
cooling and air conditioning, and for all maintenance, repairs and replacements
of and costs to use and operate all hot water heaters, water coolers, and all
heating, ventilation and air conditioning equipment ("HVAC"), and all electrical
wiring and equipment, and all bathroom and plumbing lines, fixtures and
equipment, which now or hereafter serve and/or are located at the Premises, or
arising out of or connected with Tenant's occupancy and use of the demised
premises, promptly when and as the same shall become due, and Tenant at its own
expense shall promptly make any meter and submeter deposits required therefor.
Tenant also shall pay for all electricity for the exit lights in the building,
and all costs of replacement of bulbs for said exit lights and Tenant shall
replace said lights and all other lights in or at the Premises promptly when
necessary. Landlord shall have the right (but not the obligation) at its sole
discretion to install or cause the installation of separate meters, submeters or
checkmeters
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for any or all utilities services for the demised premises; in which event
Tenant agrees to reimburse Landlord within seven (7) days after Landlord's
demand all installation and deposit charges for all meters, submeters and
checkmeters and to pay for all utilities use charges when and as due.
(B) In addition to all of its obligations under this Lease, Tenant at its
own expense agrees at all times to maintain in neat, clean, safe and attractive
condition and appearance all stairways, vestibules, entry and exit areas serving
or forming part of the Premises and to keep said areas free of trash, packages
and obstacles of any kind. When not in use for access, Tenant agrees to keep
all exterior doors and windows of the Premises locked. Tenant at its own
expense will provide any and all burglar, smoke detector, fire alarm and
annunciator and fire sprinkler equipment as required by applicable laws or codes
or governmental orders or regulations or by any insurance company providing
insurance for the Building or any part thereof; and Tenant will keep such
equipment in first class operating condition and repair at all times.
(C) If Landlord elects to make any replacements or repairs to the
structural elements of the Premises, i.e., the exterior walls, the load-bearing
floors, structural beams and supports, or to the foundations of the Buildings
(collectively, the "Structural Elements"), then Tenant agrees to pay to Landlord
within ten (10) days after Landlord's request an amount equal to Tenant's
Proportionate Share (as defined in Article FOURTH (C) hereof) multiplied by the
cost incurred or paid by Landlord for such work multiplied by a fraction, whose
numerator is the total number of days remaining unexpired in the then operative
term of this Lease as of the date of Landlord's invoice, and whose denominator
is the total number of days in the then operative term of this Lease. However,
if such repairs or replacements of the Structural Elements are necessitated as a
result of any act, omission, negligence or damage caused by Tenant or its
assignees or subleases or by its or their agents, employees, contractors,
clients, customers, guests or invitees (collectively, with Tenant, the "Tenant
Parties"), then Tenant agrees to pay to Landlord within seven (7) days after
demand all costs of such repairs or replacements (in addition to but not in
limitation of Landlord's other rights and remedies in such circumstances).
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(D) All repairs made by the Tenant shall be at least equal in quality and
usefulness to the original improvements and equipment on the Premises at the
date hereof. Tenant shall have the right prior to expiration of this Lease (if
Tenant is not in default hereunder) to remove any trade fixtures which Tenant
may have placed in the Premises before the Lease expiration date, provided that,
in the sole judgment of Landlord, the removal of such fixtures will not damage
the Premises or the Buildings. Any damage to the Premises, or to the Buildings,
or to property of others, caused by or resulting from the removal of trade
fixtures installed by the Tenant shall be repaired, at Tenant's sole cost and
expense, in a manner which is acceptable to the Landlord, prior to expiration of
this Lease. The obligation of Tenant to maintain the Premises shall include the
obligation to maintain the exterior of the Premises and any adjacent grounds and
sidewalks. If on the Lease expiration or termination date there is any damage
to the Premises which is not due to ordinary wear and tear, then in such event
(in addition to but in limitation of Landlord's other rights and remedies), it
is agreed that if Tenant is insured for any such damage, Landlord may at its
sole discretion require Tenant to either (i) apply the insurance proceeds to
repair such damage, or (ii) surrender such insurance proceeds to Landlord.
(E) All improvements to and equipment installed in the Premises by or for
Tenant shall be maintained, repaired, replaced and insured by and at the expense
of Tenant. All such insurance shall provide coverage in the amount of the full
replacement value of such improvements and equipment, and shall name Landlord as
an additional insured as its interests may appear.
(F) All alterations, modifications, furnishing, decorating, fixturing and
repairs required of or desired by the Tenant for the operation of its business
shall be performed by and at the sole cost and expense of the Tenant; it being
expressly agreed, however, that Tenant will make no changes or other alterations
of a structural nature, nor change or alter the exterior portions of said
premises, nor any windows, doors, stairways, mechanical, plumbing, heating,
ventilating or air conditioning equipment in or serving the premises, without
Landlord's prior written consent in each instance.
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(G) Landlord agrees that it will make or cause to be made all repairs to
the foundation, roof and exterior walls of the Building (excluding glass and
glass doors) within a reasonable time after receipt of written notice of the
necessity thereof; PROVIDED, HOWEVER, that if the repair or any replacement
thereof is necessitated as a result of any act, omission or negligence of Tenant
and/or of any other Tenant Parties (a "Tenant Fault"), then in any such event
Landlord at its sole option and discretion (i) may require Tenant to perform the
repairs or replacements at Tenant's expense (and Tenant shall do so promptly),
or (ii) may cause the repairs or replacements to be made and Tenant will have to
pay to Landlord within five (5) days after request all costs and expenses
incurred and/or paid by Landlord in connection with such work. Such repairs or
replacements shall be made by and at the expense of the Tenant promptly when and
as necessary or upon Landlord's request.
(H) Tenant shall at all times during the term of this Lease, at its own
expense keep the interior of the demised premises properly painted and
decorated, and will make all repairs, maintenance and replacements when and as
necessary to keep the demised premises (including also without limitation all
plate and other glass doors and all windows thereof, all electrical, mechanical
and plumbing equipment, and the heating, air conditioning and ventilating
equipment serving the demised premises (the "HVAC") and which serves and/or is
situated in or adjacent to the premises or the Buildings or on the roofs of the
Buildings) in good condition, maintenance and repair. Tenant at its own expense
agrees to replace promptly when and as necessary or as directed by Landlord all
broken or cracked plate glass and other glass windows and doors and walls or
partitions of the premises, with glass of like or better kind and quality.
Tenant at its own expense agrees to keep in force at all times a policy of plate
glass insurance for the Premises in form and content and issued by a company
reasonably acceptable to Landlord, naming Landlord as an additional named
insured, and Tenant will provide Landlord a copy thereof on execution of this
Lease, and will provide Landlord renewal certificates at least thirty (30) days
before expiration thereof with evidence of premiums paid for at least one (1)
year in advance. Tenant, at its own expense, will keep in force at all times
with a competent, licensed service company, a service and maintenance contract
for the HVAC serving the premises, and will cause said HVAC to be properly
serviced and maintained (including also all necessary replacements) at all times
in good operating condition. At the expiration or termination of this Lease,
Tenant shall surrender
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to Landlord exclusive possession of the demised premises, including (unless
otherwise specified by Landlord under Section SEVENTH (J) hereof) all
replacements, additions, renovations and alterations performed by Tenant as
herein permitted, in good order and condition, subject to normal wear and tear,
and free of subleases and occupants.
(I) Tenant agrees at all times and its own expense to maintain the
premises in a neat, clean and sanitary condition, free of vermin, rodents and
insects, and will at its own expense provide adequate pest extermination service
and trash removal service for the premises. Tenant shall not place, display or
permit to accumulate any merchandise, boxes or other articles on the sidewalks
or in the common areas or alleys, or at the entrance or exits of the premises or
the building.
(J) Tenant shall not make or permit to be made any alterations, additions
or changes whatever to the Structural Elements, windows, doors, exterior,
foundations, footings, roofs, or exterior walls of Buildings or of the demised
premises, nor to the interior of the Premises, and Tenant shall not paint, cut,
disfigure or alter the facades or exterior of said Buildings, nor alter any
utility or mechanical, plumbing or HVAC lines or equipment, without obtaining
Landlord's Exclusive Consent in each instance. Tenant agrees that neither
Tenant nor any Tenant Parties shall tamper with, connect into, use or alter in
any manner any electrical, plumbing, telephone, communications, computer cabling
or other equipment or lines serving any space in the Buildings (including space
not leased to Tenant); and Tenant agrees to indemnify, defend and hold Landlord
harmless from all litigation, costs, expenses, fines and claims arising out of
any violation of this covenant or any other breach of this Lease by Tenant or
any other Tenant Parties. In any addition to (but not in limitation of) its
other rights and remedies, Landlord shall have the right (but not the
obligation) to remove any such prohibited alterations, and to restore the
altered equipment and lines to their condition which existed just prior to
Tenant's violation of this paragraph, and Tenant shall pay to Landlord on demand
all costs incurred in such actions. If Landlord consents in writing to any
alterations proposed by Tenant, then Tenant shall cause same to be made at its
own expense in compliance with all provisions of this Lease and the terms of
Landlord's consent, and shall see that such alterations (i) do not damage the
structural
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soundness or integrity of the building nor interfere with the use and enjoyment
by other tenants of the building of their leased space therein; (ii) are
performed free of all liens and claims of mechanics and material men (it being
agreed that Tenant shall and hereby does indemnify,, defend and save Landlord
harmless from and against such liens), (iii) are done in compliance with all
applicable governmental laws and orders, (iv) are performed in a god and
workmanlike manner, and (v) do not cause cancellation of or increase in premiums
for or adversely affect any policies of insurance required to be obtained and
maintained by Tenant or which are maintained by Landlord. All alterations and
additions to the premises made by Tenant shall at all times be and remain the
property of Landlord, and shall be surrendered to Landlord at the expiration or
termination of this Lease. Provided, however, that if Landlord so notifies
Tenant in writing at least sixty (60) days before the end of the term hereof,
the Tenant shall at its own cost remove such alterations and additions made by
it, as covered by Landlord's notice, prior to the expiration of the Lease term
or termination of this Lease, and Tenant shall repair all damage caused to the
premises by such removal.
(K) Tenant shall notify Landlord in writing promptly as to any defect in
or damage to the Building or any equipment or lines thereof. However, nothing
herein contained shall obligate Landlord to perform, provide or pay in whole or
part for any repairs, replacements or restoration or other work, except as
expressly provided for in this Lease.
(L) Prior to commencing any work at or for the Premises, Tenant shall
obtain and deliver to Landlord written and unconditional waivers of mechanics'
and material men's liens upon the Premises and the Building, for all work, labor
and services to be performed, and materials to be furnished by them in
connection with such work, signed by all contractors, subcontractors, material
men and laborers to become involved in such work, or an adequate payment and
performance bond acceptable to Landlord. All of such alterations, decorations,
additions or improvements permitted by Landlord or performed by or for Tenant
shall conform to all rules and regulations established from time to time by the
Underwriter's Association of the District of Columbia and shall conform to all
requirements of the Federal and District of Columbia governments.
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EIGHTH: Liability Insurance and Indemnity. Tenant covenants and agrees to
---------------------------------
indemnify, defend and hold harmless the Landlord against and from any and all
liability, damages, expenses, causes of action, suits, litigation, court costs,
reasonable attorneys' fees, judgments and claims of any and every nature of any
person, firm or corporation or others arising out of or in any manner connected
with injury or death to person(s), and damage to or loss of property, in, or on
or about the demised premises (or occurring elsewhere in the building if
involving or caused in whole or part by Tenant or any Tenant Parties). In
confirmation thereof, Tenant covenants and agrees that it will, at all times
during the term hereof, at its own expense carry and keep in full force and
effect in companies satisfactory to Landlord, and under policies in form and
contents acceptable to Landlord, general liability insurance in form
satisfactory to Landlord, with combined single limits of (i) at least TWO
MILLION DOLLARS ($2,000,000.00) for injury, including death, to one or more
person(s) in any one casualty or occurrence, and (ii) with property damage
coverage of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00), or in such greater
coverage amounts as Landlord may from time to time reasonably require. All such
policies of public liability and property damage insurance shall name Landlord
and Tenant as parties insured, and shall contain a provision that the same many
not be canceled or amended (including for non-payment of premiums) without
giving to the Landlord and Tenant at least thirty (30) days' prior written
notice. Each policy of insurance required of Tenant under this Lease, or
certified copy thereof and a certificate showing the same to be in force, shall
be delivered to Landlord at the commencement of the term hereof, and renewals
thereof shall be delivered to Landlord within ten (10) days prior to the
expiration of any such policy. All insurance maintained by Tenant on the
premises and/or on Tenant's personal property or business shall include waiver
of subrogation endorsements for Landlord's benefit, in form and content
acceptable to Landlord. Tenant shall provide Landlord copies of paid receipts
for premiums on all insurance required of Tenant under this Lease for at least
one (1) year in advance, on request. Additionally, during the term of this
Lease, Tenant at its sole cost and expense, and for the respective interests of
Landlord and Tenant, shall keep the Premises insured against loss or damage by
fire and the hazards included in the standard extended coverage endorsement, in
an amount equal to one hundred percent (100%) of the replacement value of the
Premises, which policy shall name the Landlord as an additional insured. If
Tenant's alterations
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result in an increase in the insurable value of the Premises, then Tenant shall
increase the face amounts of all hazard insurance policies required of Tenant
under this paragraph. Tenant shall also at its own expense provide and keep in
force property damage insurance in amounts sufficient to cover all of its
equipment at and all leasehold improvements which are made by Tenant in or to
the Premises, and business interruption insurance in amounts sufficient to cover
all rent and other payments due under this Lease. Tenant agrees to look only to
its business interruption and property damage insurance policies, and not to
Landlord or its agents or employees, for reimbursement for any damages or losses
incurred as a result of any of the foregoing occurrences, and that said policies
must contain waiver of subrogation clauses.
NINTH: Subordination. This Lease and all rights of Tenant hereunder, are
-------------
subject and subordinate to any mortgages and deeds of trust which now or may
hereafter affect the demised premises, the Land and/or the building, and to any
and all renewals, modifications, consolidations, replacements and extensions
thereof. It is the intention of the parties that this provision be self-
operative and no further instrument shall be necessary to effect such
subordination of this Lease. Tenant shall, however, upon demand at any time or
times, execute, acknowledge and deliver to Landlord any and all instruments that
may be necessary or proper to subordinate this Lease, and the rights of Tenant
hereunder, to any such mortgage or deed of trust, or to confirm or evidence said
subordination. Notwithstanding the subordination of this Lease as aforesaid,
any present or future mortgagee or beneficiary under any deed of trust on the
building or the Land may, by giving Tenant written notice thereof, require that
the Lease shall be senior in lien to such mortgage or deed of trust. Tenant
covenants and agrees, in the event of foreclosure of any such mortgage or deed
of trust, to attorn to the purchaser at such foreclosure sale, and to recognize
such purchaser as the Landlord under this Lease. Tenant agrees to execute and
deliver to Landlord, within ten (10) days after request of Landlord or of any
such holder, any instrument which, in the reasonable judgment of Landlord, may
be necessary or appropriate in any such foreclosure proceedings or otherwise to
evidence such attornment. Tenant further waives the provisions of any statute
or rule of law, now or hereafter in effect, which may give or purport to give
Tenant any right or election to terminate or otherwise adversely affect this
Lease, and the obligations of Tenant hereunder, in the event of any such
foreclosure.
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TENTH: Eminent Domain. Tenant agrees that if the demised premises, or
--------------
any part thereof, shall be taken, condemned or acquired for public or quasi-
public use or purpose by any competent authority, whether by condemnation
proceedings, lease or purchase, this Lease at Landlord's option shall terminate
and the Tenant shall quit and vacate the premises by the date required in such
condemnation proceedings. Tenant shall have no claim against Landlord and shall
not have any claim or right to any portion of the amount that may be awarded as
damages or be paid as a result of any such condemnation, lease or purchase; it
being agreed that the full amount of such award or other proceeds, if any, made
or paid by the taking authority shall be paid to and retained by Landlord, free
of any claim by Tenant to any portion thereof; and that all rights and claims of
Tenant to damages therefor, if any, are hereby assigned by Tenant to Landlord.
Should all or any part of the demised premises be so taken or acquired, the term
of this Lease shall cease and terminate from the date on which Tenant is
required, by said taking authority, to surrender possession of said premises,
and the Tenant shall have no claim against Landlord for the value of any
unexpired term of this Lease. All rentals and other sums payable by Tenant
hereunder shall be adjusted to the date on which Tenant is required, by said
taking authority, to surrender possession of said premises. Provided that Tenant
is not in default under this Lease, Tenant shall have the right, in the event of
any such condemnation, to pursue in an action separate from Landlord's
condemnation proceedings, and at Tenant's own expense, any claims that Tenant
may have against the condemning authority for loss of Tenant's business and/or
moving expenses occasioned by such condemnation, provided that the amounts
sought or awarded to Tenant in such separate action shall not in any manner
reduce or adversely affect or in any manner delay or interfere with Landlord's
award or claims.
ELEVENTH: Damage to Tenant's Property. It is agreed that Landlord shall
---------------------------
not be liable for any damage to property of Tenant or other persons upon the
demised premises arising from rain, snow, or water which may leak into or fall
into any portion of the demised premises, or which may occur from broken pipes
or any other causes.
TWELFTH: Damage by Fire or Casualty.
--------------------------
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<PAGE>
(A) If the demised premises is damaged by fire, the elements or other
casualty which is actually then covered by the Landlord's fire and extended
coverage insurance policies in force on the demised premises, the Landlord (at
its cost) shall diligently and promptly repair all damage to and restore the
demised premises to its condition just prior to the damage. However, in no
event shall the rentals or any other amounts payable by Tenant under this Lease
abate or be reduced as a result of any fire or other casualty or damage of any
kind to the Premises or to Tenant's equipment, trade fixtures, merchandise or
personal property; it being agreed that Tenant shall rely on its policies of
casualty and business interruption insurance for all such losses or loss of
income from any such occurrences, and Tenant shall have no right to any
diminution in rent nor any claims against Landlord in any such events.
Landlord's restoration work under this paragraph shall be limited to the
premises as originally tendered to Tenant (reasonable wear and tear excepted),
herein called "Landlord's Restorations"; it being agreed that Tenant at its own
expense shall repair and replace all alterations and leasehold improvements,
fixtures, furnishings and equipment installed by or for Tenant. Notwithstanding
anything herein contained to the contrary, all damage tot he Premises caused by
Tenant or any Tenant Parties shall be repaired promptly by and at the sole
expense of Tenant.
(B) Notwithstanding the foregoing, if more than fifty percent (50%) in
value of the demised premises is destroyed or made unusable by any such fire,
the elements or other casualty, or if the building of which the demised premises
is a part shall be damaged or destroyed to the extent that Landlord, in its
opinion deems it advisable to remove the remainder of the building or to
substantially or entirely reconstruct the same (even though the portion leased
to the Tenant hereunder is not rendered untenantable or is made only partially
untenantable), or if the demised premises is damaged by any casualty or other
cause which is not fully covered and insured under the Landlord's fire and
extended coverage insurance policies then in force, then and in any such event
the Landlord shall have the right in its sole discretion to terminate this Lease
by giving Tenant written notice of such termination at any time within sixty
(60) days following the occurrence of such casualty, and in the event of such
termination hereof rent shall be adjusted to the date Tenant was deprived of the
use of the demised premises as the result of such casualty, and the Landlord and
Tenant shall be relieved of any further liability hereunder. However, in no
event shall Landlord be subject to any claims or liability as a result of any
casualty or other
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damage or any interruption in or loss of Tenant's business as a result thereof
or of repairs necessitated thereby. Tenant shall include in its casualty
insurance policy a waiver of subrogation endorsement for Landlord's benefit in
form and content acceptable to Landlord.
THIRTEENTH: Compliance with Governmental Orders: Tenant Insurance.
-------------------------------------------------------
(A) The Tenant shall, at its own expense, during the entire term
hereof, properly and promptly comply with all laws, orders, ordinances, rules,
regulations and requirements, as the same now exist or as the same may hereafter
be enacted, amended or promulgated, of any Federal, State, County or municipal
authority, and/or any department or agency thereof, and of the Board of Fire
Underwriters, and any similar organization having jurisdiction thereof, relating
to Tenant's use or occupancy of the demised premises or to the operation of the
Tenant's business therein. Tenant at its own expense (and at nor cost to
Landlord) agrees to obtain and keep in force (and provide Landlord promptly on
request copies of) all certificates, licenses and permits required for use and
occupancy of the demised premises and for conduct of Tenant's business thereat.
(B) Tenant, at its own expense shall at all times during the term
hereof carry fire and extended coverage insurance on its furniture, trade
equipment and its other personal property and all leasehold improvements to or
located at the demised premises, in coverage amounts equal to their full
replacement cost, and in good responsible companies licensed in the District of
Columbia. Such policies shall include waiver of subrogation provisions
acceptable to Landlord. Complete copies and certificates of such policies shall
be furnished to Landlord within seven (7) days after each request. However,
Tenant shall not carry any insurance which duplicates or adversely affects any
policies of insurance maintained by Landlord, without Landlord's express prior
written consent.
(C) Fire Insurance Increases. Tenant will not carry on any activity
-------------------------
in or about the demised premises, nor on the sidewalks abutting said premises,
nor do or permit anything to be done therein or thereat, which is contrary to
any law, ordinance, order or regulation of the
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Federal, State, County or municipal governments, or of any board, agency or
department thereof; and Tenant shall not permit nor do anything which would
increase the basic rate of the fire insurance or any other insurance carried by
Landlord, as established by the appropriate agency having jurisdiction. For
purposes of definition herein, the "basic rate" shall be such rate as is
published by the said appropriate agency, exclusive, however, of any excess or
surcharges appended thereon by virtue of or directly attributable to so-called
faults of management. If any use of or activities or occupancy at the demised
premises or on the sidewalks, alleys, or other areas in the vicinity of the
Premises by Tenant, its assignees or sublessees causes any increase in the
Landlord's insurance premiums or rate for the building over and above the basic
premiums and/or rate for construction of the type of the Premises occupied for
the purpose permitted by Landlord, then Tenant, upon written notice from
Landlord, shall immediately take all necessary steps to eliminate the excess
charge attributable to such faults of management. Should Tenant refuse or fail
to take such action as may be necessary to eliminate the cause for said excess
charges, Tenant shall pay to Landlord on demand as additional rent, that portion
of the aforesaid fire and extended coverage and other insurance premiums caused
by such excess charge on all outstanding insurance carried by Landlord on the
building.
(D) Tenant will not use the demised premises nor conduct any business
therein (nor permit any Tenant Parties to do so) in a manner which disturbs or
interferes with the business, use or occupancy by other lessees of space in the
building; and Tenant shall immediately cease any activities or conduct by Tenant
or any Tenant Parties which violate the provisions of this paragraph.
FOURTEENTH: Bankruptcy.
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(A) Events of Bankruptcy. For purposes of this Lease, the following
---------------------
shall be deemed "Events of Bankruptcy" of Tenant: (i) if Tenant becomes
"insolvent", as defined in Title 11 of the United States Code, entitled
"Bankruptcy", 11 U.S.C. Section 101 et. seq. (the "Bankruptcy Code"), or under
--------
the insolvency laws of any state, district, commonwealth or territory of the
United States of America ("Insolvency Laws"); or (ii) if a receiver or custodian
is appointed for any or all of Tenant's property or assets, or if there is
instituted a foreclosure action
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on any of Tenant's property; or (iii) if Tenant files a voluntary petition under
the Bankruptcy Code or Insolvency Laws; or (iv) if there is filed an involuntary
petition against Tenant as the subject debtor under the Bankruptcy Code or
Insolvency Laws which is not dismissed within thirty (30) days of filing, or
results in issuance of an order for relief against the debtor; or (v) if Tenant
makes or consents to an assignment of its assets, in whole or in part, for the
benefit of creditors, or a common law composition of creditors.
(B) Landlord's Option to Terminate Lease. Upon the occurrence of an
-------------------------------------
Event of Bankruptcy, or if Tenant takes advantage of any Insolvency Laws, then
in any such event Landlord at its option and sole discretion may terminate this
Lease by written notice to Tenant (subject, however, to applicable provisions of
the Bankruptcy Code or Insolvency Laws during the pendency of any action
thereunder involving Tenant as the subject debtor). If this Lease is terminated
under this paragraph, Tenant shall immediately surrender to Landlord possession
of and vacate the demised premises, waives all statutory and other notice to
quit, and agrees that Landlord's obligations under this Lease shall cease from
such termination date, and Landlord may recover possession by process of law or
in any other lawful manner. Furthermore, if this Lease is terminated under this
paragraph, Landlord shall have all rights and remedies against Tenant provided
in case of defaults of Tenant in payment of rent (subject, however, to
applicable provisions of the Bankruptcy Code or Insolvency Laws).
(C) Assumption of Lease. If Tenant becomes the subject debtor in a
--------------------
case pending under the Bankruptcy Code, Landlord's right to terminate this Lease
under this Article shall be subject to the applicable rights (if any) of the
trustee in bankruptcy to assume or reject this Lease as then provided for in the
Bankruptcy Code. However, the Trustee in Bankruptcy must give to Landlord and
Landlord must receive proper written notice of the Trustee's assumption or
rejection of this Lease, within sixty (60) days after the date of the Trustee's
appointment or such longer period if any provided by applicable law (the
"Assumption or Rejection Period"); it being agreed that the failure of the
Trustee to five notice of such assumption hereof within the Assumption or
Rejection Period shall conclusively and irrevocably constitute the Trustee's
rejection of this Lease and waiver of any rights of the Trustee to assume
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or assign this Lease. The Trustee shall not have the right to assume or assign
this Lease unless said trustee (i) promptly and fully cures all defaults of
Tenant under this Lease, (ii) promptly and fully compensates Landlord for all
monetary damages incurred as a result of such default, and (iii) provides to
Landlord "adequate assurance of future performance" (as defined hereinbelow).
Landlord and Tenant hereby agree in advance that "adequate assurance of future
performance", as used in this paragraph, shall mean that all of the following
minimum criteria must be met: (a) Tenant's gross receipts in the ordinary course
of business during the thirty (30) day immediately preceding the initiation of
the case under the Bankruptcy Code must be at least twenty (20) times greater
than the next payment of rent due under this Lease, (b) both the average and
median of Tenant's monthly gross receipts in the ordinary course of its business
during the six (6) months immediately preceding initiation of the case under the
Bankruptcy Code must be at least twenty (20) times greater than the next payment
of rent due under this Lease, (c) Tenant must pay to Landlord all rentals and
other sums payable by Tenant hereunder including also therein its share (as
estimated by Landlord) of the cost of all services (if any) provided by Landlord
(whether directly or through agents or contractors, and whether or not the cost
of such services is to be passed through to Tenant), in advance of the
performance or provision of such services, (d) the Tenant must agree (by writing
delivered to Landlord) that the Tenant's business shall be conducted in a first
class manner, and that no liquidating sales, auctions, or other non-first class
business shall be conducted in, at or on the demised premises, and that the use
of the demise premises as stated in this Lease will remain unchanged. In the
event Tenant is unable to (i) cure its defaults, (ii) reimburse Landlord for its
monetary damages, (iii) pay the rents due under this Lease or any other payments
required of Tenant under this Lease on time, or (iv) meet the criteria and
obligations imposed by (a) through (d) above in this subparagraph, then Tenant
hereby agrees in advance that Tenant has not met its burden to provide adequate
assurance of future performance, and this Lease may be terminated by Landlord in
accordance with Paragraph FOURTEENTH (B).
(D) Damages. It is further stipulated and agreed that, in the event
--------
of the termination of this Lease by the happening of any such event described in
this Article FOURTEENTH, Landlord shall forthwith, upon such termination, and
any other provisions of this Lease to the contrary notwithstanding, become
entitled to claim and recover as and for
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damages caused by such breach of the provisions of this Lease all amounts
permitted by applicable law.
(E) Consent to Lift Sty. In the event that this Lease is terminated
--------------------
by notice and the Tenant shall thereafter seek protection under the Bankruptcy
Code or any equivalent state Insolvency Laws or regulations, then the Tenant (if
a debtor-in-possession) agrees to consent to any application by the Landlord to
terminate the automatic stay provisions of the Bankruptcy Code or any Insolvency
Laws on the grounds that there is no equity in the Lease as a result of the pre-
petition termination notice.
FIFTEENTH: Signs; Equipment. (A) It is recognized that Tenant heretofore
-----------------
has installed on the exterior of the Building certain signs which now are in
place (the "Existing Signs"). Tenant covenants and agrees, at its own expense,
to remove said Existing Signs by not later than October 15, 1996, and to repair
immediately all damage to the Building caused by installation or removal of said
Existing Signs. It is recognized that said Existing Signs encroach onto portions
of the Buildings occupied by other lessees, and that Tenant's Permitted Use of
the Premises is limited to office use as aforesaid. Accordingly, in no event
shall Tenant be entitled to place, continue the existence of, add to or replace
or install any signs on the exterior of or which are visible from the exterior
of the Building. Tenant further covenants and agrees not to install, place, hang
or otherwise display on the exterior of the Buildings any banners, signs or
other items or materials of any kind, nor to obstruct from view, alter or
otherwise affect any signs, show windows or other windows, doorways, doors,
entrances, exits or other elements or areas of the Buildings now or hereafter
displayed or used by or leased to any other tenant or occupant. In addition to
(but not in limitation of) its other rights and remedies, Landlord shall have
the right to remove (at Tenant's risk and expense) any items installed by Tenant
at any time in violation of this paragraph. Tenant agrees to indemnify, defend
and hold Landlord harmless from all loss, costs, damage, expense and claims
(including damages from loss of any other lease or prospective lease of space in
the Buildings), arising from or caused by default of Tenant under this paragraph
or under any other provision of this Lease.
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(B) No sign, advertisement, notice, or awning shall be inscribed,
painted, affixed or otherwise displayed on any part of the exterior of the
Building except in such place, number, size, color and style as is in Landlord's
judgment harmonious with the design of the Buildings and their furnishings; nor
shall any such items be installed without obtaining Landlord's Exclusive
Consent. Any such sign, advertisement, notice or awning shall be installed,
maintained, kept in good repair and appearance and in compliance with laws and
insurance requirements, by Tenant at its own cost and expense. Tenant shall not
install any flashing, moving, strobe, neon or other bright or unattractive
lights or lighted signs without Landlord's prior written Exclusive Consent. If
any sign, advertisement, notice or awning which does not conform to the
foregoing is nevertheless installed by or for Tenant, then Landlord shall have
the right (but not the obligation) at its sole discretion to remove the same,
and Tenant shall be liable for any and all expenses incurred by Landlord in said
removal. Tenant further specifically agrees that any sign, advertisement,
notice or awning erected in accordance with this provision shall be removed, at
Tenant's sole cost and expense, within seven (7) days after Landlord's request.
(C) Furnishings. Landlord shall have the right to prescribe the
------------
weight and position of safes and other heavy equipment or fixtures, which shall,
if considered necessary by the Landlord, stand on plank strips to distribute the
weight. Any and all damage or injury to the Building or the Premises caused by
moving the property of Tenant into, in or out of the Premises, or due to the
same being in the Premises, shall be repaired by and at the sole cost of Tenant.
All moving of furniture, equipment and other materials (if Landlord so
determines) shall be under the direct control and supervision of Landlord who
shall, however, not be responsible for any damage to or charges for moving the
same. Tenant shall promptly remove from the sidewalks and alleys adjacent to
the Building any and all of its furniture, equipment or other material there
delivered or deposited.
(D) Tenant's Equipment. Tenant shall not install any equipment,
-------------------
machinery or trade fixtures of any kind or nature whatsoever which will or may
necessitate any changes, replacements or additions to, or in the use of, the
water system, heating system, plumbing
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system, air-conditioning system, or electrical system of the Building without
the prior written consent of Landlord.
SIXTEENTH: Defaults.
---------
(A) In the event that (i) Tenant shall fail to pay when and as due
any payment of rent or of Additional Rent or any other amount payable by Tenant
hereunder, or (ii) Tenant shall violate any other term, provision, covenant or
condition of this Lease or shall neglect or fail to perform or to observe or
comply with any of the other terms, conditions or covenants herein contained on
Tenant's part to be performed or observed and Tenant shall fail to remedy the
same within twenty (20) days after Landlord shall have sent Tenant written
notice specifying such violation, neglect or failure, or (iii) this Lease or the
Demised Premises or any part thereof shall be taken upon execution or by other
process of law directed against Tenant, or shall be taken upon or subject to any
attachment at the instance of any creditor of or claimant against Tenant, and
said attachment shall not be discharged or disposed of within thirty (30) days
after the levy thereof; of (iv) Tenant shall abandon, vacate or desert the
Demised Premises, or fail to continuously operate the Demised Premises for the
Permitted Use specified in Article Fifth hereof; then in any one or more of such
events, Landlord shall have the right, at its option, exercisable by sending
written notice thereof to Tenant, to terminate this Lease, in which event Tenant
agrees to immediately surrender to Landlord possession of the Demised Premises,
without any notice to quit or demand for possession of the Demised Premises
whatsoever, all statutory and other notice to quit or of intention to re-enter
the same being hereby expressly waived by Tenant, and Tenant hereby grants
Landlord full and free entrance to, into and upon the Demised Premises or any
part thereof, to take possession thereof with or without process of law and to
expel and remove Tenant or any other person occupying the Demised Premises or
any part hereof, and Landlord may repossess itself of the same as if its former
estate, but such entry shall not constitute trespass or forcible entry or
detainer, nor shall it cause a forfeiture of rents due by virtue hereof nor
waiver of any covenant, agreements or promises in this Lease contained to be
performed by Tenant. If this Lease shall be terminated as aforesaid, the Demised
Premises, or any part thereof, may be re-let by Landlord for the account and
benefit of Tenant, for such rent and upon such terms and to such person or
persons and for such period or periods as may seem
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fit to Landlord, and if a sufficient sum shall not be received form such
reletting to satisfy the rent reserved in this Lease, after paying the expense
of reletting and collection, including reasonable commissions to agents and
reasonable attorneys' fees, and any court costs, Tenant agrees to pay and
satisfy any and all such deficiencies; but the acceptance of a lessee by
Landlord in place of Tenant shall not operate as a release of Tenant from the
performance of any covenant, promise or agreement herein contained, and the
performance of any substitute tenant by the payment of rent, or otherwise, shall
constitute only satisfaction pro-tanto of the obligations of Tenant arising
---------
hereunder. Any damages or deficiencies, at the option of Landlord, may be
recovered by Landlord in separate actions, from time to time, as Tenant's
obligations to pay would have accrued if the term had continued, or from time to
time as said damages or deficiencies shall have been made more easily
ascertainable by relettings of the Demised Premises, or any such action by
Landlord may, at the option of Landlord, be deferred until the expiration of the
term hereof. Notwithstanding anything to the contrary contained in this Lease,
to the extent not expressly prohibited by applicable law, in the event of any
default of Tenant under this Lease, Landlord at its sole option and discretion
may terminate this Lease and/or Tenant's right to possession of the premises,
and may accelerate and declare that all rentals and other amounts reserved for
the entire remainder of the term hereof shall be immediately due and payable, in
which event Tenant agrees to pay same on demand. If and to the extent Tenant
makes the payments demanded by Landlord pursuant to the preceding sentence (the
"accelerated rent") and provided such payments are free of challenge by and are
not recovered by Tenant's creditors, trustee or receiver in any creditor
proceedings, then it is agreed that Landlord will refund to Tenant (to the
extent only of said Accelerated Rent) any actual Net Re-Letting Proceeds
(defined below) thereafter received by Landlord during the remainder of the
stated term of this Lease. The phrase Net Re-Letting Proceeds as used herein
shall mean the total amount of rent and other consideration paid by any
Replacement Tenants, less all Costs of Re-Letting, during a given period of
time. "Costs of Re-Letting" shall include without limitation, all reasonable
costs and expenses incurred by Landlord for any repairs, maintenance, changes,
alterations and improvements to the Premises, brokerage commissions, advertising
costs, attorneys' fees, any customary free rent periods or credits, tenant
improvement allowances, take-over lease obligations and other customary,
necessary or appropriate economic incentives required to enter leases with
Replacement Tenants, and costs of collecting rend from Replacement Tenants. The
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phrase "Replacement Tenants", as used herein, shall mean any party or parties to
whom Landlord relets the Premises or any portion thereof pursuant to this
Article.
(B) Tenant hereby expressly waives any provision of law now in force
or which hereafter may be enacted giving Tenant the right under any condition
after default to the redemption and repossession of the Demised Premises or any
part thereof.
(C) No payment by Tenant or receipt by Landlord of a lesser amount
than the monthly installments of rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and the Landlord may accept such
check or payment without prejudice to the Landlord's right to recover the
balance of such rent or to pursue any other remedy in this Lease provided.
(D) Notwithstanding anything to the contrary set forth hereinabove,
in the event of a default hereunder by Tenant, Tenant covenants and agrees to
pay to Landlord all costs and expenses incurred by Landlord in connection with
such default, including but not limited to reasonable attorney's fees, whether
or not suit was instituted.
(E) In the event Tenant shall default under any provision of this
Lease, Landlord shall have the right (but not the obligation) at its option, and
at the sole cost of Tenant, in addition to all other rights and remedies, to
take the action necessary to cure the default, in which event Tenant shall pay
Landlord all costs incurred plus fifteen percent (15%) thereof on demand.
SEVENTEENTH: Rights Reserved by Landlord. The Landlord reserves the right
---------------------------
to enter the demised premises at all reasonable times (1) for the making of
inspections or repairs, as Landlord may deem necessary or desirable; (2) to
exhibit the premises to prospective tenants during the last twelve (12) months
of the term of this Lease, and to prospective purchasers and
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<PAGE>
lenders at any times during the term hereof; and (3) for any purpose whatsoever
relating to the safety, protection or preservation of the demised premises.
Landlord shall have the further right, during the last twelve (12) months of the
term hereof, to place the usual sign or notice "For Rent", and at any time
during the term hereof to place the notice "For Sale", upon any part of the
premises hereby demised to Tenant, which sign or notice Tenant agrees to permit
to remain thereon without interference, molestation or obstruction.
EIGHTEENTH: Surrender of Possession. At the expiration or other
-----------------------
termination of this Lease, Tenant shall surrender and deliver up possession of
the demised premises to Landlord in good order and condition, ordinary wear and
tear excepted, free of occupants and subleases. By not later than the
termination of this Lease or expiration of the term hereof, the Tenant may
remove its trade fixtures and equipment installed by it on the condition,
provided, however, that any damage to the demised premises resulting from such
removal (or the installation thereof) shall be fully and promptly repaired by
and at the sole expense of Tenant. Tenant may not remove any of its trade
fixtures or other property while Tenant is in default hereunder. Any of
Tenant's personal property not removed from the premises by expiration or
termination of this Lease may be retained as Landlord's property or be disposed
of by Landlord at Tenant's risk and expense, all at Landlord's exclusive
discretion.
NINETEENTH: Notices. All notices required under this Lease shall be given
-------
in writing and shall be deemed to be properly served by Tenant if sent by
certified or registered United States mail, return receipt requested, postage
prepaid, addressed to Landlord c/o Sidney S. Zlotnick, 1616 H Street, N.W.,
Suite 810, Washington, D.C. 20006, or to such other party and address as
Landlord may from time to time designate in writing. Such notices shall be
deemed to be properly served by Landlord if sent by certified or registered
United States mail, postage prepaid, addressed to Tenant at the demised premises
or to such other address as Tenant may from time to time designate to Landlord
in writing, or such written notices may be delivered in person by Landlord or
Landlord's agent to Tenant or Tenant's employees at the demised premises during
regular business hours.
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<PAGE>
TWENTIETH: Non-Waiver. The failure of Landlord to insist, in any one or
----------
more instances, upon a strict performance of any of the covenants of this Lease,
or to serve any notice, or to institute any action or summary proceedings, shall
not be construed as a waiver or relinquishment for the present or future of such
covenant or option, or right thereafter to service notice, but such covenant or
option shall continue and remain in full force and effect. The receipt by the
Landlord of rent, with knowledge of the breach of any covenant hereof, shall not
be deemed a waiver of such breach, and no waiver by the Landlord of any
provision hereof or breach thereof by Tenant shall be deemed to have been made
unless expressed in writing and signed by the Landlord or its duly authorized
agent. The Landlord's rights and remedies herein created are cumulative, and
the use of one remedy shall not be taken to exclude or waive the right to the
use of another. Receipt or acceptance by Landlord of any rent after the due
date thereof in any one or more instances shall not constitute a waiver of the
obligation of Tenant to pay all rentals and other sums hereunder on the date
due, nor be deemed to prevent Tenant's failure to make such timely payments from
constituting default of Tenant under this Lease.
TWENTY-FIRST: Quiet Possession. The Landlord covenants that if and so
----------------
long as the Tenant shall not be in default under this Lease, the Tenant shall
quietly hold, occupy and enjoy the leased premises during all of the term
hereof, without hindrance or molestation by the Landlord.
TWENTY-SECOND: Entire Agreement. This instrument contains all the
----------------
agreements made between the parties hereto, and may not be modified orally or in
any other manner than by agreement in writing, signed by all the parties hereto
or their respective successors in interest.
TWENTY-THIRD: Binding Effect of Agreement. The terms, covenants,
---------------------------
conditions, obligations and agreements herein contained shall be kept and
performed by the respective parties hereto, and will be binding upon them and
each of them, their and each of their respective heirs, executors,
administrators, personal representatives, successors and (subject to Article
SIXTH hereof) assigns.
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<PAGE>
TWENTY-FOURTH: Landlord's Liability. If the Landlord shall sell, convey
--------------------
or otherwise transfer the demised premises and/or the building in which same is
located, then the undersigned Landlord shall be deemed to be released of all
obligations hereunder from and after the date of such transfer, and the
transferee shall be deemed the Landlord hereunder. Landlord's liability under
this Lease shall be limited to its interest in the demised premises. In no event
shall the individuals or any other parties comprising Landlord have any personal
liability for any payments or performance under this Lease; it being agreed that
Tenant shall have no recourse to any assets or properties of Landlord (other
than the demised premises) for enforcement of the rights and remedies of Tenant
and any Tenant Parties under this Lease, at law or in equity. The Landlord and
Tenant shall not be deemed to be partners or joint venturers; it being agreed
that their only relationship is that of lessor and lessee respectively.
TWENTY-FIFTH: Brokerage. Tenant hereby represents and warrants that it
---------
has not dealt with any real estate broker, agent or salesman in connection with
this Lease, and Tenant agrees to indemnify, defend and hold Landlord harmless
from any commissions or claims sought or asserted by any broker, agent or
salesmen in connection with this Lease.
TWENTYSIXTH: Miscellaneous.
-------------
(A) Severability. If any term or provision hereof, or any portion
------------
thereof, or the application thereof to any person(s) or circumstances shall, to
any extent, be held by a court of competent jurisdiction to be invalid or
unenforceable, then the remainder of this Lease, or the application of such term
or provision to persons or circumstances other than those as to which it is so
judicially held to be invalid or unenforceable, shall not be affected thereby,
and each term
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<PAGE>
and provision of this Lease shall be valid and be enforceable to the fullest
extent permitted by law.
(B) Landlord and Tenant each hereby waive all rights to trial by jury
in any litigation or proceedings instituted by either party against the other
concerning this Lease.
(C) This Lease is made pursuant to, and shall be construed and
enforced in accordance with, the laws of the District of Columbia.
TWENTY-SEVENTH: No Liability. (A) Landlord shall not be liable to Tenant,
------------
its employees, agents, business invitees, licensees, customers, clients, family
members or guests for any damages, compensation or claim arising from the
necessity of repairing any areas of the premises or the building, the
interruption of the use or occupancy of the premises, any accident or damage
resulting from the use or operation (by Landlord, Tenant, or any other person or
persons whatsoever) of heating, cooling, electrical or plumbing equipment or
apparatus; or the termination of the Lease by reason of the destruction of the
premises; or from any fire, robbery, theft, mysterious disappearance and/or any
other casualty or from any leakage in all or any part of the premises or the
building, or from water, rain or snow that may leak into or flow from any part
of the premises or the building, or from drains, pipes, or plumbing work in the
building, or from any other cause whatsoever. Any goods, property or personal
effects, stored or placed by the Tenant or its employees in or about the
premises or building, shall be there at the risk of the Tenant; it being agreed
that Landlord shall not in any manner be held responsible therefor. The
employees of the Landlord are prohibited from receiving any packages or other
articles delivered to the building or Tenant, and if any such employee receives
any such package or articles, such employee shall be the agent of the Tenant for
such purposes and not the agent of the Landlord.
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<PAGE>
Tenant shall not be entitled to any rent abatement in any circumstances
described in this paragraph.
(B) Tenant's Equipment. Tenant's machines and equipment which cause
------------------
noise or vibration that may be transmitted to the structure of the building or
to any space therein to such a degree as to be objectionable to Landlord or to
any other tenant in the Buildings shall be installed and maintained by Tenant,
at Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate such noise and vibration.
TWENTY-EIGHTH: Captions - General
------------------
(A) The paragraph captions of this Lease are for convenience of
reference only, and in no way define or limit the scope or intent of this Lease,
nor in any way affect this Lease.
(B) Wherever in this Lease the singular is used, the same shall
include the plural; and the use of any gender shall be deemed to include all
genders.
(C) Tenant at its own expense will obtain and keep in force
throughout the term of this Lease all certificates of use and occupancy,
business licenses and other permits required for its use and occupancy of the
demised premises and for the conduct of its business therein.
(D) Tenant will not store or place or permit any flammable, explosive
or other hazardous or extra-hazardous materials in, upon or about the demised
premises. Tenant further agrees that it will not place or install in, below, on
or above the premises nor permit to enter the premises from any adjoining
property any materials or equipment containing asbestos, urea formaldehyde
insulation, polychlorinated biphenyls ("PCBs"), or other toxic or hazardous
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<PAGE>
substances or materials which are at any time deemed under any laws or
governmental regulations or Insurance Requirements or otherwise to be hazardous
to human health (collectively, "Hazardous Materials"), nor install any storage
tanks for fuel oil or other toxic substances on, above or below ground; and
Tenant will not permit any other parties to do so. Tenant hereby indemnifies,
defends and holds harmless Landlord from and against any and all litigation,
prosecutions, fines, penalties, liens, judgments, death and injuries to persons,
damage to property, costs of clean up and removal of contaminated soil and
materials, and claims of any nature, arising from or caused by any breach or
default of Tenant under this paragraph.
(E) Nothing contained in this Lease shall be deemed an authorization
or request by Landlord for Tenant to act as Landlord's agent to incur any
expenses or contract for, order or arrange for any work which might give rise to
any mechanic's or material men's liens against the demised premises, the Land
and/or the Buildings (collectively, "Liens"). Tenant at its own expense will
indemnify, defend and hold Landlord harmless from and remove of record within
ten (10) days after filing thereof any and all Liens against the demised
premises, the Land and/or the building resulting from any work, labor or
materials requested by or furnished to Tenant or any Tenant Parties.
(F) All powers of consent and approval conferred on Landlord under
this Lease and any exercise thereof and conditions imposed by Landlord if it
grants such approval are included and exercised solely for Landlord's benefit
and protection, and shall not constitute a representation or warranty (express
or implied) from Landlord or its representatives as to the legality, technical
sufficiency, adequacy, accuracy, compliance with life/health/safety requirements
of laws, or any other matters.
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<PAGE>
TWENTY-NINTH: Operating Procedures.
--------------------
Tenant covenants and agrees to comply with the following requirements
throughout the term hereof:
(A) Garbage and trash shall not be permitted to accumulate in or
about or outside the Premises, but instead shall be disposed of at Tenant's sole
cost and expense. Proper and adequate receptacles for collection of garbage and
trash shall be maintained by Tenant so that offensive odors shall not be
permitted to exude or escape from the premises at any time. Such garbage and
trash shall be placed in covered, odor-free receptacles at a location inside or
outside the premises as directed by Landlord.
(B) Tenant will not place or maintain any merchandise or other
articles in any entry of the premises, on the sidewalks adjacent thereto or
elsewhere on the exterior thereof, or in any stairways or public corridors or in
any entryways, exit areas or vestibules of the Buildings.
(C) Upon expiration or termination of this Lease, Tenant will return
to Landlord all keys to the demised premises, and all keys to the building in
its possession.
(D) Tenant shall conduct its business at the Premises in a first-
class and tasteful manner. Tenant agrees to require its clients, staff,
employees and invitees while is or visiting the Premises to, at all times,
conduct themselves in a manner consistent with that associated with a first-
class commercial building, and Tenant agrees to take any and all steps necessary
to prevent loitering and disorderly conduct of the Premises and adjacent areas.
(E) Nothing contained herein shall prevent the enforcement of any
claim Landlord may have against Tenant for anticipatory breach of the unexpired
term of this Lease. In the event of a breach or anticipatory breach by Tenant
of any of the covenants or provisions hereof, Landlord shall have the right of
injunction and the right to invoke any remedy allowed at
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<PAGE>
law or in equity, just as if re-entry, summary, proceedings and other remedies
were not provided for herein.
(F) Landlord hereby reserves to itself and its successors and
assigns the following rights (all of which are hereby consented to by Tenant):
(i) to change the street address and/or name of the Building, and (ii) to erect,
use and maintain pipes and conduits in and through the Premises provided such
construction shall (a) not interfere with the operation of Tenant's business,
(b) be done in a first-class manner, and (c) not adversely affect the esthetic
or structural integrity of the Premises. Landlord may exercise any or all of the
foregoing rights without being deemed to be guilty of an eviction, actual or
constructive, or a disturbance or interruption of Tenant in business, use or
occupancy, and with no rent abatement.
(G) Any installment of rent or any other payment required of Tenant
under this Lease which is not paid within five (5) days after the due date
thereof shall bear interest at the rate of fifteen percent (15%) per annum from
due date until paid in full; and Tenant agrees to pay said interest to Landlord
on demand (together with the amount so unpaid). This Lease is for commercial
and business purposes only, and in no event shall Tenant have any defense or
claim of usury, nor an right to offset against rents.
(H) Tenant acknowledges that neither Landlord nor any agent or
employee of Landlord has made any representations or promises with respect to
the Premises or the Building, and no rights, privileges, easements or license
are acquired by Tenant except as herein expressly set forth.
THIRTIETH: Submissions Non-Binding. Neither the submission of this Lease
-----------------------
or of any modified drafts hereof to Tenant unsigned by Landlord, nor any
negotiations, discussions or
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<PAGE>
communications of any kind between Landlord and Tenant and/or their attorneys or
agents, shall constitute a binding obligation or commitment of any kind or be
deemed to be a reservation of the premises for leasing to or use by Tenant. Any
binding obligation between Landlord and Tenant in respect of the premises shall
only be pursuant to written lease executed by Landlord and Tenant.
THIRTY-FIRST: Estoppel Certificates Mortgages.
-------------------------------
(A) Tenant agrees, at any time and from time to time during the term
of this Lease, upon not less than five (S) days prior written notice from
Landlord, to execute, acknowledge and deliver to Landlord a statement in writing
which shall contain substantially the following provisions: (i) a statement that
this Lease is unmodified and in full force and effect (or if there have been
modifications, that this Lease is in full force and effect as modified and
stating the modifications), (ii) a statement of the dates to which the rent and
any other charges hereunder have been paid by Tenant, (iii) a statement of
whether or not, to the best knowledge of Tenant, the Landlord or Tenant is in
default in the performance of any covenant, agreement or condition contained in
this Lease, and if so, specifying each such default of which Tenant has
knowledge, (iv) a statement of the address to which notices to Tenant should be
sent, (v) a statement that Tenant has accepted the Premises and the improvements
therein, (vi) a statement that Tenant will not attempt to terminate this Lease
by reason of Landlord's default or omission without giving written notice of
such default or omission to Landlord and its mortgagees of whom Tenant has
knowledge, (vii) whether or not Landlord holds any security deposit under this
Lease (and the amount thereof, if any) and (viii) such other statement or
statements as Landlord or any existing or prospective mortgagees of Landlord may
reasonably request. Any such statement delivered
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<PAGE>
pursuant hereto, may be relied upon by any mortgagees or purchasers of the
Building. Tenant agrees to make such reasonable changes or modifications to this
Lease as may be required by any mortgagee of the Landlord's interest in the
Premises, provided that such changes or modifications shall not increase the
amount of rent required hereunder, shorten the term of this Lease or change or
redefine the Premises.
(B) any of Landlord's mortgagees or any purchaser of the Building at
foreclosure, shall not (a) be bound by any prepayment of rent or additional rent
for more than thirty (30) days in advance of the due date of such rent or which
Tenant might have paid for more than the current month to any prior lessor
(including Landlord); (so that rent shall be payable after any deed of trust or
mortgage foreclosure in case of a requested attornment by the mortgagee, in
accordance with the terms of this Lease as if such prepayment of rent for more
than one month in advance had not been made), nor (b) be bound by any amendment
or modification to this Lease or by any waiver or forbearance on the part of any
prior lessor (including Landlord) made or given without the prior written
consent of Landlord's mortgagees; nor (c) be liable for any act or omission of
any prior lessor (including the Landlord); nor (d) be subject to any offsets or
defenses which Tenant might have against any prior lessor (including Landlord);
and furthermore, Landlord's mortgagees shall be discharged of any responsibility
hereunder to Tenant which may have arisen (by reason of the mortgagee becoming a
mortgagee in possession, a lessor or otherwise) after such mortgagee disposes of
its interest in the Building. Tenant hereby agrees not to look to Landlord's
mortgagees, as mortgagees, mortgagees in possession, or successor in title to
the building for accountability for any security deposit, except to the extent
such Purity deposit is actually received by such mortgagee.
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<PAGE>
THIRTY-SECOND: Security Deposit. Simultaneously with the execution of
this Lease, Tenant shall deposit with Landlord the sum of Seven Thousand Dollars
($7,000.00) as a security deposit. Such security deposit (which shall not bear
interest to Tenant) shall serve as partial security for the payment and
performance by Tenant of all of Tenant's obligations, covenants, conditions and
agreements under this Lease. Within thirty (30) days after the expiration of the
term hereof, Landlord shall (provided that Tenant is not in default under the
terms hereof) refund such security deposit to Tenant, less such portion thereof
as Landlord shall have applied to make good any default by Tenant with respect
to any of Tenants obligations, covenants, conditions or agreements under this
Lease. In the event of any default by Tenant under this Lease, Landlord shall
have the right, but shall not be obligated, to apply all or any portion of the
security deposit to cure such default, in which event Tenant shall within five
(5) days after request from Landlord, deposit with Landlord the amount necessary
to restore the security deposit to its original amount aforesaid at all times.
The use of said security deposit by Landlord, as aforesaid, shall not excuse
Tenant's liability for defaults hereunder nor limit Landlord's remedies. In the
event of the sale or transfer of Landlord's interest in the Buildings, Landlord
shall transfer the security deposit to such purchaser or transferee, in which
event Tenant shall look only to the new lessor for the return of the security
deposit, and Landlord shall thereupon be released from all liability to Tenant
for the return of such security deposit. Tenant agrees that it will not look to
any mortgagee, as mortgagee, mortgagee in possession, or successor in title to
the Buildings, for accountability for any security deposit or related sums held
by Landlord or its successor lessors hereunder, unless and only to the extent
such sums have actually been received by said mortgagee.
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IN WITNESS WHEREOF, the Landlord and Tenant have hereunto set their hands
and seals; all done as of the date first above written.
LANDLORD:
/s/ Sidney S. Zlotnick (SEAL)
__________________________________
Sidney S. Zlotnick
/s/ Renee Z. Kraft (SEAL)
__________________________________
Renee Z. Kraft
TENANT:
/s/ John Phillips (SEAL)
__________________________________
John Phillips
/s/ illegible
_______________________________
Witness
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<PAGE>
Exhibit 10.13
ARISTOTLE PUBLISHING, INC.
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment or grant of
options to purchase common stock by Aristotle Publishing, Inc. (the "Company"),
and the compensation now and hereafter paid to me, I hereby agree as follows:
<TABLE>
<CAPTION>
<S> <C>
1. NONDISCLOSURE. compensation of other employees of
the Company. Notwithstanding the
1.1 Recognition of Company's foregoing, it is understood that, at
Rights; Nondisclosure. At all all such times, I am free to use
times during my employment and information which is generally known
thereafter, I will hold in in the trade or industry, which is
strictest confidence and will not gained as result of a breach of
not disclose, use, lecture upon this Agreement, and my own, skill,
or publish any of the Company's knowledge, know-how and experience to
Proprietary Information whatever extent and in whichever way
(defined below), except as such I wish.
disclosure, use or publication
may be required in connection 1.3 Third Party Information. I
with my work for the Company, understand, in addition, that the
or unless an officer of the Company Company has received and in the
expressly authorizes such in future will receive from third
writing. 1 will obtain Company's parties confidential or proprietary
written approval before publishing information (" Third Party
or submitting for publication any Information")subject to a duty on the
material (written, oral, or Company's part to maintain the
otherwise) that relates to my work confidentiality of such information
at Company and/or incorporates any and to use it only for certain
Proprietary Information. I hereby limited purposes. During the term of
assign to the Company any rights I my employment and thereafter, I will
may have or acquire in such hold Third Party Information in the
Proprietary Information and strictest confidence and will not
recognize that all Proprietary disclose to anyone (other than
Information shall be the sole Company personnel who need to know
property of the Company and its such information in connection with
assigns. I have been informed and their work for the Company)or use,
acknowledge that the unauthorized except in connection with my work for
taking of the Company's trade the Company, Third Party Information
secrets could result in a civil unless expressly authorized by an
liability under California Civil officer of the Company in writing.
Code Section 3426, and that, if
willful, could result in an award 1.4 No Improper Use of Information
for double the amount of the of Prior Employers and Others. During my
Company's damages and employment by the Company I will not
attorneys'fees; and is a crime under improperly use or disclose any
California Penal Code Section confidential information or trade
444(c), punishable by imprisonment secrets, if any, of any former
for a time not exceeding one employer or any other person to whom
(1)year, or by a fine not exceeding I have an obligation of
five thousand dollars (%5,000), or confidentiality, and I will not bring
by both. * onto the premises of the Company any
unpublished documents or any property
1.2 Proprietary Information. The belonging to any former employer or
term "Proprietary Information" any other person to whom I have an
shall mean any and all obligation of confidentiality unless
confidential and/or proprietary consented to in writing by that
knowledge, data or information former employer or person. I will use
of the Company. By way of in the performance of my duties only
illustration but not information which is generally known
limitation, "Proprietary and used by persons with training and
Information" includes (a) trade experience comparable to my own,
secrets, inventions, mask which is common knowledge in the
works, ideas, processes, industry or otherwise legally in the
formulas, source and object public domain, or which is otherwise
codes, data, programs, other provided or developed by the Company.
works of authorship, know-how,
improvements, discoveries, 2. ASSIGNMENT OF INVENTIONS.
developments, designs and
techniques (hereinafter 2.1 Proprietary Rights. The term
collectively referred to as "Proprietary Rights" shall mean all
"Inventions"); and trade secret, patent,
(b)information regarding plans
for research, development, new
products, marketing and
selling, business plans,
budgets and unpublished
fmancial statements, licenses,
prices and costs, suppliers and
customers; and (c)information
regarding the skills and
- -----------------------------
*For California employees only.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
copyright, mask work and other 2.4 Nonassignable Inventions. This
intellectual property rights Agreement does not apply to an
throughout the world. Invention which qualifies fully as a
nonassignable Invention under Section
2.2 Prior Inventions. 2870 of the California Labor Code
Inventions, if any, patented or (hereinafter "Section 2870"): I have
unpatented, which I made prior reviewed the notification on Exhibit
to the commencement of my A (Limited Exclusion Notification)and
employment with the Company are agree that my signature acknowledges
excluded from the scope of this receipt of the notification.
Agreement. To preclude any
possible uncertainty, I have 2.5 Obligation to Keep Company
set forth on Exhibit B Informed. During the period of my
(Previous Inventions)attached employment and for six (6)months
hereto a complete list of all after termination of my employment
Inventions that I have, alone with the Company, I will promptly
or jointly with others, disclose to the Company fully and in
conceived, developed or reduced writing all Inventions authored,
to practice or caused to be conceived or reduced to practice by
conceived, developed or reduced me, either alone or jointly with
to practice prior to the others. In addition, I will promptly
commencement of my employment disclose to the Company all patent
with the Company, that I applications filed by me or
consider to be my property or on my behalf within a year after
the property of third parties termination of employment. At the
and that I wish to have time of each such disclosure, I will
excluded from the scope of this advise the Company in writing of any
Agreement (collectively Inventions that I believe fully
referred to as "Prior qualify for protection under Section
Inventions"). If disclosure of 2870*; and I will at that time provide
any such Prior Invention would to the Company in writing all
cause me to violate any prior evidence necessary to substantiate
confidentiality agreement, I that belief. The Company will keep in
understand that I am not to confidence and will not use for any
list such Prior Inventions in purpose or disclose to third parties
Exhibit B but am only to without my consent any confidential
disclose a cursory name for information disclosed in writing to
each such invention, a listing the Company pursuant to this Agreement
of the party(ies)to whom it relating to Inventions that qualify
belongs and the fact that full fully for protection under the
disclosure as to such provisions of Section 2870*. I will
inventions has not been made preserve the confidentiality of any
for that reason. A space is Invention that does not fully qualify
provided on Exhibit B for such for protection under Section 2870*.
purpose. If no such disclosure
is attached, I represent that
there are no Prior Inventions. 2.6 Government or Third Party. I
If, in the course of my also agree to assign all my right, title
employment with the Company, I and interest in and to any particular
incorporate a Prior Invention Company Invention to a third party,
into a Company product, process including without limitation the
or machine, the Company is United States, as directed by the
hereby granted and shall have Company.
nonexclusive, royalty-free,
irrevocable, perpetual, worldwide 2.7 Works for Hire. I acknowledge
license (with rights to sublicense that all original works of authorship
through multiple tiers of which are made by me (solely or
sublicensees)to make, have made, jointly with others)within the scope
modify, use and sell such Prior of my employment and which are
Invention. Notwithstanding the protectable by copyright are "works
foregoing, I agree that I will not made for hire," pursuant to United
incorporate, or permit to be States Copyright Act (17 U. S. C.,
incorporated, Prior Inventions in Section 101).
any Company Inventions without the
Company's prior written consent. 2.8 Enforcement of Proprietary
Rights. I will assist the Company in
2.3 Assignment of Inventions. every proper way to obtain, and from
Subject to Sections 2.4, and time to time enforce, United States and
2.6, I hereby assign and agree foreign Proprietary Rights relating
to assign in the future (when to Company Inventions in any and all
any such Inventions or countries. To that end I will
Proprietary Rights are first
reduced to practice or first ------------------------------
fixed in a tangible medium, as *For California employees only.
applicable)to the Company all
my right, title and interest in
and to any and all Inventions
(and all Proprietary Rights
with respect thereto)whether or
not patentable or registrable
under copyright or similar
statutes, made or conceived or
reduced to practice or learned
by me, either alone or jointly
with others, during the period
of my employment with the
Company. Inventions assigned to
the Company, or to a third
party as directed by the
Company pursuant to this
Section 2, are hereinafter
referred to as "Company
Inventions."
</TABLE>
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<PAGE>
execute, verify and deliver such documents and perform such other acts
(including appearances as a witness)as the Company may reasonably request for
use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing
such Proprietary Rights and the assignment thereof. In addition, I will execute,
verify and deliver assignments of such Proprietary Rights to the Company or its
designee. My obligation to assist the Company with respect to Proprietary Rights
relating to such Company Inventions in any and all countries shall continue
beyond the termination of my employment, but the Company shall compensate me at
a reasonable rate aher my termination for the time actually spent by me at the
Company's request on such assistance.
In the event the Company is unable for any reason, after reasonable
effort, to secure my signature on any document needed in connection with the
actions specified in the preceding paragraph, I hereby irrevocably designate and
appoint the Company and its duly authorized officers and agents as my agent and
attorney in fact, which appointment is coupled with an interest, to act for and
in my behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.
3. RECORDS. I agree to keep and maintain adequate and current records (in the
form of notes, sketches, drawings and in any other form that may be required by
the Company)of all Proprietary Information developed by me and all Inventions
made by me during the period of my employment at the Company, which records
shall be available to and remain the sole property of the Company at all times.
4. ADDITIONAL ACTIVITIES. I agree that during the period of my employment by the
Company I will not, without the Company's express written consent, engage in any
employment or business activity other than for the Company. I agree further that
for the period of my employment by the Company and for one (1)year after the
date of termination of my employment by the Company I will not solicit the
business of any client or customer of the Company (other than on behalf of the
Company).
5. No CONFLICTING OBLIGATION. I represent that my performance of all the terms
of this Agreement and as an employee of the Company does not and will not breach
any agreement to keep in confidence information acquired by me in confidence or
in trust prior to my employment by the Company. I have not entered into, and I
agree I will not enter into, any agreement either written or oral in conflict
herewith.
6. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I will
deliver to the Company any and all drawings, notes, memoranda, specifications,
devices, formulas, and documents, together with all copies thereof, and any
other material containing or disclosing any Company Inventions, Third Party
Information or Proprietary Information of the Company. I further agree that any
property situated on the Company's premises and owned by the Company, including
disks and other storage media, filing cabinets or other work areas, is subject
to inspection by Company personnel at any time with or without notice. Prior to
leaving, I will cooperate with the Company in completing and signing the
Company's termination statement.
7. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique
and because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement.
8. NOTICES. Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as the
party shall specify in writing. Such notice shall be deemed given upon personal
delivery to the appropriate address or if sent by certified or registered mail,
three (3)days after the date of mailing.
9. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby consent to the notification of my new employer of my rights
and obligations under this Agreement.
10. GENERAL PROVISIONS.
10.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will
be governed by and construed according to the laws of the State of Delaware, as
such laws are applied to agreements entered into and to be performed entirely
within Delaware between Delaware residents. I hereby expressly consent to the
personal jurisdiction of the state and federal courts located in the State of
Delaware
-3-
<PAGE>
for any lawsuit filed there against me by Company arising from or related to
this Agreement.
10.2 Severability. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, it shall be construed
by limiting and reducing it, so as to be enforceable to the extent compatible
with the applicable law as it shall then appear.
10.3 Successors and Assigns. This Agreement will be binding upon my heirs,
executors, administrators and other legal representatives and will be for the
benefit of the Company, its successors, and its assigns.
10.4 Survival. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.
10.5 Employment. I agree and understand that nothing in this Agreement
shall confer any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with my right or the Company's right
to terminate my employment at any time, with or without cause.
10.6 Waiver. No waiver by the Company of any breach of this Agreement shall
be a waiver of any preceding or succeeding breach. No waiver by the Company of
any right under this Agreement shall be construed as a waiver of any other
right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
10.7 Dispute Resolution Procedure. I agree that any dispute arising out of
or related to the employment relationship between me and the Company, including
the termination of that relationship, and any allegations of unfair or
discriminatory treatment arising under state or federal law or otherwise, shall
be resolved in accordance with the dispute resolution procedures set forth in my
letter of offer of employment from the Company dated ________________ (the
"Offer Letter").
If there is no Offer Letter or if the Offer Letter does not include a
dispute resolution procedure, then I agree that all such disputes shall be
resolved by final and binding arbitration in accordance with the following
procedures: The parties shall first submit any dispute to non-binding mediation
before a mediator to be jointly selected by the parties. The Company will pay
the cost of any mediation. If the mediation does not resolve the dispute, the
parties agree that the dispute shall be resolved by final and binding
arbitration, pursuant to the Employment Dispute Resolution Rules of the American
Arbitration Association. Each party shall be responsible for paying its own
legal fees. If I prevail, the Company will pay the costs of the arbitration. If
the Company prevails, I will pay half of the costs of the arbitration or $500,
whichever is less.
Subject to the following paragraph, arbitration shall be the exclusive
final remedy for any dispute between the parties, including but not limited to
disputes involving claims for discrimination or harassment (such as claims under
the Fair Employment and Housing Act, Title VII of the Civil Rights Act of 1964,
the Americans with Disabilities Act, or the Age Discrimination in Employment
Act), wrongful termination, breach of contract, breach of public policy,
physical or mental harm or distress, except that either side may appeal the
arbitrator's decision regarding or relating to matters involving the Company's
Proprietary Information to a court of competent jurisdiction in or servicing the
State of Delaware.
Nothing herein shall limit the right of the Company to obtain injunctive
relief for violation of the portions of this Agreement dealing with protection
of the Company's Proprietary Information, in order to preserve the status quo or
prevent irreparable harm pending arbitration and, if applicable, appeal. In
addition, either party may bring an action in a court of competent jurisdiction
located in or serving the State of Delaware regarding or relating to matters
involving the Company's Proprietary Information.
10.8 Entire Agreement. The obligations pursuant to Sections 1 and 2 of this
Agreement shall apply to any time during which I was previously employed, or am
in the future employed, by the Company as a consultant if no other agreement
governs nondisclosure and assignment of inventions during such period. This
Agreement is the final, complete and exclusive agreement of the parties with
respect to the subject matter hereof and supersedes and merges all prior
discussions between us. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, will be effective unless in
writing and signed by the party to be charged. Any
-4-
<PAGE>
subsequent change or changes in my duties, salary or compensation will not
affect the validity or scope of this Agreement.
This Agreement shall be effective as of the first day of my employment with the
Company, namely: __________________, 1999.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. 1 HAVE
COMPLETELY FILLED OUT EXHIBIT B TO THIS AGREEMENT .
Dated: ____________________
_______________________________________
(Signature)
_______________________________________
(Printed Name)
ACCEPTED AND AGREED TO:
Aristotle Publishing, Inc.
By: ___________________________________
Title: _______________________________
_______________________________________
(Address)
_______________________________________
Dated: ________________
-5-
<PAGE>
EXHIBIT A
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code* that the foregoing Agreement between you and the Company does not
require you to assign or offer to assign to the Company any invention that you
developed entirely on your own time without using the Company's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
1. Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company;
2. Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by
a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By: ________________________________________
(PRINTED NAME OF EMPLOYEE )
Date: ______________________________________
WITNESSED BY:
_______________________________________
(PRINTED NAME OF REPRESENTATIVE )
Exhibit A
<PAGE>
EXHIBIT B
TO: Aristotle Publishing, Inc.
FROM: ___________________________
DATE: ___________________________
SURJECT: Previous Inventions
1. Except as listed in Section 2 below, the following is a complete list of
all inventions or improvements relevant to the subject matter of my employment
by Aristotle Publishing, Inc. (the "Company")that have been made or conceived or
first reduced to practice by me alone or jointly with others prior to my
engagement by the Company:
[_] No inventions or improvements.
[_] See below:
[_] Additional sheets attached.
2. Due to a prior confidentiality agreement, I cannot complete the
disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality
with respect to which I owe to the following party(ies):
Invention or Improvement Party(ies) Relationship
1. _________________________ ______________ _________________________
2. _________________________ ______________ _________________________
3. _________________________ ______________ _________________________
[_] Additional sheets attached.
Exhibit B
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Aristotle International, Inc.
The audits referred to in our report dated May 15, 2000, included the related
financial statement schedule for the year ended December 31, 1999, included in
the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audit. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We consent to the use of our report included herein and to the references to
our Firm under the headings "Selected Financial Data" and "Experts" in this
prospectus.
/s/ KPMG LLP
McLean, Virginia
May 15, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Aristotle International, Inc.
The audits referred to in our report dated October 29, 1999, included the
related financial statement schedule for the years ended December 31, 1997 and
1998, included in the registration statement. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the references to
our Firm under the headings "Selected Financial Data" and "Experts" in this
prospectus.
/s/ Keller Bruner & Company, LLP
Bethesda, Maryland
May 15, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,404,956
<SECURITIES> 0
<RECEIVABLES> 1,086,962
<ALLOWANCES> (74,830)
<INVENTORY> 0
<CURRENT-ASSETS> 3,602,648
<PP&E> 344,800
<DEPRECIATION> (168,879)
<TOTAL-ASSETS> 3,801,617
<CURRENT-LIABILITIES> 1,000,717
<BONDS> 0
0
3,500,000
<COMMON> 3,000
<OTHER-SE> (2,019,033)
<TOTAL-LIABILITY-AND-EQUITY> 3,801,617
<SALES> 3,912,563
<TOTAL-REVENUES> 3,912,563
<CGS> 1,250,064
<TOTAL-COSTS> 1,250,064
<OTHER-EXPENSES> 4,685,184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,263
<INCOME-PRETAX> 1,914,571
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,914,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,914,571)
<EPS-BASIC> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
