We have never declared or paid any cash dividends on our capital stock and
currently intend to retain all available earnings generated by our operations
for the development and growth of our business. Accordingly, we do not currently
anticipate paying any cash dividends in the foreseeable future.
13
CAPITALIZATION
The following table describes our capitalization as of December 31, 1999:
- On an actual basis;
- On a pro forma basis to reflect the conversion of all outstanding shares
of our convertible preferred stock into 11,300,570 shares of common stock
immediately prior to completion of this offering; and
- On a pro forma as adjusted basis to reflect the sale of
shares of common stock offered by us at an assumed initial public
offering price of $ per share, after deducting underwriting discounts
and commissions and estimated offering expenses payable by us.
You should read this table together with "Use of Proceeds," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the related notes included elsewhere in this prospectus.
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
Cash and cash equivalents................................... $ 16,404 $ 16,404 $
======== ======== ========
Capitalized lease obligations, excluding current
installments.............................................. $ 467 $ 467 $
-------- -------- --------
Stockholders' equity:
Series A convertible preferred stock, $.01 par value,
2,220,000 shares authorized, 1,649,634 shares
outstanding, actual; no shares outstanding, pro forma
and pro forma as adjusted.............................. 16 --
Series B convertible preferred stock, $.01 par value,
7,823,740 shares authorized, 6,144,270 shares
outstanding, actual; no shares outstanding, pro forma
and pro forma as adjusted.............................. 61 --
Series C convertible preferred stock, $.01 par value,
3,777,778 shares authorized, 3,506,666 shares
outstanding, actual; no shares outstanding, pro forma
and pro forma as adjusted.............................. 35 --
Undesignated preferred stock, $.01 par value, 6,178,482
shares authorized, no shares outstanding, actual, pro
forma and pro forma as adjusted........................ -- --
Common stock, $.01 par value, 100,000,000 shares
authorized, 21,542,806 shares issued (including
treasury shares) and outstanding, actual; 32,843,376
shares outstanding, pro forma; shares
outstanding, pro forma as adjusted..................... 216 328
Additional paid-in capital................................ 39,418 39,418
Treasury stock -- common shares at cost, 143,592 shares... (239) (239)
Stock subscriptions receivable............................ (1,327) (1,327)
Accumulated other comprehensive loss...................... (9) (9)
Accumulated deficit....................................... (22,196) (22,196)
-------- -------- --------
Total stockholders' equity................................ 15,975 15,975
-------- -------- --------
Total capitalization................................... $ 16,442 $ 16,442 $
======== ======== ========
Share numbers in the table exclude:
- 11,139,212 shares of common stock issuable upon the exercise of stock
options outstanding as of December 31, 1999, at a weighted average
exercise price of $3.36 per share; and
- 5,757,798 shares of common stock issuable upon the exercise of warrants
outstanding as of December 31, 1999, of which 4,743,824 are exercisable
at the initial public offering price and the balance of which have a
weighted average exercise price of $1.14 per share.
14
DILUTION
If you invest in our common stock, your ownership interest will be diluted
by the difference between the initial public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock immediately after this offering. Our pro forma net tangible
book value as of December 31, 1999 was approximately $13.9 million, or $0.42 per
share. Pro forma net tangible book value per share represents the amount of our
total tangible assets less the amount of our total liabilities, divided by the
number of shares of common stock outstanding after giving pro forma effect to
the conversion of all outstanding shares of our convertible preferred stock into
11,300,570 shares of common stock immediately prior to completion of this
offering. Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by investors in this offering and
the pro forma net tangible book value per share of our common stock immediately
after the completion of this offering. After giving effect to our sale of
shares of common stock offered by us at an assumed initial public
offering price of $ per share, and after deducting underwriting discounts
and commissions and estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value at December 31, 1999 would have been
$ , or $ per share. This represents an immediate increase in pro
forma 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:
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $ 0.42
Increase per share attributable to new investors..........
-------
Pro forma as adjusted net tangible book value per share
after this offering....................................
-------
Dilution per share to new investors....................... $
=======
The following table sets forth, on a pro forma as adjusted basis as of
December 31, 1999, the differences between existing stockholders and new
investors with respect to the total number of shares purchased from us, the
total consideration paid to us and the average price per share paid to us before
deducting underwriting discounts and commissions and estimated offering
expenses:
SHARES PURCHASED TOTAL CONSIDERATION
------------------ --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- ---------- ------- -------------
Existing stockholders......... % $ % $
New investors.................
------- ----- ---------- -----
Total....................... 100.0% $ 100.0%
======= ===== ========== =====
The foregoing table assumes no exercise of options or warrants outstanding
as of December 31, 1999. As of December 31, 1999, there were 11,139,212 shares
of common stock issuable upon the exercise of stock options at a weighted
average exercise price of $3.36 and 5,757,798 shares of common stock issuable
upon the exercise of outstanding warrants, of which 4,743,824 are exercisable at
the initial public offering price and the balance of which have a weighted
average exercise price of $1.14 per share.
15
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data and selected pro forma
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and related notes included elsewhere in this prospectus. The 1999 pro
forma consolidated statement of operations data gives effect to the acquisitions
of ActionWare and EMT in November 1999 as if these acquisitions had been
completed on January 1, 1999. Each acquisition was accounted for under the
purchase method of accounting. The consolidated financial statements as of and
for the year ended December 31, 1999 have been audited by KPMG LLP, independent
certified public accountants. The consolidated financial statements as of
December 31, 1998, and for the two year period then ended, have been audited by
PricewaterhouseCoopers LLP, independent accountants. The consolidated financial
statements as of December 31, 1999 and 1998, 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.
FROM
SEPTEMBER 1,
1995 (INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------
1995 1996 1997 1998 1999 PRO FORMA
---------------- ------- ------- ------- -------- 1999(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
HISTORICAL CONSOLIDATED
STATEMENTS OF OPERATIONS DATA:
Revenues:
Franchise...................... $ -- $ 452 $ -- $ 260 $ 4,669 $ 4,669
Product and related services... 40 339 221 350 1,793 4,744
------ ------- ------- ------- -------- --------
Total revenues.......... 40 791 221 610 6,462 9,413
Cost of revenues............... 44 150 82 560 1,200 1,694
------ ------- ------- ------- -------- --------
Gross profit (loss).............. (4) 641 139 50 5,262 7,719
------ ------- ------- ------- -------- --------
Operating expenses:
Research and development....... 90 999 890 993 3,146 4,452
Sales and marketing............ -- 449 629 2,156 9,915 10,438
General and administrative..... 104 202 283 2,119 4,449 5,584
In-process research and
development.................. -- -- -- -- 1,304 --
------ ------- ------- ------- -------- --------
Total operating
expenses.............. 194 1,650 1,802 5,268 18,814 20,474
------ ------- ------- ------- -------- --------
Operating loss................... (198) (1,009) (1,663) (5,218) (13,552) (12,755)
Interest expense, net............ -- 46 222 149 87 138
------ ------- ------- ------- -------- --------
Net loss before income taxes..... (198) (1,055) (1,885) (5,367) (13,639) (12,893)
Provision for income taxes....... -- -- -- -- 4 4
------ ------- ------- ------- -------- --------
Net loss......................... (198) (1,055) (1,885) (5,367) (13,643) (12,897)
Preferred stock dividend......... -- -- 49 -- -- --
------ ------- ------- ------- -------- --------
Net loss applicable to common
stockholders................... $ (198) $(1,055) $(1,934) $(5,367) $(13,643) (12,897)
====== ======= ======= ======= ======== ========
Basic and diluted net loss per
share.......................... $(0.03) $ (0.18) $ (0.23) $ (0.33) $ (0.73) (0.68)
====== ======= ======= ======= ======== ========
Shares used to compute basic and
diluted net loss per share..... 6,000 6,000 8,342 16,072 18,570 19,082
====== ======= ======= ======= ======== ========
Pro forma basic and diluted net
loss per share
(unaudited)(1)................. $ (0.46)
========
Shares used to compute pro forma
basic and diluted net loss per
share (unaudited)(1)........... 29,870
========
(1) The pro forma basic and diluted net loss per share (unaudited) reflects the
conversion of all outstanding shares of our convertible preferred stock into
11,301 shares of common stock as if the shares had been issued and converted
at the beginning of 1999. See Note 1 to our consolidated financial
statements.
(2) Includes adjustments directly attributable to the acquisitions, including
the amortization of goodwill and other intangibles of $453 attributable to
the acquisitions, amortized on a straight line basis over three to five-year
periods, and the reversal of the in-process research and development charge
recorded in connection with the acquisition of ActionWare.
16
AS OF DECEMBER 31,
---------------------------------------------
1995 1996 1997 1998 1999
---- ----- ------ ------- -------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 40 $ 43 $ 14 $ 1,594 $16,404
Working capital (deficit)............................... 351 (845) (913) (1,303) 11,834
Total assets............................................ 502 648 1,618 2,685 27,319
Notes payable to stockholder, less current
installments.......................................... -- -- 60 30 --
Capitalized lease obligations, excluding current
installments.......................................... -- 65 53 89 467
Convertible preferred stock............................. -- -- 1 38 112
Total stockholders' equity (deficit).................... 430 (722) 304 (728) 15,975
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations in conjunction with our consolidated financial statements
and related notes appearing elsewhere in this prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of factors including those discussed in
"Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We are a leading applications service provider, or ASP, offering
proprietary Web-based software applications that enable small and mid-sized
businesses to cost-effectively take their operations online and automate their
business processes. Our ZLand.com product line of software applications together
with related services provide e-business solutions for our customers. We offer
our software applications to our customers on a rental basis and deliver our
products and services through a franchise network.
We were organized in September 1995. From September 1995 to the end of
1998, our efforts were principally devoted to the development of our franchise
distribution model and our ZLand.com product line. We also sold custom Web site
development services during this period. We commenced sales of our current
ZLand.com product line in April 1998. During 1999, we significantly expanded our
corporate infrastructure, our ZLand.com product line and our U.S. franchise
network, and initiated operations in Australia, Canada, Egypt, Germany and the
United Kingdom. In November 1999, we launched our first brand building campaign
through print advertising in major publications.
Recent Acquisitions
In November 1999, we acquired all of the outstanding stock of Appintec
Corp., dba ActionWare, or ActionWare, a California corporation, for 475,000
shares of our common stock valued at $4.50 per share and $320,000 in cash. The
aggregate purchase price was $2.5 million. ActionWare develops and markets
customer relationship management software and provides related maintenance and
programming services. The acquisition has been accounted for using the purchase
method of accounting and, accordingly, the results of operations of ActionWare
have been included in our consolidated financial statements since the date of
the acquisition.
In November 1999, we also acquired all of the outstanding stock of Emerging
Market Technologies, Inc., or EMT, a Delaware corporation, for 85,000 shares of
our common stock valued at $4.50 per share and $180,000 in cash. The aggregate
purchase price was $563,000. EMT markets and sells software and provides
consulting services. The acquisition has been accounted for using the purchase
method of accounting and, accordingly, the results of operations of EMT have
been included in our consolidated financial statements since the date of
acquisition.
In January 2000, we acquired substantially all of the assets of Central
Technologies, Inc., a California corporation, for 322,222 shares of our common
stock valued at $4.50 per share. The aggregate purchase price was $1.4 million
net of cash acquired. Central Technologies provides products and services to
serve the needs of accountants, including financial management and reporting
software applications for small to mid-sized businesses. The acquisition will be
accounted for using the purchase method of accounting.
Revenues
Our revenues consist of franchise fees and fees for product rental and
related services. In 1999, a substantial portion of our revenues consisted of
franchise fees generated as a result of the rapid expansion of our franchise
network during that period. We expect that our product and related services
revenues will constitute an increasing percentage of our total revenues in the
future as these franchises expand operations.
18
Franchise revenues are derived from the sale of territory licenses under
our franchise agreements. All franchises are granted for a seven year period,
and are renewable for an additional seven years at the election of the
franchisee and upon payment of a renewal fee. Generally, we receive the
franchise fee at the time the franchise agreement is executed. In 1999, we
granted payment terms of up to 12 months to several franchisees who purchased
large multi-territory franchises.
We recognize franchise revenues in three stages based upon the value of the
services we provide to the franchisees during each stage. We recognize
approximately 50% of the franchise fee upon completion of the franchisee's
initial franchisee training, which represents the point at which a franchisee is
able to commence operations and the franchise fee becomes nonrefundable. We
recognize approximately 25% of the franchise fee, representing our estimate of
the value of the additional training and assistance required to be provided to
the franchisee in the initial year of operations, ratably over the first year of
the franchise agreement. We recognize approximately 25% of the franchise fee,
representing our estimate of the value provided by us to the franchisee over the
term of the franchise agreement, ratably over its seven-year term. In those
instances in which we granted payment terms, we recognize the unpaid fee in
accordance with the above policy only when we believe that collection is
probable. Our franchise revenue recognition policy is in accordance with
Statement of Financial Accounting Standards (SFAS) No. 45, "Accounting for
Franchise Fee Revenue," and the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 (SAB 101).
Our product and related services revenues is composed of an upfront design
and development fee, a monthly rental fee and fees for related services. We
recognize the upfront design and development fees when design and development is
complete and the product is available for customer use. We recognize product and
related services revenues from sales of our proprietary software and related
services sold through our franchises and company-owned sales offices. We
recognize product rental and related services revenues ratably over the one year
service period. Our product and related services revenue policies follow the
guidance of American Institute of Certified Public Accountants Statements of
Position 97-2 and 98-9, "Software Revenue Recognition."
Historically, our franchisees acted as the principal contracting parties
with, and we supplied the product to, our customers. Although we billed the
customer and collected the revenues, franchisees bore collection risk. We
remitted 60% of the fees to the franchisees and retained the balance. As a
result, through 1999, we recognized revenues on a net basis, representing 40% of
the total transaction value. Beginning in 2000, our contracts provide that we
are the principal contracting party with our customers and we establish pricing
and bear the risk of loss.
Costs and Expenses
Cost of revenues consists primarily of network operating center costs,
personnel expenses related to services provided to customers and those
franchisees with which we have operating assistance agreements, and costs of
franchisee training. In 1997, we capitalized software development costs related
to products that had reached technological feasibility. These costs were
amortized to cost of revenues over the two years ended December 31, 1999.
Research and development expenses consist primarily of compensation and
related costs for research and development personnel, including independent
contractors and consultants, and operating expenses for facilities and equipment
relating to research and development functions.
Sales and marketing expenses consist of personnel and related costs
primarily for our direct sales force and marketing staff, commissions on sales
of our franchises and marketing programs, including trade shows, advertisements,
promotional activities and media events.
General and administrative expenses consist primarily of personnel and
related costs for corporate functions, including finance, accounting, legal,
human resources, facilities, fees for professional services, and amortization of
goodwill and other intangibles.
19
Years Ended December 31, 1997, 1998 and 1999
Revenues
Revenues increased from $221,000 in 1997 to $610,000 in 1998 and $6.5
million in 1999. Our 1997 revenues consisted mainly of sales of custom Web site
development services. Revenues in 1998 included $350,000 in product and related
services revenues and $260,000 of franchise fee revenues. Product and related
services revenues increased to $1.8 million in 1999, following the release of
version 2.0 of our ZLand.com product line in October of that year. Franchise fee
revenues increased to $4.7 million in 1999 due to substantial expansion of our
U.S. and international franchise network.
Three franchisees represented approximately 41% of our total revenues in
1999. We recognized approximately $615,000 of franchise fee revenues from the
licensing of a franchise with Dorado Resources Corp., of which approximately
$465,000 is payable in 2000. We believe that collection of the unpaid portion of
the fee is probable. We recognized approximately $2.1 million of franchise fee
revenues from the licensing of franchises with two different eGlobal
partnerships, all of which was paid during 1999.
Cost of Revenues
Cost of revenues totaled $82,000 in 1997, $560,000 in 1998 and $1.2 million
in 1999. Cost of revenues in each of 1998 and 1999 included $441,000 of
amortization of software development costs that were capitalized in 1997.
Excluding the $441,000 amortization charge in 1998, cost of revenues increased
$37,000 from 1997 to 1998. The increase of $640,000 from 1998 to 1999 resulted
primarily from increased franchisee training and cost of higher product and
related services revenues.
Research and Development
Research and development expenses increased from $890,000 in 1997 to
$993,000 in 1998 and $3.1 million in 1999. The increase during 1999 was
primarily related to the addition of software engineers and development activity
associated with version 2.0 of the ZLand.com product line released in October
1999. We believe that investments in research and development are essential to
our future success and expect that research and development expenses will
increase in future periods.
Sales and Marketing
Sales and marketing expenses increased from $629,000 in 1997 to $2.2
million in 1998 and $9.9 million in 1999. The increase in 1998 was primarily
attributable to costs associated with the opening of our first company-owned
sales office and the introduction of the ZLand.com product line. The increase in
1999 was related to the addition of sales and marketing employees during the
year to support our rapidly expanding franchise distribution model, the costs
associated with the launch of our brand building campaign, which commenced in
November 1999, and $1.2 million in commissions payable in connection with the
licensing of franchises. We expect that our sales and marketing expenses will
continue to increase due to the planned growth of our sales force, expansion of
our franchise network, and the establishment of company-owned sales offices in
U.S. and international locations. We also expect increases in marketing programs
and other promotional activities.
General and Administrative
General and administrative expenses increased from $283,000 in 1997 to $2.1
million in 1998 and $4.4 million in 1999. The increases are primarily
attributable to increases in personnel to support the internal growth in our
operations, expansion of our facilities and other increased infrastructure costs
as we have concentrated on building our management team and establishing our
administrative infrastructure. We expect general and administrative expenses to
increase as we add personnel and incur additional costs related to the
anticipated growth of our operations, our continuing expansion into
international markets and our operation as a public company.
20
In-Process Research and Development
In connection with our acquisition of ActionWare in 1999, we incurred a
charge for in-process research and development of $1.3 million in 1999, which
represents the portion of the purchase price for ActionWare that was allocated
to technology-in-process for which there is no alternative future use. This
amount was written off to operations at the time of acquisition.
ActionWare had, at the time of acquisition, one major in-process research
and development project that was approximately 20% complete. We acquired
ActionWare to obtain completed technology as well as to complete the development
effort on this in-process project, as we believed the project in process had
economic value but had not yet reached technological feasibility and had no
alternative future uses. We are continuing development efforts and estimate that
the cost to complete development will be approximately $5 million. We expect the
first new products to be developed by ActionWare to be available for marketing
within one year.
Interest Expense, Net
Interest expense, net was $222,000 in 1997, $149,000 in 1998 and $87,000 in
1999. Interest expense relates primarily to capitalized lease obligations and
other short-term borrowings. The decrease in interest expense in 1998 and 1999
is attributable to repayments of our short-term borrowings with the proceeds of
equity financings.
QUARTERLY OPERATING RESULTS
The following table presents our historical unaudited consolidated
quarterly results of operations data for our most recent four quarters ended
December 31, 1999. This data is unaudited and derived from our audited annual
consolidated financial statements and notes included elsewhere in this
prospectus. In the opinion of management, this quarterly financial information
has been prepared on the same basis as our annual financial statements and
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial results included in the table below.
This statement of operations data should be read in conjunction with the
consolidated financial statements and related notes included in this prospectus.
Our results of operations have fluctuated and are likely to continue to
fluctuate in the future. Results of operations for any previous periods are not
necessarily comparable to future periods.
THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
------------ --------- ------------- -------------
(IN THOUSANDS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Franchise............................... $ 592 $ 976 $ 1,131 $ 1,970
Product and related services............ 178 204 394 1,017
------- ------- ------- -------
Total revenues.................. 770 1,180 1,525 2,987
Cost of revenues.......................... 175 279 311 435
------- ------- ------- -------
Gross profit.............................. 595 901 1,214 2,552
------- ------- ------- -------
Operating expenses:
Research and development................ 324 510 840 1,472
Sales and marketing..................... 738 1,077 3,458 4,642
General and administrative.............. 655 513 1,275 2,006
In-process research and development..... -- -- -- 1,304
------- ------- ------- -------
Total operating expenses........ 1,717 2,100 5,573 9,424
------- ------- ------- -------
Operating loss............................ $(1,122) $(1,199) $(4,359) $(6,872)
======= ======= ======= =======
21
Our revenues have increased in each period presented. These increases have
been due to the implementation and expansion of our franchise model, yielding
increasing franchise fees, and subsequent product and related services revenues
as our customer base has grown. Total cost of revenues has increased more slowly
than revenues, resulting in gross profit margin expansion due to the
efficiencies involved with selling a growing number of franchises. Total
operating expenses have increased in absolute dollars in each period presented
as we have expanded our infrastructure to support our growing operations.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date primarily through the sale of equity
securities. Through December 31, 1999, we raised approximately $45 million
through equity financings. At December 31, 1999, we had $16.4 million in cash
and cash equivalents.
Cash used in operating activities totaled $686,000 in 1997, $3.7 million in
1998, and $8.6 million in 1999. The increase in 1998 was primarily due to net
losses in the period. The increase in 1999 was primarily due to net losses in
the period and increases in accounts receivable and prepaid expenses and other
current assets, partially offset by increases in deferred revenues and accrued
expenses, as well as in-process research and development and equity instruments
issued for services.
Cash used in investing activities totaled $973,000 in 1997, $87,000 in
1998, and $2.4 million in 1999. The decrease from 1997 to 1998 was primarily due
to capitalization of software development costs in 1997. The increase in 1999
was primarily due to the purchase of property and equipment.
Cash provided by financing activities totaled $1.6 million in 1997, $5.4
million in 1998 and $25.8 million in 1999. The increases in each period resulted
primarily from the net proceeds from issuances of common and convertible
preferred stock and borrowings on our leasing credit lines.
We have credit agreements with three leasing companies that provide lines
of credit for capital equipment purchases. The aggregate amount available under
these facilities at December 31, 1999 was $1.2 million, and the aggregate amount
outstanding was $725,000. The interest rates on these lines of credit at
December 31, 1999 ranged from 8.99% to 11.75%. Expenditures for property and
equipment, including those subsequently financed under capitalized lease
obligations, are primarily for purchases of computer hardware and software used
in our operations, including expenditures for management information systems,
telecommunications systems and hosting of customer applications.
We used cash for capital expenditures of $67,000 in 1997, $87,000 in 1998,
and $1.6 million in 1999. Historically, capital expenditures have been used to
make leasehold improvements to our leased office space and to purchase computer
hardware and software, telecommunications equipment, and furniture and fixtures
to support our growth. We expect our capital expenditures to continue to
increase significantly and anticipate spending approximately $8 million in 2000
as we expand our operations in the United States and abroad. We do not at
present have any material commitments for capital expenditures.
We believe that the net proceeds from this offering, combined with current
cash balances and borrowings under our leasing lines of credit, will be
sufficient to fund our requirements for working capital and capital expenditures
for at least the next 12 months. Thereafter, we may sell additional equity or
debt securities or seek additional credit lines. We may need to raise additional
funds sooner in order to support more rapid expansion, develop new or enhanced
services and products, respond to competitive pressures, acquire complementary
businesses or technologies or take advantage of unanticipated opportunities. Our
future liquidity and capital requirements will depend upon numerous factors,
including the success of our existing and new service offerings and competing
technological and market developments.
YEAR 2000 READINESS
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems that accepted only two digit entries needed to be upgraded in
order to accept dates beginning January 1, 2000. To date, we have not
experienced any date related problems with our software. In addition, we have
not been made aware of,
22
nor have we experienced, date related problems with any third-party software. We
have tested our software and our internal systems for potential problems
relating to the leap year that occurred in 2000 and have not experienced any
date related problems resulting from leap year dates. In addition, we do not
believe that we will incur material costs in the future because of date related
problems.
FOREIGN CURRENCY EXCHANGE RATE RISK
To date, substantially all of our recognized revenues have been denominated
in U.S. dollars and our exposure to foreign currency exchange rate changes has
been immaterial. We expect, however, that a significant portion of future
product and related services revenues and franchise revenues will be derived
from our international operations and will be denominated in foreign currencies.
As a result, our future operating results may be subject to significant
fluctuations based upon changes in the exchange rates of certain currencies in
relation to the U.S. dollar.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 is effective for all fiscal quarters or fiscal years beginning after June
15, 1999. In August 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133. This statement defers the effective date of SFAS No.
133 to all fiscal quarters or fiscal years which begin after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments embedded in other contracts and for hedging activities. Application
of this standard is not expected to have a material impact on our consolidated
financial position or results of operations.
23
BUSINESS
OVERVIEW
We are a leading applications service provider, or ASP, offering
proprietary Web-based software applications and related services that enable
small and mid-sized businesses to cost-effectively take their operations online
and automate their business processes. Our ZLand.com e-business solutions
optimize business functions throughout the enterprise, such as e-commerce, sales
force automation, supply-chain management, customer support, human resources and
financial management. Our software applications are fully scalable, platform
independent and are hosted in secure, third party data centers. Our applications
are deployed rapidly through the Internet to our customers on a rental basis and
are integrated easily with their business processes and existing information
technology systems.
We offer our ZLand.com product line to our customers on a rental basis
through a network of local sales offices staffed by e-business experts. We
employ a unique franchise distribution model to target what we believe is an
under-serviced market consisting of small and mid-sized businesses, or
businesses with between one and 1,000 employees. Our typical customer has
between 20 and 100 employees. We believe that our franchise distribution
strategy is the only cost effective method to penetrate and service our target
market successfully.
As of March 2000, we offered our solutions throughout the United States
from 37 sales offices. We also have offices in Australia, Canada, Egypt, Germany
and the United Kingdom. Our customer base has grown to over 700 customers as of
March 2000 from approximately 190 customers as of January 1999.
INDUSTRY BACKGROUND
Rapid Growth in Business Use of the Internet
An increasing number of businesses are using the Internet to enable fast
and efficient communications with their customers, vendors and employees. For
example, companies are increasingly requiring their vendors to order, invoice
and pay through the Internet. IDC projects that the market for business-to-
business e-commerce will grow from $97 billion in 1999 to $1.4 trillion in 2003.
In comparison, IDC projects that the market for business-to-consumer e-commerce
will grow from $34 billion to $209 billion over the same period.
In the last several years, many businesses have emerged with operating
models that are exclusively dependent on the Internet, while traditional
businesses of all sizes are working quickly to Web-enable their businesses on an
enterprise-wide level. Many traditional businesses seek to establish their
initial Web presence with a simple, static, online marketing brochure. As these
businesses become more familiar with the Internet as a communications platform,
an increasing number are seeking to automate more complex, mission-critical
functions on the Web.
Increasing Trend Toward Outsourcing
While businesses are facing competitive pressure to Web-enable their
business processes, many of them -- particularly small and mid-sized
businesses -- lack the necessary expertise or resources to do so and therefore
seek to outsource such services. Reasons for the growth in outsourcing include:
- the desire of companies to focus on their core businesses;
- the increased costs that businesses experience in developing and
maintaining their networks and software applications;
- the rapid pace of technological change that shortens time to obsolescence
and increases capital expenditures as companies attempt to capitalize on
leading-edge technologies;
- the challenges faced by companies in hiring, motivating and retaining
qualified software engineers and IT employees; and
- the desire of companies to reduce deployment time and risk.
24
The Competitive Needs of Small and Mid-Sized Businesses to Automate Key Business
Processes
According to IDC, there are currently approximately 7.5 million businesses
in the United States with less than 100 employees and such businesses will
devote more IT dollars to the Web than any other segment with the exception of
the government. IT spending by these businesses is projected by IDC to grow from
$20 billion in 1999 to $85 billion in 2003. Additionally, according to country
census data for 1998 and 1999, there are more than 40 million businesses with
between one and 500 employees located in Europe and Asia.
Small and mid-sized businesses generally lag their large company
counterparts in adopting comprehensive or enterprise-wide e-business solutions
due to lack of technical resources, ill-defined or unquantified objectives,
budgetary constraints and cost-of-solution barriers to entry. We believe that
these businesses need integrated software applications that take advantage of
the Internet to improve core business processes, thereby reducing costs for
these businesses and enhancing their competitive position.
OUR OPPORTUNITY
We believe that many of the software products and services currently
offered by IT providers are too complex and costly to be effective for small and
mid-sized businesses. To date, many small and mid-sized businesses seeking to
Web-enable their operations have acquired "boxed" software from different
vendors for a variety of business functions, resulting in patchwork solutions
that are poorly integrated. Moreover, the infrastructure required to support
these packages, which may include hiring specialized IT personnel and investing
in costly hardware systems, is beyond the capabilities and financial resources
of many small and mid-sized businesses.
In addition, many small and mid-sized businesses have had to seek IT
implementation solutions from multiple providers, including local system
integrators, independent Web site designers and hardware and software vendors.
Dealing with multiple suppliers can be costly as each supplier provides its own
product or service and has limited knowledge of the bundle of products and
services required to provide a customer with a complete e-business solution. As
a result, many small and mid-sized businesses delay their acquisition of
Web-based e-business software applications or forego implementation of the
applications altogether.
We believe that a significant market opportunity exists for a single-source
provider of Web-based business software applications to small and mid-sized
businesses. These businesses require a scalable, cost effective, end-to-end
solution that is easy to implement and rapidly automates their mission critical
business operations throughout the enterprise.
THE ZLAND.COM SOLUTION
Our proprietary ZLand.com e-business software applications are specifically
tailored to the needs of small and mid-sized businesses, providing a fully
integrated and scalable suite of front- and back-office software solutions. We
believe that by automating the critical business operations of small and
mid-sized businesses, our ZLand.com solutions enable our customers to achieve
significant cost savings and productivity enhancements. We believe that our
solutions provide small and mid-sized businesses with many of the online
capabilities that Fortune 500 companies enjoy when interacting with their
vendors, customers, employees and other constituencies.
We provide the following key competitive advantages and benefits to our
customers:
One-Stop, End-to-End Solution
Our solutions enable small and mid-sized businesses to automate critical
business operations throughout the enterprise. Our proprietary ZLand.com product
line consists of more than 160 software applications grouped into 20 solution
sets. These solution sets address a broad range of business functions, from
establishing a basic Web presence, to selling products over the Internet, to
automating business processes, including sales force and supply-chain
automation, customer support, human resources and
25
financial management. By offering an enterprise-wide solution, our customers are
able to use ZLand.com as their single source provider of e-business software
applications.
Rapid Time to Value
Time to market and the ability to quickly recognize measurable value in
e-business initiatives are critical factors for small and mid-sized businesses.
We believe that our customers can deploy our solution much more rapidly than
alternative approaches. Our templated solution allows most customers to begin
using standard ZLand.com e-business software applications within a relatively
short period of time. Incorporation of a customer's data, text and graphical
images enables us to provide each of our customers with an individualized
solution, while still maintaining rapid delivery and the low cost benefits of a
standard product. Our customers can implement those applications that fit their
immediate needs, and can add applications as their businesses expand. We believe
that our customers incur significantly lower capital investment and operating
expenses compared to alternative approaches, and therefore can recognize a
meaningful return on investment quickly.
High-Value Delivery Model
Our proprietary ZLand.com software applications are hosted in secure, third
party network operating centers and delivered to our customers through the
Internet. This ASP model allows customers to rent our products without incurring
significant up-front costs. Our customers benefit from integrated e-business
capabilities without the cost of acquiring additional hardware and employing
dedicated IT personnel. This approach also enables our customers to receive
reliable performance and secure computing resources on a 24 x 7 basis. We
believe that our ASP delivery model is ideally suited for small and mid-sized
businesses and enables non-technical customers to easily deploy our products.
Scalable, Flexible Solutions
Our proprietary ZLand.com software applications are designed to deploy
rapidly throughout the enterprise and integrate easily with our customers'
business processes and existing IT systems. Our solutions are scalable and
flexible, enabling our customers to implement additional applications in a cost
effective manner as their business needs evolve. For example, a customer
initially might choose only to have a Web site to promote its products or
services. The customer later may add applications enabling e-commerce (e.g.,
online catalogs and product fulfillment), or add a complete solution that
integrates many of its back-office business processes with its Web site. The
scalability of our solutions helps our customers minimize their costs by
permitting them to rent and use only those functions they currently need, while
providing the flexibility to continually and easily add functions as the
enterprise expands. In addition, we have designed our ZLand.com suite of
e-business software applications so that we can deploy the same solution
internationally using local language and business rules.
Unique Network of Local e-Business Experts
Many small and mid-sized businesses that seek to implement an e-business
strategy are unable to stay abreast of the latest Internet and software
technology. These businesses require access to on-site e-business expertise. We
believe that our franchise network of local sales offices staffed by e-business
experts provides the only effective means of servicing these businesses. Our
local e-business experts help our customers identify the solutions of the most
immediate value to them and develop an e-business strategy that meets their
needs.
26
STRATEGY
Our objective is to become the leading worldwide provider of Web-based
business software applications for small and mid-sized businesses. Key elements
of our strategy to achieve this objective include:
Build a Global ZLand.com Brand
We believe that building a strong brand is critical to attracting and
expanding a broad and diverse customer base of small and mid-sized businesses.
In November 1999, we launched our first brand building campaign through print
advertising in major publications targeted at small and mid-sized businesses. We
intend to launch a more extensive and global brand-building campaign in 2000,
which will include print, radio, Internet advertising and other programs to
further develop our brand. Our brand-building programs will leverage our
corporate positioning statement, "e-business for everyone."
Rapidly Expand Through Our Unique Franchise Distribution Model
We believe that we acquire our customers at a low cost by delivering our
e-business solutions through a distribution system composed primarily of
franchise sales offices. Because the majority of small and mid-sized businesses
are not located in major metropolitan areas, we believe that our franchise
distribution model is the only cost effective means to penetrate and service our
target market successfully on a large scale. Because we have invested
significant time and resources to develop and test our franchise system and
distribution model, we believe that we are poised to expand rapidly and
efficiently.
Continue to Enhance Our End-to-End Solutions
Our e-business software solutions enable our customers to link their
front-end Web presence with their back-end enterprise systems efficiently and
cost-effectively. When we identify a product that we believe should be added to
our product line, we either develop it internally, acquire or license it. To
date, we have internally developed the majority of our software products. In
November 1999, we acquired ActionWare, a company that had already developed a
sales force automation application, after we determined that market demand for
such a product existed. In January 2000, we acquired Central Technologies, Inc.,
a company that had developed financial management and reporting software
applications for small to mid-sized businesses. We are integrating these
applications into our ZLand.com product line. As we expand our product line, we
intend to continue to enhance our platform technology so that we can maintain a
leading solution.
Continue Our International Expansion
We intend to continue to target small and mid-sized businesses worldwide
and expand our global presence. We currently have sales offices in the United
States, Australia, Canada, Egypt, Germany and the United Kingdom. We intend to
expand our operations in these countries using a localized version of the
software and enter additional foreign markets. We believe that we can replicate
the infrastructure and processes that support our distribution model in most
countries.
Leverage Our Community of Customers and Enter into Strategic Partnerships
We currently provide our solutions to more than 700 customers and intend to
aggressively expand our customer base. We believe that we have a significant
opportunity to leverage a large customer base of small and mid-sized businesses.
We believe that our customer base will be extremely attractive to vendors that
seek to offer their products and services to this market. We intend to take
advantage of other revenue opportunities that we may derive from our community
of customers by entering into strategic partnerships.
27
PRODUCTS AND RELATED SERVICES
Our product line currently consists of more than 160 software applications
organized into 20 solution sets. These solutions sets contain bundles of
applications that address different combinations of our customers' e-business
needs. Additional solution sets can be employed to further expand and tailor a
customer's solution, either at the time of original deployment or at a later
date as the customer's needs evolve. Our product line spans a wide range of
e-business activities including:
- e-marketing -- communicating company and product information through the
Internet.
- e-commerce -- selling products and services through the Internet.
- e-operations -- using Web-based applications and databases to streamline
key front- and/or back-office business processes.
28
The following table identifies our software applications:
E-COMMERCE
E-MARKETING APPLICATIONS APPLICATIONS E-OPERATIONS APPLICATIONS
------------------------ ------------ ------------------------------------------------------------------
Customer About Page Auction Accounts Payable HQ Job Postings
Customer FAQ Customer Catalog Accounts Receivable Information Services Central
Customer Info Center Customer Financial Activity Manager Services
Customer Product Library Forms Budgets Information Services Company
Employee Advertising Customer Returns Checks Directory
Resources Customer Self Service Collections Manager Information Services Company
Employee FAQ Dealer Allocator Contact Manager Newsletter
Employee Web Resources Dealer Locator Customer Company Directory Information Services Reading File
Finance About Page Order Fulfillment Customer Suggestion Box Information Services Room &
Finance FAQ Integrator Customer Training Schedule Resource
HQ About Company Reseller Auction Employee Admin Forms Reservation
HQ About Page Reseller Catalog Employee Bulletin Board Inventory Manager
HQ Email Referral Reseller Financial Employee Central Services Investor Bulletin Board
HQ Homepage Forms Employee Classifieds Investor Company Directory
HQ Site Map Reseller Service Employee Company Directory Investor Financial Reports
HR About Page Request Employee Company Newsletter Investor News
HR FAQ Reverse Auction Employee Goal Tracker Investor Reading File
Information Services About Shopping Cart Employee President's Message Investor Suggestion Box
Page Employee Manual Invoicing
Information Services FAQ Employee Reading File Marketing Campaign Manager
Investor About Page Employee Suggestion Box Meeting Manager
Investor FAQ Employee Room & Resource Mfg Central Services
Mfg About Page Reservation Mfg Company Directory
Mfg FAQ Employee Union Notices Mfg Company Newsletter
Press About Page Finance Central Services Mfg Policy & Procedures Manual
Press Awards Finance Company Directory Mfg Reading File
Press Calendar Finance Company Newsletter Mfg Room & Resource Reservation
Press FAQ Finance Reading File Mfg Suggestion Box
Press Product Library Finance Room & Resource Mfg Technical Manual
Press Releases Reservation Mfg Union Notices
Press Testimonial Finance Suggestion Box Opportunity Manager
Reseller About Page General Ledger Order Entry
Reseller FAQ Group Calendaring Payroll Entry
Reseller Info Center Help Desk Manager Payroll Reporting
Reseller Product Library HR Admin Forms Press Relations Company Directory
Reseller Web Resources HR Applicant Tracking Project Tracker
Sales/Mktg About Page HR Benefits Administration Purchase Orders
Sales/Mktg Advertising HR Bulletin Board Reseller Bulletin Board
Resources HR Central Services Reseller Company Directory
Sales/Mktg FAQ HR Company Directory Reseller Lead Resources
Sales/Mktg Web Resources HR Company Newsletter Reseller Reading File
Trade Press HR Employee Classifieds Reseller Research Resources
Vendor About Page HR Employee Manual Reseller Suggestion Box
Vendor FAQ HR Job Postings Reseller Training Schedule
White Papers HR New Hire Processing Sales/Mktg Central Services
HR President's Message Sales/Mktg Company Directory
HR Reading File Sales/Mktg Company Newsletter
HR Room & Resource Sales/Mktg Lead Resources
Reservation Sales/Mktg Literature Library
HR Suggestion Box Sales/Mktg Manual
HR Training Manual Sales/Mktg Reading File
HR Training Schedule Sales/Mktg Research Resources
Sales/Mktg Room & Resource
Reservation
Sales/Mktg SFA
Sales/Mktg Suggestion Box
Sales/Mktg Training Schedule
Time Sheet Entry
Training Manual
Training Schedule
Vacation Scheduler
Vendor Bidding System
Vendor Bulletin Board
Vendor Company Directory
Vendor Freq Purchased Products
29
Templated Approach
Our product design employs a templated approach that enables our customers
to rapidly deploy a solution set and tailor it to achieve a unique look and
feel. Each customer's interaction with our applications is personalized using
standard definitions contained in our predefined templates. For example, our Web
site development application incorporates each customer's personal information
as part of the application set-up process using a simple fill-in-the-blank
online configuration questionnaire and the inclusion of customer-specific images
in a graphics library. With this technique, each customer determines the look
and feel of its Web site while the application infrastructure remains standard.
Our templated approach allows us to deliver and manage the ZLand.com product
line so that a large number of customers are able to tailor our standard
applications to their individual needs.
Product Attributes
ZLand.com's suite of e-business software applications has been designed to
achieve the following integration attributes:
Field-driven personalization............. Each customer can alter the look and feel
of its Web site, as well as certain
functions, within an otherwise standard
application.
Centralized security..................... Each authenticated user has a single user
identification and password that
specifies the resources and functions
that the user can access.
Uniform navigation....................... All of our applications share a common
navigation style, so that learning a new
application only requires understanding
its features.
Single logical database.................. All applications used by a customer share
common access to that customer's data,
ensuring consistency.
Services
We offer services, which are complementary to or included with our product
line, such as e-business consulting, site hosting and administration, product
support, integration of existing IT systems and application customization. When
combined with the ZLand.com product line, our services provide our customers
with a total e-business solution. These services include the following:
- E-business Consulting. Our e-business experts provide Internet-strategy
consulting, Internet-marketing enhancement, Web site audit and design,
and business process improvement services.
- Site Hosting and Administration. Our third-party network operating
centers provide Internet access via multiple T3 lines, with fully
redundant equipment, data backup and 24 x 7 support.
- Product Support. We offer a comprehensive customer assistance program
through our technical support staff that provides timely resolution of
customer technical inquiries through telephone, e-mail, and Web site
capabilities.
- Integration of Existing IT Systems. Our e-business experts help integrate
the customer's established existing IT systems with our suite of
e-business software applications.
- Customization of Applications. We offer custom development to enhance our
existing applications or develop new applications to meet a customer's
demands.
Alliances
We have implemented an alliance partnership program to provide our
customers with "point-and-click" access to the products and services of major
brand name companies through our suite of
30
e-business software applications. We believe that our alliances will assist us
in gaining broad market acceptance as well as enhance our marketing, sales and
distribution capabilities. In addition to increasing the value of our product
line to our customers, the program provides ZLand.com with an opportunity to
increase customer loyalty and build our brand. We believe the program provides
an effective sales channel for our alliance partners to build brand loyalty and
reach new small and mid-sized businesses.
CUSTOMERS
We target small and mid-sized businesses, which we characterize as
enterprises with between one and 1,000 employees. Our typical customer has
between 20 and 100 employees. Currently, we have more than 700 customers across
a wide range of industries. We provide our products and services to our
customers through renewable one-year contracts. Our customers typically pay a
one-time set-up fee for customer specific design and development and a recurring
monthly fee, which vary based on the scope of the customers' requirements.
The following provides representative examples of customer experiences in
the areas of e-marketing, e-commerce and e-operations:
E-Marketing: Trigon Electronics
Trigon's problem. Trigon Electronics sells high-end security products
through its dealer network to industrial customers nationwide, some of whom are
large and sophisticated. As a result, Trigon needed to continually educate and
update its dealer network. Trigon also needed to use the Internet to market to
prospective customers directly, providing leads to the dealer network.
ZLand.com's solution. Using our suite of ZLand.com e-business software
applications, we helped Trigon build a Web site that Trigon can continually
update. Trigon uses the Web site to make product literature available online for
immediate use by its dealer network, and as a central reference point for
dealers and OEM customers to find product descriptions, photos, specifications,
part numbers and even programming instructions. Trigon employs our Dealer
Locator e-marketing application in its dealer network. Using our proprietary
applications to Web-enable its marketing practices allows Trigon to better serve
its dealers and makes it possible for the dealers to more easily pursue sales
opportunities.
E-Commerce: Goldman Promotions
Goldman's problem. Goldman Promotions is in the highly competitive
promotional products and fulfillment services industry and needed to
differentiate itself from its competitors. Goldman has clients in a broad range
of industries that were seeking to use Goldman to manage their promotional
incentive programs which include product fulfillment. In order to efficiently
run its business, Goldman was seeking an online solution consisting of
centralized Web site stores that could be customized for its wide range of
clients.
ZLand.com's solution. We helped Goldman quickly and economically Web-enable
its business by building customized online stores and catalogs for its various
clients. Goldman's clients can now sell promotional merchandise on line through
these online stores.
31
E-Operations: Toastmasters International
Toastmasters International's problem. Communicating with present and
potential members through 9,000 chapters worldwide presented Toastmasters
International with the challenge of keeping both their extensive catalog of
items and listing of clubs current and constantly available.
ZLand.com's solution. We helped Toastmasters International establish a club
locator using our e-operations technology. Potential members are now able to
find a club in their area by entering their zip code. In addition, the ZLand.com
suite of e-business applications provides real-time pricing of freight on
shipments ordered from the site. The increased efficiency yields benefits in
member satisfaction, streamlined internal operations and cost reductions.
SALES AND MARKETING
Sales
We sell our e-business solutions through a network of local sales offices
staffed by e-business experts. A team consisting of sales and technical experts
from a local sales office typically will work with a prospect's senior
management team to identify the customer's service needs. Once a customer
implements our solutions, our local e-business experts provide ongoing support.
Our account management activities include recommending service extensions and
upgrades that are consistent with a customer's e-business strategy and budget.
Marketing
During 1999, we began testing several marketing programs designed to build
the ZLand.com brand while simultaneously generating sales leads. This first
brand building campaign, which was launched in November 1999, included print
advertising in major publications targeted at small and mid-sized businesses. We
intend to engage in a more extensive brand-building campaign in 2000, which may
include programs such as print, radio and Internet advertising, direct mail and
e-mail campaigns, outbound telemarketing, vertical market trade shows, local
business development seminar programs and a coordinated public relations
program. Our marketing programs are intended to present a consistent corporate
image and provide high quality materials for use by our local sales offices.
FRANCHISE OPERATIONS
We have divided our target markets into territories based upon the number
of businesses located within each defined area. Each territory contains, on
average, approximately 3,000 small to mid-sized businesses located within each
defined area. Our distribution network consists of:
- franchisee-owned and operated offices;
- franchisee-owned offices that are operated with the assistance of a
ZLand.com general manager typically for an additional fee; and
- ZLand.com owned and operated offices.
Of our 43 worldwide sales offices, 22 are franchisee-owned and operated, 16
are franchisee-owned but are assisted by a ZLand.com general manager and 5 are
owned and operated by ZLand.com. We intend to significantly increase the
proportion of sales offices that we own and operate.
Franchise Agreement
Our U.S. and most of our foreign franchisees enter into renewable seven
year franchise agreements with us which permit them to operate in a defined
territory, or block of territories, using the ZLand.com system of operations.
The current franchise fee per territory in the U.S. is $30,000, but may vary
from country to country. Franchisees are responsible for all capital
expenditures and other costs associated with the commencement of their
operations. Most franchisees are required to contribute 1% of gross sales (a
minimum of $500 per month) to a marketing cooperative fund, and are required to
spend a minimum of
32
$2,500 each month on local advertising during their first year of operation, and
thereafter spend the greater of 3% of gross sales or $1,000 per month on local
promotions.
Under the franchise agreement:
- franchisees must adhere strictly to ZLand.com system standards, which are
set forth in our Business Manual;
- franchisees may only sell products and services authorized by ZLand.com;
- franchisees must deliver periodic, financial and other reports to us;
- franchisees must maintain sales of at least 50% of the average sales of
similarly situated franchisees;
- we have broad inspection rights; and
- we have the right to terminate non-performing or non-compliant
franchisees.
Our agreements governing franchises located in foreign territories may
differ from our U.S. franchise agreements in order to comply with foreign laws
and regulations.
Sales Office Network
Our 38 franchisee-owned sales offices are licensed to operate in 388
territories. These franchisees hold options for an additional 443 territories.
In some cases, we license blocks of territories, typically contiguous within a
defined geographic region. Multiple-territory offices benefit from certain
economies of scale. We currently offer franchises in 48 states and are in the
process of completing the regulatory compliance requirements for the remaining
two states. We also offer franchises in Australia, Canada, Egypt, Germany and
the United Kingdom. We use a qualification profile that is intended to identify
franchise candidates with successful direct sales and direct sales management
experience who are interested in technology and who have a good working
knowledge of general business practices.
We have five company-owned sales offices located in Munich; Sydney; San
Jose, California; Atlanta, Georgia and at our corporate headquarters in Southern
California. We plan to add company-owned and operated sales offices in major
metropolitan areas in the U.S. in 2000. We expect company-owned and operated
sales offices to generate product and related services revenue and to provide a
controlled environment to test new product strategies and marketing campaigns.
CUSTOMER SUPPORT AND TRAINING
We believe that customer training and support are critical to the success
of our business model. The technical staff in our local sales offices provide
the first level of support to our customers. If the local technical staff cannot
resolve a customer support issue, they refer it to a ZLand.com support center.
Those support centers provide services on a 24 x 7 basis which customers can
access directly. We have deployed an incident tracking system to record and
manage support and feedback issues ranging from product improvement suggestions
to bug reporting. We provide local, hands-on site administrator training to each
of our customers as an important part of our end-to-end solution. This training
enables our customers to have full control over the data in their ZLand.com
software applications.
TECHNOLOGY
Product Development
Our product development group focuses on Web-based software applications.
Our applications are based on a variety of technologies that principally consist
of Dynamic HTML, XML, CGI, Java and Lotus Domino. This group develops new
applications and incorporates these applications into our product line. Our
product development group also identifies, selects and implements the various
technologies, including network storage and back-up, that provide the basic
infrastructure for both our internal network and the solutions that we offer our
customers.
33
Our software architecture consists of a presentation and security layer, a
business logic layer and a data storage layer. The user interacts exclusively
with the presentation layer, which formats the user's data for display in the
user's browser. The business logic layer performs all user requests for
modifying the data, maintains transactional integrity, and interacts with the
data storage layer for managing the permanent storage index that
cross-references the data. This architecture provides an industry
standards-based methodology without a significant dependence on a single
third-party vendor. It also provides an application environment that can be
easily adapted to include additional functions and modules.
Network Operating Centers
We currently lease network operating center capacity from Solid Technology,
Inc. We have entered into an agreement to lease additional capacity from Exodus
Communications, Inc. Our network infrastructure is specified and designed to
provide reliable storage of our Web-based applications and data. Our network
infrastructure also includes multi-level network redundancy to provide the
highest levels of network uptime, reliability and customized network security,
and fast, guaranteed response time and availability of customers' content. Our
infrastructure is also specified and designed to scale to support continued
growth.
When selecting our network operating centers, we consider the scope of
electronic tools that the facility has available to automate the customer
support function. To enhance customer data reliability, our network operating
centers use digital audio tape backups and writeable CD-ROMs to store
applications and data files. For system-wide reliability, RAID 5 storage
provides fault redundancy at the operating system level. For security, all
servers have SSL-enabled security levels within their operating systems. A
firewall is used to protect both the operations of the data center and the
contents of customer files and applications.
COMPETITION
Our competitors vary in size and in the scope and breadth of services that
they offer. We primarily encounter competition from the following types of
companies:
- custom software development firms and systems integrators and
consultants;
- interactive advertising agencies and graphic design firms;
- traditional enterprise resource planning firms;
- software tool makers, such as IBM and Microsoft, that target
"do-it-yourself" customers;
- value-added resellers of IBM and Microsoft products that sell software
services;
- e-commerce companies that focus on solutions for online sales;
- companies that focus on one or more business segments such as supply
chain management, procurement or human resources; and
- Internet service providers and ASPs that offer value-added hosting
services and applications for small and mid-sized businesses.
In addition, because there are relatively low barriers to entry in the
software applications rental market, we expect additional competition from other
established and emerging companies as the market continues to develop and
expand. We also expect competition to increase as a result of software industry
consolidations and formations of alliances among industry participants.
We believe that the principal competitive factors affecting our market
include a significant base of reference customers, breadth and depth of
solution, product quality and performance, customer service, core technology and
brand building. We believe that our focus on value and efficiency to small and
mid-sized businesses, our ASP delivery model, our broad, proprietary product
mix, and our local franchise distribution model position us to compete
effectively. Although we believe that our solutions currently compete favorably
with respect to these factors, our market is relatively new and is evolving
rapidly. We may not be able to maintain our competitive position against current
and potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other resources.
34
INTELLECTUAL PROPERTY RIGHTS
We have registered our logo and the name Z Land(R) as trademarks and
service marks with the U.S. Patent and Trademark Office, and have filed or are
in the process of filing trademark registration applications for the marks
ZLand.com and "e-business for everyone." ZLand.com and the ZLand.com logo and
service marks are in use in the U.S. In addition, the ZLand.com logo and the
ZLand.com and "e-business for everyone" trademarks and service marks are in use
in several foreign countries. We also are in the process of filing applications
to register these trademarks in several countries. Our franchisees are granted
the right to use the ZLand.com name and our other service marks in their
franchise license agreements with us.
We require our customers to enter into license agreements, which impose
restrictions on their ability to use our software. In addition, we require
persons with access to our proprietary information to execute confidentiality
agreements with us and restrict access to our source code. We seek to protect
our software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection.
We generally enter into confidentiality agreements with our employees and
consultants. Our confidentiality agreements require that our employees and
consultants not disclose any of our proprietary information. Despite these and
other efforts to protect our proprietary information, unauthorized parties may
attempt to obtain and use our proprietary information. Policing unauthorized use
of our proprietary information is difficult, and our efforts might not prevent
misappropriation, particularly in foreign countries where the laws may not
protect our proprietary rights as well as those of the United States.
GOVERNMENT REGULATION
Franchise Regulation
We must comply with regulations adopted by the Federal Trade Commission, or
the FTC, and with foreign and state laws that regulate the offer and sale of
franchises as well as the franchise relationship. The FTC's Trade Regulation
Rule on Franchising, or the FTC Rule, and certain state laws require that we
furnish prospective franchisees with a franchise offering circular containing
information prescribed by, and otherwise comply with, the FTC Rule and
applicable state laws and regulations at least 10 days before any sale can be
effected. Foreign laws and regulations may also require disclosure of specified
information to prospective franchisees, and in some jurisdictions, the
registration of the franchisor with a governmental or quasi-governmental agency,
prior to the offer or sale of franchises.
We also must comply with a number of state and foreign laws that regulate
substantive aspects of the franchisor-franchisee relationship. These laws may
limit a franchisor's ability to terminate or not renew a franchise without good
cause, prohibit interference with the right of free association among
franchisees, disapprove the transfer of a franchise or discriminate among
franchisees with regard to charges, royalties and other fees. To date, these
laws have not had an adverse effect on our operations. The failure to comply
with these laws may adversely affect us.
Bills intended to further regulate certain aspects of franchise
relationships have been introduced into the United States Congress on several
occasions during the last decade, but none have been enacted. Any changes to the
FTC Rule or state or foreign franchise laws, or future court or administrative
decisions could affect our franchise business.
Regulation of the Internet and E-Commerce
The United States Congress recently has passed legislation that regulates
certain aspects of the Internet, including online content, copyright
infringement, user privacy, taxation, access charges and liability for
third-party activities. The European Union also has recently enacted several
directives relating to the Internet, including directives that address the use
of personal data, e-commerce activities, security, commercial piracy, consumer
protection and taxation of e-commerce transactions. Governmental authorities in
the United States and abroad are considering, and may consider in the future,
other
35
legislative and regulatory proposals that would regulate the Internet. Areas of
potential regulation are uncertain but may include intellectual property
ownership, libel, privacy protection, consumer protection, including deceptive
advertising, pricing, quality of products and services. We cannot predict how
courts will interpret existing and new laws, and therefore are uncertain as to
how new laws or the application of existing laws will affect our business. In
addition, our business may be indirectly affected by legislation that affects
the ability of our customers to engage in e-commerce activities. Increased
regulation of the Internet may decrease the growth in the use of the Internet,
which could decrease the demand for our products and services, increase our cost
of doing business or otherwise harm our business, results of operations and
financial condition.
EMPLOYEES
As of March 15, 2000, ZLand.com had a total of 240 employees, consisting of
77 in research and development, 111 in sales and marketing, 20 in customer
support, professional services and training, and 32 in administration and
finance. Of these employees, 212 were located in the United States and 28 were
located outside of the United States. None of our employees are represented by a
collective bargaining agreement, nor have we experienced any work stoppage. We
consider our relations with our employees to be good.
FACILITIES
Our headquarters and our principal sales, marketing, research and
development and administrative office occupies approximately 67,000 square feet
in Aliso Viejo, California. This lease expires on February 28, 2005. In
addition, we also lease office space in Atlanta, Georgia, San Jose, Emeryville
and Moorpark, California, Munich, Germany and Sydney, Australia.
LEGAL PROCEEDINGS
From time to time we may be involved in litigation or arbitration that
arises in the normal course of business operations. In particular, we may from
time to time be involved in litigation or arbitration with franchisees who are
terminated for nonperformance or noncompliance with their franchise agreements.
We are not currently a party to any pending material legal proceedings.
36
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, and their respective ages and
positions as of March 15, 2000, are as follows:
NAME AGE POSITION
---- --- --------
John W. Veenstra.......................... 55 Chairman of the Board, Chief Executive Officer and
Director
Glenn E. Abood............................ 38 President and Chief Operating Officer
Kevin S. Palatnik......................... 42 Chief Financial Officer and Senior Vice President,
Finance
Joan Nagelkirk............................ 54 President of North American Operations and Director
Jim Ensell................................ 38 Senior Vice President, Products and Services
Rich Wyckoff.............................. 40 Senior Vice President, Corporate Marketing
Gregg Amber............................... 43 Senior Vice President, General Counsel and Secretary
Hans Severiens(1)......................... 70 Director
Sidney Jansma, Jr.(1)(2).................. 56 Director
Jack Harding(1)(2)........................ 45 Director
Thomas Glasgow, Jr.(2).................... 53 Director
Wolfgang Hanrieder........................ 39 Director
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
JOHN W. VEENSTRA co-founded ZLand.com in September 1995 and has served as
the Chairman of the Board of Directors and Chief Executive Officer since that
time. In addition, Mr. Veenstra served as President from September 1995 to May
1999. Mr. Veenstra provided consulting services to us between September 1995 and
October 1, 1997, when he became an employee. Prior to founding ZLand.com, he was
the Chief Executive Officer of First Electronic Forms, Inc. from its formation
in 1991 until its sale to Wallace Computer Services, Inc. in 1993. Mr. Veenstra
served as Vice President and General Manager, Electronic Forms Division of
Wallace Computer Services from 1993 to January 1995. Mr. Veenstra is married to
Joan Nagelkirk, our President of North American Operations and a director. Mr.
Veenstra holds a B.A. in economics from Calvin College and an M.B.A. in finance
from Wayne State University.
GLENN E. ABOOD has served as our President and Chief Operating Officer
since June 1999. From January 1997 to June 1999, he was Vice President and
General Manager for the design and verification business unit of Cadence Design
Systems, a software and services provider for the electronic design automation
industry. Prior to joining Cadence, Mr. Abood was President and Chief Executive
Officer of Silicon Valley Research, Inc., from May 1995 to December 1996. From
February 1984 to April 1995, Mr. Abood held various sales and management
positions at Zycad Corp. Mr. Abood holds a B.S.E.E. from the University of
Delaware and an M.S. in electrical engineering from Worcester Polytechnic
Institute.
KEVIN S. PALATNIK joined us as Senior Vice President and Chief Financial
Officer in February 2000. From January 1999 to February 2000, he was Vice
President and General Manager for the Education Services business unit of
Cadence Design Systems. From July 1994 to January 1999, Mr. Palatnik held
several positions within Cadence including Vice President-Operations, Vice
President-Corporate Financial Planning and Analysis and Group Director-Finance.
Prior to joining Cadence Design Systems, Mr. Palatnik held various financial
positions with IBM Corporation, most recently as the Plant Controller for the
Storage Systems Division in San Jose, CA. Mr. Palatnik serves as a director of
usateetimes.com. Mr. Palatnik holds a B.S. in industrial engineering, a B.S. in
operations research and an M.B.A. from Syracuse University.
JOAN NAGELKIRK co-founded ZLand.com in September 1995 with her husband,
John Veenstra, our Chairman and Chief Executive Officer, and served as our Chief
Financial Officer from that time until
37
December 1998 and from April 1999 to February 2000. In February 2000, Ms.
Nagelkirk became President of North American Operations. In addition, she has
served as a director since September 1995. Ms. Nagelkirk provided consulting
services to us between September 1995 and October 1, 1997, when she became an
employee. Ms. Nagelkirk was Vice President of First Electronic Forms, Inc., from
1991 until its sale to Wallace Computer Services, Inc. in 1993. Ms. Nagelkirk
served as Director of Licensed Operations, Electronics Forms Division of Wallace
Computer from 1993 to January 1995. Ms. Nagelkirk holds a B.A. in psychology
from Calvin College and an M.A. in psychology from St. Francis College.
JIM ENSELL joined us as Vice President of Services Operations in July 1999
and was promoted to the position of Senior Vice President of Products and
Services in January 2000. Prior to joining us, Mr. Ensell served as Vice
President, Consulting Services for Cadence Design Systems and prior to that, as
Vice President, Marketing for Cadence DSM Business Unit. Until 1997, he was Vice
President and General Manager of Consulting Services and GateField Sales at
Zycad Corporation, where he also served as Vice President and General Manager of
the Zycad Services Division. Mr. Ensell holds a B.S. in electrical engineering
from Villanova University and an M.S. in electrical engineering and computer
science from the University of Pennsylvania.
RICH WYCKOFF joined us as Vice President of Marketing in September 1999 and
was promoted to the position of Senior Vice President of Corporate Marketing in
January 2000. Prior to joining us, Mr. Wyckoff served as Vice President of
Corporate Marketing with Cadence Design Systems from September 1995 to September
1999. From May 1995 through October 1995, Mr. Wyckoff was the principal and
founder of the Image Group. Mr. Wyckoff holds a B.A. in communications and an
M.A. in mass media from the University of California, Santa Barbara.
GREGG AMBER joined us as Senior Vice President, General Counsel and
Secretary in December 1999. From March 1998 through November 1999, Mr. Amber was
a partner with the law firm of Rutan & Tucker, LLP. Prior to that time, and
since January 1995, he was a partner with the law firm of Snell & Wilmer LLP. He
is also corporate secretary and a director of Litronic Inc. Mr. Amber holds a
B.A. in political science and mathematics from Principia College and a J.D. from
Stanford Law School.
HANS SEVERIENS joined our board of directors in January 1998. Since 1995,
Mr. Severiens has served as the coordinator of the "Band of Angels," a Silicon
Valley group of high-tech executives investing in high-tech start-ups, which he
founded, and has served as a general partner of Band of Angels Fund L.P. since
July 1999. Since 1968, Mr. Severiens has been actively involved in the venture
capital and investment banking business, having served as president of the U.S.
subsidiary of MIP Equity Fund, as a partner in Bay Ventures II, and as vice
president of Merrill Lynch, Morgan Stanley Dean Witter, and Mitchell Hutchins.
He is a Trustee of Golden Gate University (San Francisco), and a director of the
Enterprise Network (Cupertino, California). Mr. Severiens holds a B.A. in
physics from Harvard University and a Ph.D. in nuclear physics from Johns
Hopkins University.
SIDNEY JANSMA, JR. co-founded ZLand.com in September 1995, and has served
on our board of directors since 1997. Mr. Jansma has been President and Chief
Executive Officer of Wolverine Gas & Oil Company, Inc., an oil and gas
exploration and production company, for over 12 years. He is a director of the
American Petroleum Institute, past Chairman, President and Treasurer of the
Michigan Oil and Gas Association, and past Chairman of Bethany Christian
Services, a private adoption agency with operations in 29 states. Mr. Jansma
holds a B.A. in economics and philosophy from Calvin College and an M.B.A. in
corporate finance and accounting from the University of Michigan.
JACK HARDING joined our board of directors in August 1999. He is Chairman
and Chief Executive Officer of The Dorset Group, a venture management and
investment firm. From October 1997 to May 1999, he served as President and Chief
Executive Officer of Cadence Design Systems, the world's largest provider of
software and services for electronic design. From May 1997 to October 1997, Mr.
Harding served as Senior Vice President of the Strategic Business Group of
Cadence Design Systems. From December 1994 to May 1997, Mr. Harding was
President and Chief Executive Officer of Cooper and Chyan Technologies, which
was acquired by Cadence Design Systems in 1997. Mr. Harding is Chairman of the
Board of SafeCorp.com, an information security consulting firm. He also serves
as a director for
38
inSilicon, a provider of semiconductor intellectual property. He is a Senior
Fellow at the Institute for Development Strategies, Graduate School of Public
Policy, Indiana University. Mr. Harding holds a B.A. in Economics and Chemistry
from Drew University, where he is a member of the Board of Trustees.
THOMAS GLASGOW, JR. joined our board of directors in December 1999. From
1973 until 1998, Mr. Glasgow was employed in a number of management positions by
McDonald's Corporation, most recently as Executive Vice President and Chief
Operations Officer in charge of restaurant systems worldwide. In that position,
Mr. Glasgow was responsible for the operations, training, product development,
operations development, equipment development, supply chain management and
security departments. Mr. Glasgow is currently a director of NSF International,
Inc., Compliance Control, Inc. and First Union Bank -- Asheville, as well as
Memorial Mission Healthcare Foundation, University of North Carolina-Asheville
Foundation, and YMCA of Western North Carolina. Mr. Glasgow holds a B.A. in
business from Michigan State University.
DR. WOLFGANG HANRIEDER joined our board of directors in February 2000.
Since 1997, Dr. Hanrieder has been a partner of STAR Ventures Management, a
Munich, Germany based investment firm specializing in IT and healthcare
companies. Prior to that time, he was a Manager of Siemens from January 1990 to
May 1996 and a Manager of Siemens Nixdorf Information Systems from May 1996 to
September 1997. Dr. Hanrieder holds an M.B.A. from the Massachusetts Institute
of Technology and a M.S. and Ph.D. in physics from the Technical University of
Munich, Germany.
All directors hold office until the next annual meeting of stockholders or
the election and qualification of their successors. Officers are elected
annually by the board of directors and serve at its discretion.
DIRECTOR COMPENSATION AND INDEMNIFICATION
We reimburse our non-employee directors for out-of-pocket expenses incurred
in connection with attendance at stockholders', board and committee meetings. We
granted to each of Messrs. Glasgow, Harding, Jansma and Severiens an option to
purchase 100,000 shares of common stock at an exercise price equal to fair
market value on the date of their election to the board, vesting over a period
of two years. In addition, in recognition of their services on the board, in
December 1998 we granted Mr. Jansma an option to purchase 150,000 shares and Mr.
Severiens an option to purchase 100,000 shares, each at $0.50 per share, with
vesting over three years for Mr. Jansma and over two years for Mr. Severiens,
and in November 1999 we granted Mr. Jansma an option to purchase 100,000 shares
and Mr. Severiens an option to purchase 50,000 shares, each at $4.50 per share
with vesting over two years.
We have entered into indemnification agreements with each of our current
directors and executive officers to give them additional contractual assurances
regarding the scope of the indemnification set forth in our certificate of
incorporation and bylaws and to provide additional procedural protections. At
present, there is no pending litigation or proceeding involving any of our
directors, officers or employees for which indemnification is sought. We are not
aware of any threatened litigation that may result in claims for
indemnification.
BOARD COMMITTEES; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The board of directors has established an audit committee and a
compensation committee. The audit committee, consisting of Messrs. Jansma,
Harding and Severiens, reviews the adequacy of our internal controls and the
results and scope of the audit and other services provided by our independent
auditors. The compensation committee, consisting of Messrs. Jansma, Harding and
Glasgow, establishes salaries and other forms of compensation for our executive
officers.
None of our executive officers has served as a director or member of the
compensation committee of any other entity whose executive officers served as
one of our directors or as a member of our compensation committee.
39
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
paid or accrued by us to our Chief Executive Officer and each of our other
executive officers who earned more than $100,000 in salary and bonus, for
services rendered to us in all capacities during the year ended December 31,
1999. These individuals will be referred to as the named executive officers in
this prospectus.
SUMMARY COMPENSATION TABLE
ANNUAL LONG TERM
COMPENSATION COMPENSATION AWARDS
---------------- ------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS SHARES UNDERLYING OPTIONS COMPENSATION
--------------------------- -------- ----- ------------------------- ------------
John W. Veenstra(1)......................... $163,000 -- 2,100,000 --
Chief Executive Officer
Joan Nagelkirk(2)........................... $ 16,667 -- 585,200 --
President of North American Operations
Glenn E. Abood(3)........................... $136,308 -- 1,800,000 $21,200(4)
President and Chief Operating Officer
Richard Bjorkman(5)......................... $129,764 -- 30,000 --
(1) Includes $43,000 earned by Mr. Veenstra during fiscal 1999 but deferred for
payment until January 2000, at the election of Mr. Veenstra. Mr. Veenstra's
annual base salary beginning in June 1999 was increased to $240,000.
(2) Ms. Nagelkirk served as our Chief Financial Officer during 1999. Excludes
$220,000 paid to a consulting firm owned by the daughter of Mr. Veenstra and
Ms. Nagelkirk, for consulting services performed by Ms. Nagelkirk. See
"Related Party Transactions." Ms. Nagelkirk's annual base salary beginning
in December 1999 was established at $200,000.
(3) Reflects salary paid to Mr. Abood since he joined ZLand.com in June 1999.
Mr. Abood's annual base salary is $240,000.
(4) Represents an auto allowance and travel and living expenses paid by us in
fiscal 1999.
(5) Mr. Bjorkman served as our Chief Financial Officer from December 1998 to
April 1999. Between April 1999 and January 2000, when he left the company,
Mr. Bjorkman served as our Vice President, Finance.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth information regarding options granted to the
named executive officers during the fiscal year ended December 31, 1999.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1999
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENTAGE AT ASSUMED ANNUAL RATES
SECURITIES OF TOTAL EXERCISE OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS PRICE FOR OPTION TERM(4)
OPTIONS GRANTED TO PER EXPIRATION ----------------------------
NAME GRANTED(1) EMPLOYEES(2) SHARE(3) DATE 5% 10%
---- ---------- ------------ --------- ---------- ------------ -------------
John W. Veenstra............ 1,800,000 24.7% $4.50 (5) $5,094,000 $12,909,312
Glenn E. Abood.............. 1,800,000 24.7% $4.50 (5) $5,094,000 $12,909,312
Joan Nagelkirk.............. 400,000 5.5% $4.50 11/30/09 $1,132,000 $ 2,868,736
Richard Bjorkman............ 0 0% 0 N/A $ 0 $ 0
(1) Twenty-five percent of the shares subject to each of these options vest one
year after the grant date with remaining 75% vesting at a rate of 1/36 per
month thereafter, with the exception of options to purchase 200,000 shares
granted to each of Messrs. Veenstra and Abood which vested immediately upon
grant.
40
(2) Based on options to purchase 7,290,800 shares granted to employees during
the fiscal year ended December 31, 1999, including named executive officers.
(3) The stock option exercise price was established based on the fair market
value on the date of grant of the underlying common stock, as determined by
our board of directors.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based upon the fair market value of our common stock
on December 31, 1999, $4.50 per share. These assumptions are not intended to
forecast future appreciation of our stock price. The potential realizable
value computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock.
(5) Expires as to 1,200,000 shares in June 2009 and as to 600,000 shares in
November 2009.
FISCAL YEAR END OPTION VALUES
There were no exercises of options by any named executive officers in the
fiscal year ended December 31, 1999. The following table sets forth, for each of
the named executive officers, the year-end value of unexercised options as of
December 31, 1999:
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
John W. Veenstra................... 352,000 1,748,000 $608,000 $592,000
Glenn E. Abood..................... 200,000 1,600,000 0 0
Joan Nagelkirk..................... 127,600 457,600 $510,400 $230,400
Richard Bjorkman................... 4,708 25,292 $ 18,832 $101,168
These values are based on the deemed fair market value as of December 31,
1999, or $4.50 per share, minus the exercise price, multiplied by the number of
shares underlying the option.
EMPLOYMENT AGREEMENTS, TERMINATION AND CHANGES OF CONTROL
In July and May 1999, we entered into at-will employment agreements with
each of John W. Veenstra and Glenn E. Abood, respectively. The minimum annual
base salary for each these individuals under their respective employment
agreements is $240,000. In December 1999, we entered into an at-will employment
agreement with Joan Nagelkirk, providing for a minimum base salary of $200,000.
In addition, each employment agreement provides for eligibility for
participation in our benefit plans and incentive compensation payments of
between 50% (40% in the case of Ms. Nagelkirk) and 75% of the employee's annual
base salary upon attainment of certain pre-defined goals that are determined by
the board of directors, the employee covered by the agreement and, in the case
of Mr. Abood, the Chief Executive Officer.
If the employee's employment with us is terminated "without cause," the
employee will be entitled to receive his or her annual base salary and benefits
for a period of 12 months following termination and a bonus equal to 50% (40% in
the case of Ms. Nagelkirk) of the employee's annual base salary. In the case of
a termination of employment due to voluntary resignation or if the employee is
terminated "for cause," the employee will be entitled to receive his or her
annual base salary and bonus pro-rated in accordance with the period of
employment with us during the applicable fiscal year, provided that
pre-determined goals were met. In the event of a termination of employment due
to death or disability or following a change of control of the company, the
employment agreements provide that the employee will be entitled to receive a
lump sum severance payment equal to two years of the employee's annual base
salary and a bonus equal to 50% (40% in the case of Ms. Nagelkirk) of his or her
annual base salary at the employee's
41
then current annual rate. Additionally, the employee will be entitled to
continue to receive full benefits for a period of 12 months following the
termination.
Pursuant to the employment agreements, we granted options to purchase
shares of our common stock to these employees. Messrs. Veenstra and Abood each
received an option to purchase 1,000,000 shares. Twenty-five percent of the
shares subject to these options will vest in July 2000 and the remaining shares
will vest at a rate of 2.0833% per month thereafter. In addition, under our
employment agreements with Messrs. Veenstra and Abood, we granted to each of
them, as a contract bonus, another option to purchase 200,000 shares of our
common stock at $4.50 per share. The shares subject to these options vested
immediately upon grant. Furthermore, in November 1999, our board of directors
granted options to purchase an additional 600,000 shares each to Messrs.
Veenstra and Abood, and 400,000 shares to Ms. Nagelkirk, on the same terms as
the 1,000,000 share options, but with vesting beginning in November 2000.
Upon termination of an employee's employment, the employment agreements
provide for specific treatment of outstanding options. In the event of a
resignation or termination by us "for cause," the employee will have one year
from the date of termination to exercise his or her vested options. If an
employee's employment is terminated "without cause," due to death or disability
or following a change in control of the company, the employee's outstanding
options will accelerate and become immediately exercisable for a period of one
year.
1997 STOCK PLAN
Our 1997 Stock Plan was approved by our stockholders in November 1997.
Amendments and restatements of that Plan were approved by our stockholders in
November 1998, May 1999 and December 1999. A maximum of 18,000,000 shares of
common stock are reserved for issuance under the Plan. The Plan gives broad
powers to our board to grant various kinds of stock-based incentives. As of the
date of this prospectus, the only awards granted under the Plan have been stock
bonuses, stock purchase grants and stock options.
Out of the 18,000,000 shares reserved for issuance under the Plan, we have
made stock bonus grants, stock purchase grants, or had stock options exercised,
for a total of 2,186,712 shares, which are included in the outstanding shares of
common stock as of March 15, 2000. We also have granted outstanding stock
options to purchase up to 12,617,090 shares, of which 3,156,740 have a $0.50 per
share exercise price, 2,870 have a $1.305 per share exercise price, 25,744 have
a $3.26 per share exercise price and 9,431,736 have a $4.50 per share exercise
price.
42
RELATED PARTY TRANSACTIONS
In August 1997, we sold 3,334,008 shares of our common stock at the then
fair market value of $0.05 per share to Grey Fox, Inc., a company wholly owned
by the Veenstra Farm Preservation Trust, which is beneficially owned by the
adult children of John W. Veenstra, our Chief Executive Officer and Chairman of
the Board, and Joan Nagelkirk, our President of North American Operations and
one of our directors, in exchange for cancellation of $166,700 owed to Grey Fox
by us.
Additionally, as of September 1997, we owed Grey Fox $398,000 which
consisted of $92,000 borrowed from Grey Fox and the remainder for consulting
services provided on behalf of Grey Fox by John W. Veenstra and Joan Nagelkirk
from January 1996 to September 1997. On October 1, 1997, the Grey Fox consulting
contract was terminated and both John W. Veenstra and Joan Nagelkirk became our
employees. On October 31, 1997, we sold 795,566 shares of our common stock at
the then fair market value of $0.50 per share to Grey Fox in exchange for our
obligations to Grey Fox.
During the three month period ending December 31, 1997, we paid to Quatt,
Inc., a consulting firm owned by the daughter of John W. Veenstra and Joan
Nagelkirk, $26,250 in fees for consulting services provided to us on behalf of
Quatt, Inc. by John W. Veenstra and Joan Nagelkirk. In 1998, we paid $70,000 to
Quatt, Inc. for consulting services provided by Mr. Veenstra and Ms. Nagelkirk,
$30,000 of which was attributable to services provided in 1997. In addition to
such compensation, we issued convertible promissory notes and common stock
warrants to each of Mr. Veenstra and Ms. Nagelkirk for their consulting services
in 1998, on identical terms as issued to other creditors of ours. The aggregate
amount of the convertible promissory notes was $140,000 (representing $132,000
for services provided by Mr. Veenstra and $8,000 for services provided by Ms.
Nagelkirk). In March, 1999, Mr. Veenstra converted a promissory note in the
amount of $81,493 (including accrued interest) into 81,492 shares of Series B
Preferred Stock (post-split). The remaining notes were repaid by us in full in
March 1999. In 1999, we paid to Quatt, Inc. $280,000 for services provided by
Ms. Nagelkirk, $60,000 of which was attributable to services provided in 1998.
In October 1999, we entered into a franchise agreement with Joan Nagelkirk
for two territories in California, for an aggregate initial franchise fee of
$60,000. The initial franchise fee is due within 30 days following the
expiration of the lock-up period in connection with the public offering of our
common stock.
In August 1999 and as amended in February 2000, we entered into a
consulting agreement with Jack Harding, one of our directors. Under this
agreement, during the year ended December 31, 1999, we paid Mr. Harding $72,000
in cash and options to purchase an aggregate of 492,000 shares of our common
stock at an exercise price of $4.50 per share.
In connection with the employment of Jim Ensell in July 1999, we entered
into a loan agreement with Mr. Ensell in the aggregate amount of $125,000 to
cover relocation expenses from his prior employer. The term of the loan is three
years, with no interest. The principal becomes due and payable within thirty
days of Mr. Ensell's voluntary termination of his employment with us. Pursuant
to the loan, $75,000 will be forgiven in $25,000 increments on each of the first
three anniversary dates of the loan.
43
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of March 15, 2000 by:
- each person who is known by us to own beneficially more than five percent
of our common stock;
- each of our directors;
- each of our executive officers; and
- all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person and the percentage ownership of that
person, shares of common stock underlying options or warrants held by that
person that are currently exercisable or exercisable within 60 days of March 15,
2000 are deemed outstanding. These shares, however, are not deemed outstanding
for the purposes of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table and pursuant to applicable
community property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name. Unless otherwise indicated, the address for each of the
following stockholders is c/o ZLand.com, Inc., 27081 Aliso Creek Road, Aliso
Viejo, California 92656.
PERCENTAGE OF OWNERSHIP
NUMBER OF SHARES ---------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ------------------ --------------- --------------
Veenstra Farm Preservation Trust(1).............. 8,672,844 26.08% %
Starwood Investments, L.P.(2).................... 3,000,000 8.78% %
Fortman Cline AG(3).............................. 1,781,554 5.14% %
Sidney Jansma, Jr.(4)............................ 659,142 1.97% %
Glenn E. Abood(5)................................ 410,000 1.22% *
John W. Veenstra(6).............................. 384,402 1.14% *
Hans Severiens(7)................................ 263,342 * *
Joan Nagelkirk(8)................................ 146,800 * *
Jack Harding(9).................................. 183,833 * *
Thomas Glasgow, Jr.(10).......................... 120,833 * *
Wolfgang Hanrieder(11)........................... 8,333 * *
Gregg Amber(12).................................. -- * *
Jim Ensell(13)................................... 61,988 * *
Rich Wyckoff..................................... 10,000 * *
Kevin S. Palatnik................................ -- * *
All Officers and Directors as a Group (12
persons)....................................... 2,248,673 6.5% %
* Less than 1%
(1) The address for Veenstra Farm Preservation Trust is 8161 South 200th
Avenue, Holton, Michigan 49425. The Veenstra Farm Preservation Trust is
beneficially owned by the adult children of John W. Veenstra and Joan
Nagelkirk, who disclaim any beneficial ownership of the shares. One of the
beneficiaries, Jennifer Veenstra, and the husband of another of the
beneficiaries, Peter Scharnell, are employed by us.
(2) Includes 910,000 shares underlying a warrant. The 910,000 shares underlying
this warrant may also be deemed to be beneficially owned by Robert Geist,
as trustee of the Robert A. Geist Revocable Trust dated October 13, 1993,
which is general partner of Starwood Investments, L.P.
44
(3) Includes 1,400,000 shares underlying a warrant and includes shares held by
Fortman Cline AG under its former name, Berrin Lord Holding AG. The address
of Fortman Cline AG is Farberstrasse 33, CH 8008 Zurich Switzerland.
(4) Includes 200,520 shares underlying options and warrants. Also includes
30,000 shares of which Mr. Jansma has beneficial ownership as manager of
Covenant Properties LLC.
(5) Includes 280,000 shares underlying options and warrants.
(6) Includes 382,666 shares underlying options.
(7) Includes 127,084 shares underlying options. Also includes 136,258 shares of
which Mr. Severiens has beneficial ownership as trustee of the C.T.
Severiens Trust dated October 21, 1990.
(8) Consists solely of 146,800 shares underlying options.
(9) Includes 163,833 shares underlying options. Also includes 20,000 shares of
which Mr. Harding has beneficial ownership as general partner of Harding
Partners, LP, a Pennsylvania limited partnership.
(10) Includes 20,833 shares underlying options.
(11) Consists solely of 8,333 shares underlying options.
(12) Excludes 14,000 shares held by Mr. Amber's wife as her sole and separate
property, and as to which Mr. Amber disclaims beneficial ownership.
(13) Includes 40,000 shares underlying a warrant.
45
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock, $0.01 par value per share, and 20,000,000 shares of preferred stock,
$0.01 par value per share. As of March 15, 2000, we had outstanding:
- 21,949,628 shares of common stock;
- 11,300,570 shares of convertible preferred stock, which will be converted
into 11,300,570 shares of common stock immediately prior to completion of
this offering;
- options to purchase an aggregate of 12,617,090 shares of our common stock
at a weighted average per share exercise price of $3.50; and
- warrants to purchase up to 5,707,688 shares of our common stock, of which
4,743,824 are exercisable at the initial public offering price and the
balance of which have a weighted average exercise price of $1.19 per
share.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Subject to the rights of holders of
preferred stock, if any, holders of common stock are entitled to such dividends
as the board of directors may declare out of funds legally available for the
payment of dividends. In the event of our liquidation, dissolution or winding
up, the holders of common stock are entitled to share ratably in all assets
remaining after the payment of liabilities, subject to prior distribution rights
of holders of preferred stock, if any. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock.
PREFERRED STOCK
Our board of directors is authorized, subject to any limitations prescribed
by Delaware law, to provide for the issuance of the undesignated preferred stock
in one or more series. Our board of directors is also authorized to establish
from time to time the number of shares to be included in each such series, to
fix or alter the rights, preferences, privileges and restrictions, including
voting, conversion, liquidation, dividend and redemption, of the shares of each
wholly unissued series and any restrictions thereon, and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding plus the number of shares reserved for issuance
upon the exercise of outstanding options, rights or warrants or the conversion
of any outstanding securities into shares of such series). Holders of common
stock will not be entitled to vote upon such matters.
JUNIOR PREFERRED STOCK AND RIGHTS AGREEMENT
Prior to the closing of this offering, we intend to file a certificate of
designation that provides for the issuance of up to 100,000 shares of Series A
Junior Participating Preferred Stock and contains the designations, preferences
and relative rights, qualifications and restrictions of the Series A Junior
Participating Preferred Stock created in connection with our rights plan, which
are described in general terms below. We refer to our Series A Junior
Participating Preferred Stock as Junior Preferred Stock.
On February 14, 2000, our board of directors adopted our rights plan, which
is commonly known as a poison pill and which expires ten years from the closing
of this offering. In connection with the adoption of our rights plan, our board
of directors declared, effective as of the closing of this offering, a dividend
of one stockholder right for each share of our common stock which is outstanding
as of the closing of this offering and a dividend of one stockholder right for
each share of our common stock that becomes outstanding between the closing of
this offering and the earlier of the expiration date and the distribution date.
The distribution date is the earlier to occur of the following:
46
- ten days after a public announcement that a person or group of affiliated
or associated persons have acquired beneficial ownership of 15% or more
of the outstanding shares of our common stock, or
- ten business days after the commencement or announcement of a tender
offer or exchange offer which would result in the beneficial ownership by
a person or group of 15% or more of the outstanding shares of our common
stock.
Each stockholder right entitles its holder to purchase one one-thousandth
of a share of Junior Preferred Stock at a price of $200, subject to adjustment
for stock splits and the like. Prior to the distribution date, our stockholder
rights will not be exercisable and will be transferable only with and
represented by the certificates for our common stock. After the distribution
date, separate right certificates will evidence our stockholder rights.
Shares of Junior Preferred Stock are not redeemable but will be entitled,
when, as and if declared, to a minimum preferential cumulative quarterly
dividend payment of $1.00 per share and an aggregate dividend and minimum
preferential liquidation payment of 1,000 times any dividend or liquidation
payment paid per share of our common stock. Upon any transaction in which shares
of our common stock are exchanged, each share of Junior Preferred Stock will be
entitled to receive 1,000 times the amount received for each share of our common
stock.
Subject to adjustments for stock splits and the like, each share of Junior
Preferred Stock will have 1,000 votes, voting together with our common stock
upon any matter submitted to our stockholders for a vote. In addition, the
affirmative vote of the holders of two-thirds of the outstanding shares of
Junior Preferred Stock is required to amend our certificate of incorporation so
as to adversely affect the rights of the Junior Preferred Stock. Also, if at the
time of any annual meeting of stockholders for the election of directors, six
quarterly dividends payable on any shares of Junior Preferred Stock are in
default, the number of directors constituting our board of directors will be
increased by two, and the holders of Junior Preferred Stock may elect two
directors who will hold office until removed by the holders of Junior Preferred
Stock or until the default in dividend payments is cured.
If we are acquired in a change of control transaction or there is a sale of
50% or more of our consolidated assets or earning power, each holder of a
stockholder right other than the acquiror may receive upon the exercise of the
stockholder right that number of shares of common stock of the acquiror having a
market value of two times the exercise price of the right. If any person or
group becomes a 15% beneficial owner before a change of control or sale
transaction, each holder of a stockholder right other than the acquiror could
purchase one one-thousandth of a share of Junior Preferred Stock or shares of
our common stock having a market value of two times the exercise price of the
right, or our board of directors may order the exchange of each stockholder
right not owned by the acquiror for one share of our common stock or one
one-thousandth of a share of Junior Preferred Stock.
Our stockholder rights have certain anti-takeover effects. Our stockholder
rights will cause substantial dilution to a person or group that attempts to
acquire our company on terms not approved by our board of directors, except for
an offer conditioned on a substantial number of stockholder rights being
acquired. The stockholder rights should not interfere with any merger or other
business combination approved by our board of directors because each stockholder
right may be redeemed by us for $.01 before the distribution date. For so long
as the stockholder rights are redeemable, we may amend them in any manner except
for the redemption price. After that time, we may amend them in any manner that
does not negatively affect the interests of holders of the stockholder rights.
WARRANTS
As of March 15, 2000, there were warrants outstanding to purchase 5,707,688
shares. Of these, warrants to purchase 101,238 shares at $0.485 per share will
expire in July 2001, warrants to purchase 10,300 shares at $0.50 per share will
expire in March 2003, warrants to purchase 455,000 shares at $1.00 per share
will expire between February 2003 and December 2003, warrants to purchase
329,546 shares at $1.00 per share will expire in March 2004, warrants to
purchase 67,780 shares at $4.50 per share will
47
expire between July 2004 and January 2005, warrants to purchase 1,985,824 shares
at a price equal to the initial public offering price per share will expire
between December 2003 and March 2004, and warrants to purchase 2,758,000 shares
at a price equal to the initial public offering price per share will expire in
one-third increments seven months, thirteen months and nineteen months from the
closing of this offering, respectively.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation includes a provision that eliminates the
personal liability of a director for monetary damages to us resulting from
breach of his or her fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
- we are required to indemnify our directors and executive officers to the
fullest extent permitted by Delaware law, subject to limited exceptions;
and
- we are required to advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by Delaware law, subject to limited exceptions.
We currently have liability insurance for our directors and officers and
intend to extend that coverage for public securities matters.
REGISTRATION RIGHTS
After the closing of this offering, the holders of 15,128,772 shares and
the holders of warrants to purchase 5,327,416 shares are entitled to
registration rights with respect to those shares. If we propose to register any
of our securities under the Securities Act of 1933, the holders of the
registration rights are entitled to notice and to include their shares in the
registration at our expense, subject to limitations or exclusions based on
marketing factors. In addition, certain of the registration rights holders may
require us, at our own expense, but on not more than two occasions and not
within six months following the effective date of any other registration
statement, to file a registration statement covering the resale of their shares,
and we are required to use our best efforts to effect the registration, subject
to certain conditions and limitations. Further, certain other registration
rights holders may require us to register their shares, at our expense, on Form
S-3 when that form becomes available to us, subject to certain conditions and
limitations.
CERTAIN ANTI-TAKEOVER PROVISIONS
Issuance of Preferred Stock
Subject to any limitations prescribed by Delaware law, our board of
directors is authorized by our certificate of incorporation to issue, without
stockholder approval, preferred stock with rights superior to the rights of the
holders of our common stock. As a result, preferred stock could be issued
relatively quickly and easily, could adversely affect the rights of holders of
common stock and could be issued with terms calculated to delay or prevent a
change of control of our company or make removal of management more difficult.
48
Poison Pill
Our board of directors has adopted a rights plan, which is commonly known
as a poison pill, and has declared, effective as of the closing of this
offering, a dividend of stockholder rights on shares of our common stock. These
stockholder rights have certain anti-takeover effects and generally will cause
substantial dilution to a person or group that attempts to acquire our company
on terms not approved by our board of directors. See "-- Junior Preferred Stock
and Rights Agreement."
Stockholder Meetings
Our bylaws provide that special meetings of stockholders for any purpose
may be called at any time by our board of directors but may not be called by any
other person or persons.
Advance Notification of Stockholder Nominations and Proposals
Our bylaws contain advance notice procedures with respect to stockholder
proposals and the nomination of candidates for election as directors.
Nominations and proposals may be made at an annual meeting of stockholders only
pursuant to our company's notice of meeting or any notice supplement, by or at
the direction of our board of directors, or by any stockholder who is a
stockholder of record of the company at the time the notice of meeting is
delivered to the Secretary of the company, who is entitled to vote at the
meeting and who complies with the notice procedures described in our bylaws.
Delaware Anti-Takeover Law
We are a Delaware corporation that may become subject to Section 203 of the
Delaware General Corporation Law as a result of or following the initial public
offering of common stock as described in this prospectus. Under Section 203,
certain "business combinations" between an "interested stockholder" and a
Delaware corporation that has a class of voting stock (i) listed on a national
securities exchange, (ii) authorized for quotation on the Nasdaq Stock Market or
(iii) held of record by more than 2,000 stockholders, are prohibited for a
three-year period following the date that such stockholder became an interested
stockholder, unless (i) the corporation has elected in its certificate of
incorporation not to be governed by Section 203 (we have not made such an
election), (ii) the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder was approved by the board of
directors of the corporation before such stockholder became an interested
stockholder, (iii) upon consummation of the transaction that made such
stockholder an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the commencement of
the transaction (excluding voting stock owned by directors who are also officers
or held in employee stock plans in which the employees 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 (iv) the business combination is
approved by the board of directors of the corporation and authorized at a
meeting by two-thirds of the voting stock that the interested stockholder did
not own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or transactions that increase
an interested stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as those stockholders who became beneficial
owners of 15% or more of a Delaware corporation's voting stock, together with
the affiliates or associates of that stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
49
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity or equity related
securities in the future and at a time and price that we consider appropriate.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of outstanding
options or warrants. As of March 15, 2000, we had approximately 560 holders of
common stock. All of the shares sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act, unless
these shares are purchased by our affiliates, or persons who directly or
indirectly control, are controlled by or are under common control with us.
Shares held by affiliates may generally only be sold in compliance with the
limitations of Rule 144 of the Securities Act described below. This leaves
shares eligible for sale in the public market as follows:
NUMBER OF SHARES DATE
---------------- ----
After 180 days from the date of this prospectus, subject, in
some cases, to volume limitations.
At various times after 181 days from the date of this
prospectus, subject, in some cases, to volume limitations.
LOCK-UP AGREEMENTS
We, our officers and directors and most of our existing stockholders and
option holders have agreed not to dispose of, or announce the intention to
dispose of, directly or indirectly, any additional shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of our
common stock, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this
offering; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 concerning that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
ZLand.com, Inc.
RULE 144(k)
Under Rule 144(k) as currently in effect, a person who has not been one of
our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the
completion of this offering.
50
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our non-executive employees, consultants or advisors who purchases shares
of our common stock from us in connection with a compensatory stock or option
plan or other written agreement is eligible to resell those shares 90 days after
the effective date of this prospectus in reliance on Rule 144, but without
compliance with some of the restrictions, including the holding period,
contained in Rule 144.
51
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
FleetBoston Robertson Stephens Inc. and Friedman, Billings, Ramsey & Co., Inc.,
are acting as representatives, the following respective numbers of shares of
common stock:
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
Credit Suisse First Boston Corporation......................
FleetBoston Robertson Stephens Inc..........................
Friedman, Billings, Ramsey & Co., Inc.......................
--------
Total.............................................
========
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of common stock at the initial
public offering price less the underwriting discounts and commissions. This
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the discounts and commissions and estimated
expenses of $ we will pay. The underwriting fee will be equal to the
public offering price per share of common stock less the amount paid by
underwriters to us per share of common stock. The underwriting discount per
share will be equal to % of the initial public offering price per share of
common stock.
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
Underwriting discounts and commissions paid
by us.................................... $ $ $ $
Expenses payable by us..................... $ $ $ $
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
In December 1999, affiliates of Credit Suisse First Boston Corporation and
FleetBoston Robertson Stephens Inc. purchased an aggregate of 133,332 shares of
our Series C Convertible Preferred Stock at a purchase price of $599,994 on the
same terms as those on which we offered these securities to other investors.
These shares will convert automatically into 133,332 shares of common stock
immediately prior to completion of this offering.
52
We, our officers and directors and most of our existing stockholders and
option holders have agreed not to dispose of, or announce the intention to
dispose of, directly or indirectly, any additional shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of our
common stock, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
common stock in this offering. The number of shares available for sale to the
general public in this offering will be reduced to the extent that these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments that the underwriters may be required
to make in that respect.
We will apply to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "ZLND." Prior to this offering, there
has been no public market for the common stock.
The initial public offering price will be determined by negotiation between
us and the representatives, and does not reflect the market price for the common
stock following the offering. The principal factors considered in determining
the initial public offering price will be:
- the information in this prospectus and otherwise available to the
representatives;
- market conditions for initial public offerings;
- the history of and prospects for the industry in which we compete;
- our past and present operations;
- our past and present earnings and current financial position;
- the ability of our management;
- our prospects for future earnings;
- the present state of our development and our current financial condition;
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and
- the general condition of the securities markets at the time of this
offering.
We can offer no assurance that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to this offering or that an active trading market for the
common stock will develop and continue after this offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by that
syndicate member is purchased in a stabilizing transaction or syndicate
covering transaction to cover syndicate short positions.
53
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of our common stock to be greater than it would otherwise be
in the absence of such transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that: (1) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (2) where required
by law, that such purchaser is purchasing as principal and not as agent, and (3)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of our directors and officers as well as the experts named herein may
be located outside of Canada and, as a result, it may not be possible for
Canadian purchasers to effect service of process within Canada upon the issuer
or such persons. All or a substantial portion of the assets of the issuer and
such persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against the issuer or such persons in Canada or
to enforce a judgment obtained in Canadian courts against such issuer or persons
outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
54
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will
be passed upon for us by Rutan & Tucker, LLP, Costa Mesa, California. Certain
legal matters relating to this offering will be passed upon for the underwriters
by Stoel Rives LLP. Partners of Rutan & Tucker, LLP own 128,444 shares of our
common stock.
EXPERTS
The consolidated financial statements of ZLand.com, Inc. and subsidiaries
as of and for the year ended December 31, 1999, 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.
The consolidated financial statements as of December 31, 1998 and for each
of the two years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The financial statements of Appintec Corp., dba ActionWare, as of and for
the year ended June 30, 1999, 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.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective December 28, 1999, KPMG LLP was engaged as our independent
auditors and replaced PricewaterhouseCoopers LLP, who had previously served as
our independent auditors. The decision to change independent auditors was
approved by our Board of Directors. In the period from January 1, 1997 to
December 31, 1998, PricewaterhouseCoopers LLP issued no audit report that was
qualified or modified as to uncertainty, audit scope or accounting principles,
no adverse opinions or disclaimers of opinion on any of our financial
statements, and there were no disagreements with PricewaterhouseCoopers LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements, if not
resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused
them to make reference thereto in their reports on the consolidated financial
statements for such years. Prior to December 28, 1999, we had not consulted with
KPMG LLP on items which involved our accounting principles or the form of audit
opinion to be issued on our financial statements.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares
offered by this prospectus. This prospectus does not contain all of the
information set forth in the registration statement and its exhibits and
schedules. For further information about ZLand.com and the shares offered by
this prospectus, please refer to the registration statement and its exhibits and
schedules. Statements contained in this prospectus concerning the content of any
contract or other document referred to are not necessarily complete, and, in
each instance, if such contract or documents is filed as an exhibit, we refer
you to the copy of such contract or document filed as an exhibit to the
registration statement. Each statement is qualified in all respects by
55
such reference to such exhibit. A copy of the registration statement, and its
exhibits and schedules, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the registration statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The public may obtain information on the operation of the
Commission's public facilities by calling 1-(800)-SEC-0330. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is www.sec.gov.
When we complete this offering, we will be required to file annual,
quarterly and special reports, proxy statements and other information with the
Commission. We intend to furnish our stockholders with annual reports containing
audited financial statements and make available to our stockholders quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
56
ZLAND.COM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Independent Auditors' Reports............................... F-2, F-3
Consolidated Balance Sheets as of December 31, 1998 and 1999
and December 31, 1999 Pro Forma (unaudited)............... F-4
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-5
Consolidated Statements of Stockholders' Equity (Deficit)
and Comprehensive Loss for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and
1999...................................................... F-8
Notes to Consolidated Financial Statements.................. F-9
Schedule II -- Valuation and Qualifying Accounts............ S-1
APPINTEC CORP., DBA ACTIONWARE
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report................................ F-28
Balance Sheet as of June 30, 1999........................... F-29
Statement of Operations for the year ended June 30, 1999.... F-30
Statement of Stockholders' Deficit for the year ended June
30, 1999.................................................. F-31
Statement of Cash Flows for the year ended June 30, 1999.... F-32
Notes to Financial Statements............................... F-33
Unaudited Pro Forma Condensed Statement of Operations....... F-39
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ZLand.com, Inc.:
We have audited the accompanying consolidated balance sheet of ZLand.com,
Inc. and subsidiaries as of December 31, 1999 and the related consolidated
statements of operations, stockholders' equity (deficit) and comprehensive loss
and cash flows for the year then ended. In connection with our audit of the
consolidated financial statements, we have also audited the consolidated
financial statement schedule as of and for the year ended December 31, 1999.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ZLand.com,
Inc. and subsidiaries as of December 31, 1999 and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Orange County, California
February 14, 2000
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
ZLand.com, Inc.:
In our opinion, the accompanying consolidated balance sheet as of December
31, 1998 and the related consolidated statements of operations, stockholders'
equity (deficit) and comprehensive loss and cash flows for each of the two years
in the period ended December 31, 1998 present fairly, in all material respects,
the financial position, results of operations and cash flows of ZLand.com, Inc.
at December 31, 1998 and for each of the two years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above. We have not audited the financial statements of
ZLand.com, Inc. for any period subsequent to December 31, 1998.
PRICEWATERHOUSECOOPERS LLP
Costa Mesa, California
April 19, 1999
F-3
ZLAND.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1999
1998 1999 PRO FORMA
------- -------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,594 $ 16,404 $ 16,404
Accounts receivable, net of allowance for doubtful
accounts of $125 and $124 at December 31, 1998 and 1999,
respectively............................................ 295 4,939 4,939
Prepaid expenses and other current assets................. 34 1,368 1,368
Current portion of stockholder note receivable............ 68 -- --
------- -------- --------
Total current assets............................... 1,991 22,711 22,711
Property and equipment, net................................. 239 1,774 1,774
Goodwill and other intangibles, net of accumulated
amortization of $41 at December 31, 1999.................. -- 2,047 2,047
Other assets................................................ 14 787 787
Software development costs, net of accumulated amortization
of $441 and $882 at December 31, 1998 and 1999,
respectively.............................................. 441 -- --
------- -------- --------
$ 2,685 $ 27,319 $ 27,319
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Convertible notes payable, net............................ $ 1,065 $ -- $ --
Note payable to former stockholder........................ 111 28 28
Current installments of notes payable to stockholder...... 63 -- --
Current installments of capitalized lease obligations..... 83 352 352
Accounts payable.......................................... 593 1,124 1,124
Accrued expenses.......................................... 780 3,224 3,224
Deferred revenue.......................................... 599 6,149 6,149
------- -------- --------
Total current liabilities.......................... 3,294 10,877 10,877
Notes payable to stockholder, less current installments..... 30 -- --
Capitalized lease obligations, excluding current
installments.............................................. 89 467 467
------- -------- --------
3,413 11,344 11,344
------- -------- --------
Commitments and contingencies (note 11)
Subsequent events (notes 7(f) and 12)
Stockholders' equity (deficit):
Series A convertible preferred stock, $.01 par value;
2,220,000 shares authorized; 1,605,226 and 1,649,634
shares issued and outstanding at December 31, 1998 and
1999, respectively; 0 shares issued and outstanding pro
forma (unaudited)....................................... 16 16 --
Series B convertible preferred stock, $.01 par value;
7,823,740 shares authorized; 2,171,000 and 6,144,270
shares issued and outstanding at December 31, 1998 and
1999, respectively; 0 shares issued and outstanding pro
forma (unaudited)....................................... 22 61 --
Series C convertible preferred stock, $.01 par value;
3,777,778 shares authorized; 0 and 3,506,666 shares
issued and outstanding at December 31, 1998 and 1999,
respectively; 0 shares issued and outstanding pro forma
(unaudited)............................................. -- 35 --
Undesignated preferred stock, 6,178,482 shares authorized;
0 shares issued and outstanding at December 31, 1998 and
1999 and pro forma (unaudited), respectively............ -- -- --
Common stock, $.01 par value; 100,000,000 shares
authorized; 17,782,230 and 21,542,806 shares issued
(including treasury shares) and outstanding at December
31, 1998 and 1999, respectively; 32,843,376 issued and
outstanding pro forma (unaudited)....................... 178 216 328
Additional paid-in capital................................ 7,609 39,418 39,418
Treasury stock -- common shares at cost; 0 and 143,592
shares at December 31, 1998 and 1999, respectively...... -- (239) (239)
Stock subscriptions receivable............................ -- (1,327) (1,327)
Accumulated other comprehensive loss...................... -- (9) (9)
Accumulated deficit....................................... (8,553) (22,196) (22,196)
------- -------- --------
Total stockholders' equity (deficit)............... (728) 15,975 15,975
------- -------- --------
$ 2,685 $ 27,319 $ 27,319
======= ======== ========
See accompanying notes to consolidated financial statements.
F-4
ZLAND.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1998 1999
------- ------- --------
Revenues:
Franchise................................................. $ -- $ 260 $ 4,669
Product and related services.............................. 221 350 1,793
------- ------- --------
Total revenues.................................... 221 610 6,462
Cost of revenues............................................ 82 560 1,200
------- ------- --------
Gross profit...................................... 139 50 5,262
------- ------- --------
Operating expenses:
Research and development.................................. 890 993 3,146
Sales and marketing....................................... 629 2,156 9,915
General and administrative................................ 283 2,119 4,449
In-process research and development....................... -- -- 1,304
------- ------- --------
Total operating expenses.......................... 1,802 5,268 18,814
------- ------- --------
Operating loss.................................... (1,663) (5,218) (13,552)
Interest expense, net....................................... 222 149 87
------- ------- --------
Net loss before income taxes...................... (1,885) (5,367) (13,639)
Provision for income taxes.................................. -- -- 4
------- ------- --------
Net loss.......................................... (1,885) (5,367) (13,643)
Preferred stock dividend.................................... 49 -- --
------- ------- --------
Net loss applicable to common stockholders........ $(1,934) $(5,367) $(13,643)
======= ======= ========
Basic and diluted net loss per share........................ $ (.23) $ (.33) $ (.73)
======= ======= ========
Shares used to compute basic and diluted net loss per
share..................................................... 8,342 16,072 18,570
======= ======= ========
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (.46)
========
Shares used to compute pro forma basic and diluted net loss
per share (unaudited)..................................... 29,870
========
See accompanying notes to consolidated financial statements.
F-5
ZLAND.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------ ------------------ ------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------ --------- ------ ---------- ------
Balance at December 31, 1996...... -- $-- -- $-- -- $-- 6,000,000 $ 60
Issuance of Common Stock under
stock purchase agreement......... -- -- -- -- -- -- 3,334,008 34
Issuance of Common Stock in
exchange for services............ -- -- -- -- -- -- 340,000 3
Common Stock options exercised.... -- -- -- -- -- -- 325,992 3
Issuance of Common Stock for
cash............................. -- -- -- -- -- -- 2,000,000 20
Conversion of 10% convertible
promissory notes, plus accrued
interest, to Series A Convertible
Preferred Stock.................. 1,690,980 17 -- -- -- -- -- --
Common Stock issued in exchange
for license agreement............ -- -- -- -- -- -- 200,000 2
Common Stock issued for debt
conversion....................... -- -- -- -- -- -- 895,566 9
Issuance of Common Stock pursuant
to warrants exercise............. -- -- -- -- -- -- 800,876 8
Issuance of Series A Convertible
Preferred Stock pursuant to
warrants exercise................ 197,752 2 -- -- -- -- -- --
Issuance of warrants in
conjunction with convertible
notes............................ -- -- -- -- -- -- -- --
Amortization of deferred
compensation..................... -- -- -- -- -- -- -- --
Dividends......................... -- -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
--------- --- --------- --- --------- --- ---------- ----
Balance at December 31, 1997...... 1,888,732 19 -- -- -- -- 13,896,442 139
Common Stock options exercised.... -- -- -- -- -- -- 1,157,460 12
Issuance of Common Stock pursuant
to warrants exercise............. -- -- -- -- -- -- 240,000 2
Issuance of common stock for cash,
net of issuance costs of
$97,100.......................... -- -- -- -- -- -- 2,695,000 27
Issuance of Series B Convertible
Preferred Stock.................. -- -- 2,171,000 22 -- -- -- --
Repurchase of Series A Convertible
Preferred Stock.................. (283,506) (3) -- -- -- -- -- --
Repurchase of Common Stock........ -- -- -- -- -- -- (206,672) (2)
Issuance of Common Stock warrants
in conjunction with convertible
notes............................ -- -- -- -- -- -- -- --
Issuance of Common Stock warrants
for services..................... -- -- -- -- -- -- -- --
Issuance of Common Stock warrants
in connection with equity
financing........................ -- -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
--------- --- --------- --- --------- --- ---------- ----
Balance at December 31, 1998...... 1,605,226 16 2,171,000 22 -- -- 17,782,230 178
Common Stock options exercised.... -- -- -- -- -- -- 298,846 3
Issuance of Common Stock for cash
and notes........................ -- -- -- -- -- -- 459,134 4
Issuance of Common Stock for
services......................... -- -- -- -- -- -- 285,036 3
ACCUMULATED
ADDITIONAL TREASURY STOCK OTHER
PAID-IN ------------------- SUBSCRIPTIONS COMPREHENSIVE ACCUMULATED
CAPITAL SHARES AMOUNT RECEIVABLE LOSS DEFICIT
----------- --------- ------- ------------- ------------- -----------
Balance at December 31, 1996...... $ 470 -- $ -- $ -- $-- $ (1,252)
Issuance of Common Stock under
stock purchase agreement......... 132 -- -- -- -- --
Issuance of Common Stock in
exchange for services............ 14 -- -- -- -- --
Common Stock options exercised.... 13 -- -- -- -- --
Issuance of Common Stock for
cash............................. 980 -- -- -- -- --
Conversion of 10% convertible
promissory notes, plus accrued
interest, to Series A Convertible
Preferred Stock.................. 803 -- -- -- -- --
Common Stock issued in exchange
for license agreement............ 98 -- -- -- -- --
Common Stock issued for debt
conversion....................... 439 -- -- -- -- --
Issuance of Common Stock pursuant
to warrants exercise............. 53 -- -- -- -- --
Issuance of Series A Convertible
Preferred Stock pursuant to
warrants exercise................ 94 -- -- -- -- --
Issuance of warrants in
conjunction with convertible
notes............................ 137 -- -- -- -- --
Amortization of deferred
compensation..................... 50 -- -- -- -- --
Dividends......................... 49 -- -- -- -- (49)
Net loss.......................... -- -- -- -- -- (1,885)
------- --------- ------- ------- --- --------
Balance at December 31, 1997...... 3,332 -- -- -- -- (3,186)
Common Stock options exercised.... 567 -- -- -- -- --
Issuance of Common Stock pursuant
to warrants exercise............. 118 -- -- -- -- --
Issuance of common stock for cash,
net of issuance costs of
$97,100.......................... 1,234 -- -- -- -- --
Issuance of Series B Convertible
Preferred Stock.................. 2,149 -- -- -- -- --
Repurchase of Series A Convertible
Preferred Stock.................. (125) -- -- -- -- --
Repurchase of Common Stock........ (8) -- -- -- -- --
Issuance of Common Stock warrants
in conjunction with convertible
notes............................ 148 -- -- -- -- --
Issuance of Common Stock warrants
for services..................... 97 -- -- -- -- --
Issuance of Common Stock warrants
in connection with equity
financing........................ 97 -- -- -- -- --
Net loss.......................... -- -- -- -- -- (5,367)
------- --------- ------- ------- --- --------
Balance at December 31, 1998...... 7,609 -- -- -- -- (8,553)
Common Stock options exercised.... 714 -- -- (230) -- --
Issuance of Common Stock for cash
and notes........................ 2,062 -- -- (338) -- --
Issuance of Common Stock for
services......................... 1,160 -- -- -- -- --
TOTAL
STOCKHOLDERS' COMPREHENSIVE
EQUITY (DEFICIT) LOSS
---------------- -------------
Balance at December 31, 1996...... $ (722)
Issuance of Common Stock under
stock purchase agreement......... 166
Issuance of Common Stock in
exchange for services............ 17
Common Stock options exercised.... 16
Issuance of Common Stock for
cash............................. 1,000
Conversion of 10% convertible
promissory notes, plus accrued
interest, to Series A Convertible
Preferred Stock.................. 820
Common Stock issued in exchange
for license agreement............ 100
Common Stock issued for debt
conversion....................... 448
Issuance of Common Stock pursuant
to warrants exercise............. 61
Issuance of Series A Convertible
Preferred Stock pursuant to
warrants exercise................ 96
Issuance of warrants in
conjunction with convertible
notes............................ 137
Amortization of deferred
compensation..................... 50
Dividends......................... --
Net loss.......................... (1,885) $ (1,885)
-------- --------
Balance at December 31, 1997...... 304 $ (1,885)
========
Common Stock options exercised.... 579
Issuance of Common Stock pursuant
to warrants exercise............. 120
Issuance of common stock for cash,
net of issuance costs of
$97,100.......................... 1,261
Issuance of Series B Convertible
Preferred Stock.................. 2,171
Repurchase of Series A Convertible
Preferred Stock.................. (128)
Repurchase of Common Stock........ (10)
Issuance of Common Stock warrants
in conjunction with convertible
notes............................ 148
Issuance of Common Stock warrants
for services..................... 97
Issuance of Common Stock warrants
in connection with equity
financing........................ 97
Net loss.......................... (5,367) $ (5,367)
-------- --------
Balance at December 31, 1998...... (728) $ (5,367)
========
Common Stock options exercised.... 487
Issuance of Common Stock for cash
and notes........................ 1,728
Issuance of Common Stock for
services......................... 1,163
F-6
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------ ------------------ ------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------ --------- ------ ---------- ------
Issuance of Common Stock pursuant
to warrant exercise.............. -- -- -- -- -- -- 1,873,882 19
Conversion of Series A Convertible
Preferred Stock.................. (1,012) -- -- -- -- -- 1,012 --
Conversion of Series B Convertible
Preferred Stock.................. -- -- (11,554) -- -- -- 11,554 --
Repurchase of Series A Convertible
Preferred Stock.................. (181,672) (2) -- -- -- -- -- --
Repurchase of Common Stock........ -- -- -- -- -- -- -- --
Issuance of Series A Convertible
Preferred Stock pursuant to
warrant exercise................. 227,092 2 -- -- -- -- -- --
Issuance of Series B Convertible
Preferred Stock for cash......... -- -- 3,514,178 35 -- -- -- --
Conversion of convertible notes
payable to Series B Convertible
Preferred Stock.................. -- -- 470,646 4 -- -- -- --
Issuance of Series C Convertible
Preferred Stock for cash......... -- -- -- -- 3,777,778 38 -- --
Issuance of Common Stock for
purchase of Emerging Markets
Technologies..................... -- -- -- -- -- -- 85,000 1
Issuance of Common Stock for
purchase of ActionWare........... -- -- -- -- -- -- 475,000 5
Conversion of Series C Convertible
Preferred Stock.................. -- -- -- -- (271,112) (3) 271,112 3
Grant of Common Stock options for
services......................... -- -- -- -- -- -- -- --
Grant of Common Stock warrants for
services......................... -- -- -- -- -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
--------- --- --------- --- --------- --- ---------- ----
Balance at December 31, 1999...... 1,649,634 $16 6,144,270 $61 3,506,666 $35 21,542,806 $216
========= === ========= === ========= === ========== ====
ACCUMULATED
ADDITIONAL TREASURY STOCK OTHER
PAID-IN ------------------- SUBSCRIPTIONS COMPREHENSIVE ACCUMULATED
CAPITAL SHARES AMOUNT RECEIVABLE LOSS DEFICIT
----------- --------- ------- ------------- ------------- -----------
Issuance of Common Stock pursuant
to warrant exercise.............. 5,031 -- -- -- -- --
Conversion of Series A Convertible
Preferred Stock.................. -- -- -- -- -- --
Conversion of Series B Convertible
Preferred Stock.................. -- -- -- -- -- --
Repurchase of Series A Convertible
Preferred Stock.................. (86) -- -- -- -- --
Repurchase of Common Stock........ -- (143,592) (239) -- -- --
Issuance of Series A Convertible
Preferred Stock pursuant to
warrant exercise................. 108 -- -- -- -- --
Issuance of Series B Convertible
Preferred Stock for cash......... 3,479 -- -- -- -- --
Conversion of convertible notes
payable to Series B Convertible
Preferred Stock.................. 466 -- -- -- -- --
Issuance of Series C Convertible
Preferred Stock for cash......... 16,218 -- -- (759) -- --
Issuance of Common Stock for
purchase of Emerging Markets
Technologies..................... 382 -- -- -- -- --
Issuance of Common Stock for
purchase of ActionWare........... 2,133 -- -- -- -- --
Conversion of Series C Convertible
Preferred Stock.................. -- -- -- -- -- --
Grant of Common Stock options for
services......................... 90 -- -- -- -- --
Grant of Common Stock warrants for
services......................... 52 -- -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- (9) --
Net loss.......................... -- -- -- -- -- (13,643)
------- --------- ------- ------- --- --------
Balance at December 31, 1999...... $39,418 (143,592) $ (239) $(1,327) $(9) $(22,196)
======= ========= ======= ======= === ========
TOTAL
STOCKHOLDERS' COMPREHENSIVE
EQUITY (DEFICIT) LOSS
---------------- -------------
Issuance of Common Stock pursuant
to warrant exercise.............. 5,050
Conversion of Series A Convertible
Preferred Stock.................. --
Conversion of Series B Convertible
Preferred Stock.................. --
Repurchase of Series A Convertible
Preferred Stock.................. (88)
Repurchase of Common Stock........ (239)
Issuance of Series A Convertible
Preferred Stock pursuant to
warrant exercise................. 110
Issuance of Series B Convertible
Preferred Stock for cash......... 3,514
Conversion of convertible notes
payable to Series B Convertible
Preferred Stock.................. 470
Issuance of Series C Convertible
Preferred Stock for cash......... 15,497
Issuance of Common Stock for
purchase of Emerging Markets
Technologies..................... 383
Issuance of Common Stock for
purchase of ActionWare........... 2,138
Conversion of Series C Convertible
Preferred Stock.................. --
Grant of Common Stock options for
services......................... 90
Grant of Common Stock warrants for
services......................... 52
Foreign currency translation
adjustment....................... (9) (9)
Net loss.......................... (13,643) (13,643)
-------- --------
Balance at December 31, 1999...... $ 15,975 $(13,652)
======== ========
See accompanying notes to consolidated financial statements.
F-7
ZLAND.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
1997 1998 1999
------- ------- --------
Cash flows from operating activities:
Net loss.................................................. $(1,885) $(5,367) $(13,643)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 307 655 737
Amortization of deferred compensation................... 50 -- --
Amortization of discount on convertible notes payable... -- 47 --
Provision for doubtful accounts......................... 10 121 286
Equity instruments issued for services.................. -- 97 1,305
Impairment of long-lived assets......................... -- 128 --
Forgiveness of stockholder note receivable.............. -- -- 68
In-process research and development..................... -- -- 1,304
Changes in assets and liabilities, excluding effects of
acquisitions:
Accounts receivable................................... (66) (334) (4,709)
Prepaid expenses and other current assets............. (31) 29 (1,321)
Other assets.......................................... -- -- (319)
Accounts payable...................................... 352 70 425
Accrued expenses...................................... 613 336 2,017
Deferred revenue...................................... (36) 493 5,256
------- ------- --------
Net cash used in operating activities.............. (686) (3,725) (8,594)
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (67) (87) (1,605)
Acquisitions of businesses, net of cash acquired.......... (24) -- (377)
Software development costs................................ (882) -- --
Cash paid for investments held under cost method.......... -- -- (450)
------- ------- --------
Net cash used in investing activities.............. (973) (87) (2,432)
------- ------- --------
Cash flows from financing activities:
Principal payments on capitalized lease obligations....... (47) (88) (171)
Proceeds from leasing lines of credit..................... -- 144 719
Collection of receivables from affiliates................. 47 -- --
Proceeds from note payable................................ 112 795 --
Proceeds from issuance of convertible debt and warrants... 361 1,165 --
Principal payments on notes payable....................... -- (713) (771)
Proceeds from issuance of Common Stock.................... 1,061 1,347 1,728
Proceeds from issuance of Preferred Stock and warrants.... 96 2,171 19,121
Exercise of stock options and warrants.................... -- 699 5,537
Repurchase of Common Stock................................ -- (128) (239)
Repurchase of Series A Convertible Preferred Stock........ -- -- (88)
------- ------- --------
Net cash provided by financing activities.......... 1,630 5,392 25,836
------- ------- --------
Net increase (decrease) in cash and cash
equivalents...................................... (29) 1,580 14,810
Cash and cash equivalents, beginning of year................ 43 14 1,594
------- ------- --------
Cash and cash equivalents, end of year...................... $ 14 $ 1,594 $ 16,404
======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest.................... $ 21 $ 17 $ 67
Cash paid during the year for income taxes................ 2 1 3
======= ======= ========
Supplemental disclosure of noncash investing and financing
activities:
Capitalized lease obligations incurred for purchase of
property and equipment.................................. $ 57 $ 144 --
Common Stock issued for acquisition of businesses......... -- -- 2,521
Conversion of convertible notes payable and related
accrued interest into Series B Convertible Preferred
Stock................................................... -- -- 470
See accompanying notes to consolidated financial statements.
F-8
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) THE COMPANY
ZLand.com, Inc. and subsidiaries (ZLand or the Company), founded in
September 1995, is an applications service provider, or ASP, offering
proprietary Web-based software applications that enable small and mid-sized
businesses to cost-effectively take their operations online and automate their
business processes. The Company provides solutions to its customers on a rental
basis through a franchise network of local e-business professionals.
The Company originally operated as Z Land LLC, a California limited
liability company (Z Land LLC) and Zavada LLC, a Nevada limited liability
company (Zavada), which were formed in September 1995. Z Land LLC and Zavada
were owned by the same members in the same proportions. In December 1996, Z Land
LLC and Zavada were merged into Z Land Acquisition, Inc., a California
corporation formed specifically for this purpose by the same members. Z Land
Acquisition, Inc. subsequently changed its name to ZLand, Inc. following the
dissolution of Z Land LLC and Zavada. The transaction was treated as a
combination of interests under common control. During 1999, the Company
reincorporated in the state of Delaware, and the Company's name was changed to
ZLand.com, Inc.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the consolidated accounts of
the Company and its wholly owned subsidiaries, including subsidiaries in
Germany, Australia, Netherlands, Ireland and the Cayman Islands, as well as an
80%-owned subsidiary, Commercial Interiors Network, Inc. All significant
intercompany transactions and balances have been eliminated in consolidation.
Losses of majority-owned subsidiaries are not allocated to minority interests if
such allocation results in the minority interest becoming negative. Through
December 31, 1997, the Company's 80%-owned subsidiary incurred cumulative
operating losses, and no allocation of losses has been made in excess of the
original capital contribution of the minority interest. During 1998, Commercial
Interiors Network, Inc. ceased operations.
(C) PRO FORMA PRESENTATION
In accordance with the terms of the preferred stock, each of the shares of
preferred stock are converted into common stock upon the closing of an initial
public stock offering, as defined (see note 7). The accompanying unaudited pro
forma consolidated balance sheet reflects the conversion of all outstanding
Series A, Series B and Series C Convertible Preferred Stock into Common Stock.
Unaudited pro forma basic and diluted net loss per share for 1999 have been
computed assuming the conversion of all outstanding shares of convertible
preferred stock into common stock as if the shares had been converted at the
beginning of 1999.
(D) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
respective reporting periods. Actual results could differ from those estimates.
(E) REVENUE RECOGNITION
The Company recognizes franchise revenues in three stages based upon the
value of the services provided to the franchisees during each stage. The Company
recognizes a portion of the franchise fee upon completion of initial franchisee
training, which represents the point at which a franchisee commences operations
and the franchise fee becomes nonrefundable. A portion of the franchise fee,
representing the
F-9
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Company's estimate of the value of the additional training and assistance
required to be provided to the franchisee in the initial year of operations, is
recognized ratably over the first year of the franchise agreement. A portion of
the franchise fee, representing the Company's estimate of the value provided by
the Company to the franchisee over the term of the franchise agreement, is
recognized ratably over the seven-year term of the franchise agreement.
Generally, the entire franchise fee for the initial franchise period is due upon
signing of the franchise agreement. In those instances in which payment terms
are granted, the unpaid fee is recognized in accordance with the above policy
only when management believes collection is probable. The Company's franchise
revenue recognition policy is in accordance with Statement of Financial
Accounting Standards (SFAS) No. 45, "Accounting for Franchise Fee Revenue," and
the Securities and Exchange Commission's Staff Accounting Bulletin No. 101.
With regard to product and related services revenues, the Company
recognizes all upfront design and development as revenue once design and
development is complete and the product is available for customer use, and
recognizes rental revenues ratably over the one year service period, following
the guidance of American Institute of Certified Public Accountants Statements of
Position 97-2 and 98-9, "Software Revenue Recognition." Revenue related to
operating assistance agreements is recognized as the services are performed.
(F) CASH AND CASH EQUIVALENTS
The Company considers all money market funds and other highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
(G) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company applies the provisions of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments. SFAS No. 107 requires all entities to disclose
the fair value of financial instruments, both assets and liabilities recognized
and not recognized on the balance sheet, for which it is practicable to estimate
fair value. SFAS No. 107 defines fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties. As of December 31, 1998 and 1999, management believes
that the fair value of all financial instruments approximated carrying value.
(H) FOREIGN CURRENCY TRANSLATION
The Company's non-U.S. subsidiaries use local currencies as their
functional currencies. Assets and liabilities of non-U.S. subsidiaries that
operate in a local currency environment are translated to U.S. dollars at
year-end rates. Income and expense items are translated at average rates of
exchange prevailing during the year. Translation adjustments are recorded in
accumulated other comprehensive loss. At December 31, 1999, $9 was included in
accumulated other comprehensive loss related to foreign currency translation
adjustments. The Company incurred no foreign currency transaction gain or loss
during the years presented.
(I) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Assets held under capitalized lease obligations are recorded
at the present value of the minimum lease payments at lease inception.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets, which is generally three years.
Leasehold improvements are amortized using the straight-line method over the
lesser of the useful life of the improvement or the term of the related lease.
F-10
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(J) CAPITALIZED SOFTWARE COSTS
The Company capitalizes costs incurred for the development of computer
software when projects reach technological feasibility, and continues to
capitalize such costs until the products are available for release to the
general public. Capitalized costs include direct labor and related expenses for
software produced by the Company and the costs of software purchased from third
parties. Software development costs incurred prior to technological feasibility
are expensed as incurred. The Company amortizes capitalized product development
costs based upon the greater of the amount using the rates that current gross
revenues for a product bears to the total of current and anticipated future
gross revenues for that product or the straight-line method over the remaining
estimated life of the product commencing the month after the date of product
release. The Company capitalized $882 of total software development costs in
1997. Technological feasibility for subsequent products developed was determined
to occur shortly prior to release and any software development costs to be
capitalized were considered insignificant. Therefore, no amounts were
capitalized in 1998 or 1999. Amortization expense for the years ended December
31, 1997, 1998 and 1999 totaled $0, $441 and $441, respectively.
(K) LONG-LIVED ASSETS
The Company applies the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Under the provisions of SFAS No. 121, the recoverability of long-lived assets is
assessed by determining whether the carrying value of the asset can be recovered
through projected undiscounted future operating cash flows over its remaining
life. The amount of impairment, if any, is measured based upon projected
discounted future operating cash flows. Assets to be disposed of are reported at
the lower of the carrying amount or the fair value less costs to sell. During
1998, the Company wrote-down approximately $128 of impaired long-lived assets.
The write-down included the remaining goodwill related to an acquisition and
$100 related to another investment, which management deemed was no longer
recoverable.
(L) DEFERRED REVENUE
Deferred revenue relates to the portion of cash and notes received for
initial franchise fees relating to the Company's ongoing requirements under its
franchise agreements and proceeds received for product rentals recognized over
the term of the agreements.
(M) STOCK-BASED COMPENSATION
As described in note 7, the Company has elected to follow the accounting
provisions of Accounting Principles Board Opinion No. (APB) 25, Accounting for
Stock Issued to Employees, for stock-based compensation and to furnish the pro
forma disclosures required by SFAS No. 123, Accounting for Stock-Based
Compensation. Under APB 25, when the exercise price of the Company's employee
stock options equals the fair market value of the underlying stock on the date
of grant, no compensation expense is recorded.
Equity instruments issued to nonemployees are measured at the fair value of
the equity instruments using the stock price and other measurement assumptions
as of the earlier of the date at which a performance commitment to earn the
equity instruments is reached or the date at which the performance is complete.
F-11
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(N) INCOME TAXES
The Company accounts for income taxes pursuant to SFAS No. 109, Accounting
for Income Taxes. SFAS No. 109 uses the asset and liability method of accounting
for income taxes, which recognizes deferred tax assets and liabilities for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(O) NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share. Under the provisions of SFAS No. 128, basic and diluted net
loss per share is computed by dividing the net loss available to common
stockholders for the period by the weighted average number of shares of common
stock outstanding during the period.
The calculation of diluted net loss per share excludes potential common
shares if the effect is antidilutive. Potential common shares are composed of
incremental shares of common stock issuable upon the exercise of stock options
and warrants and upon conversion of Series A, B and C convertible preferred
stock.
The following table sets forth potential common shares that are excluded
from the diluted net loss per share calculation for the years ended December 31,
1997, 1998 and 1999 because they are antidilutive for the periods indicated:
1997 1998 1999
--------- ---------- ----------
Series A convertible preferred stock............ 1,888,732 1,605,226 1,649,634
Series B convertible preferred stock............ -- 2,171,000 6,144,270
Series C convertible preferred stock............ -- -- 3,506,666
Warrants........................................ 617,630 3,973,714 5,757,798
Stock options................................... 297,000 3,257,100 11,139,212
--------- ---------- ----------
2,803,362 11,007,040 28,197,580
========= ========== ==========
(P) OTHER COMPREHENSIVE LOSS
The Company applies SFAS No. 130, Reporting Comprehensive Income. SFAS No.
130 establishes standards for reporting of comprehensive income (loss) and its
components. Other than the net loss and the $9 other comprehensive loss
associated with foreign currency translation adjustments in 1999, the Company
did not have any other components of comprehensive loss during 1999 or prior
years.
(Q) ADVERTISING COSTS
The cost of advertising is expensed as incurred. For the years ended
December 31, 1997, 1998 and 1999, the Company incurred advertising expense of
$101, $267 and $2,397, respectively.
(R) INTERNALLY DEVELOPED SOFTWARE
During 1999, the Company adopted the provisions of Statement of Position
(SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, which provides
F-12
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
guidance concerning recognition and measurement of costs associated with
developing or acquiring software for internal use. The adoption of this SOP did
not have a material effect on the Company's consolidated financial position or
results of operations.
(S) SEGMENT REPORTING
The Company applies SFAS No. 131, Disclosure about Segments of a Business
Enterprise and Related Information, which requires entities to report financial
and descriptive information about its reportable operating segments. Operating
segments are defined as components of an enterprise for which separate financial
information is available that is evaluated regularly by the chief operating
decision maker(s) in deciding how to allocate resources and in assessing
performance. SFAS No. 131 also requires disclosures about products and services,
geographic areas and major customers. The Company operates in one business
segment -- the development and marketing of Web-based software applications that
enable small and mid-sized businesses to cost-effectively take their operations
online and automate their business processes.
(T) INVESTMENTS
The Company records investments in non-marketable equity securities at cost
if it does not exhibit significant influence over the investee, and if its
ownership percentage is less than 20%. These investments are reviewed
periodically for impairment, if any, and the carrying value is written down if
the Company determines that the investment is permanently impaired.
(U) CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1997 and 1998, no customers or
franchisees accounted for more than 10% of total revenues or accounts
receivable. As of and for the year ended December 31, 1999, three franchisees
accounted for 17%, 15% and 9% and 24%, 0% and 58% of total revenues and accounts
receivable, respectively.
The Company performs ongoing credit evaluations of its customers' and
franchisees financial condition and limits the amount of credit extended when
deemed necessary, but generally does not require collateral. Management believes
that any risk of loss is significantly reduced due to the number of its
customers and varied geographic markets. The Company maintains a provision for
potential credit losses.
(V) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 was effective for all fiscal quarters or fiscal years beginning after June
15, 1999. In August 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133. This statement defers the effective date of SFAS No.
133 to all fiscal quarters or fiscal years which begin after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including those embedded in other contracts, and for hedging
activities. Application of this standard is not expected to have a material
impact on the Company's consolidated financial position or results of
operations.
(W) RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1998 consolidated
financial statements to conform to the 1999 presentation.
F-13
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(2) ACQUISITIONS
On November 24, 1999, the Company acquired all of the outstanding stock of
Appintec Corp., dba ActionWare, a California corporation (ActionWare) for
475,000 shares of the Company's Common Stock valued at $4.50 per share and $320
in cash. The aggregate purchase price was $2,458. ActionWare is based in
Emeryville, California, and develops and markets customer relationship
management software and provides related maintenance and programming services.
The acquisition has been accounted for using the purchase method of accounting,
and accordingly, the results of operations of ActionWare have been included in
the Company's consolidated financial statements since November 24, 1999.
ActionWare had, at the time of acquisition, one major in-process technology
project which was approximately 20% complete. The major project acquired relates
to the development of Java based software programs to replace ActionWare's
current AS 400 based software programs. The Company's purpose for the
acquisition was to obtain completed technology as well as to complete the
development effort on this in-process project, as the Company believed the
project in process had economic value though it had not yet reached
technological feasibility and had no alternative future uses. The Company is
continuing development efforts and expects to have available for sale the first
new products to be developed by ActionWare in November 2000. The Company
believes the costs to complete these development efforts will be approximately
$5,000 (unaudited). The primary risks and uncertainties associated with timely
completion of the project lie in the Company's ability to attract and retain
qualified software engineers in the current competitive environment. Should the
project not be completed on a timely basis, the Company's market advantages
would be reduced (e.g., lower revenues and/or margins), which could impact the
marketability of the Company's planned products. Should the project prove to be
unsuccessful, the impact on the fiscal 2000 results of operations will primarily
consist of the engineering and start up efforts incurred to complete the project
for which there would be no future value, plus the costs of any new efforts on
replacement projects and/or costs to unwind the infrastructure if a decision was
made not to pursue new efforts.
On November 24, 1999, the Company also acquired all of the outstanding
stock of Emerging Market Technologies, Inc., a Delaware corporation (EMT), for
85,000 shares of the Company's common stock valued at $4.50 per share and $180
in cash. The aggregate purchase price was $563. EMT is based near Atlanta,
Georgia, and is engaged in the marketing and sale of software and providing
consulting services which address the needs of a business interacting with its
customers. The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the results of operations of EMT have been included
in the Company's consolidated financial statements since November 24, 1999.
F-14
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The purchase price of the acquisitions was allocated to the assets acquired
and liabilities assumed based on their estimated fair values at the date of
acquisition, as determined by a third-party appraisal. The purchased in-process
research and development was valued using the income approach, which includes an
analysis of the markets, cash flows and risks associated with achieving such
cash flows. This intangible asset, which had no tax benefit, was charged to
operations during the fourth quarter of 1999. The excess of the purchase price
over the fair value of the net identifiable tangible and intangible assets,
totaling approximately $308 and $23 for ActionWare and EMT, respectively, was
allocated to goodwill and is being amortized on a straight-line basis over five
years. Approximately $2,643 and $418 of the purchase price for ActionWare and
EMT, respectively, was allocated to identifiable intangible assets which, except
for in-process research and development, are being amortized on a straight-line
basis over periods ranging from three to five years. The total purchase price of
the acquisitions was allocated as follows:
Following are the summarized unaudited pro forma combined results of
operations for the years ended December 31, 1998 and 1999, assuming the
acquisitions had taken place at the beginning of each of those fiscal years. The
unaudited pro forma results are not necessarily indicative of future operations
or operations that would have been reported had the acquisitions been completed
when assumed:
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999
-------- ---------
(UNAUDITED)
Net revenues................................................ $ 5,045 $ 9,413
======= ========
Net loss.................................................... $(5,483) $(14,201)
======= ========
Net loss per share.......................................... $ (.34) $ (.76)
======= ========
F-15
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(3) PROPERTY AND EQUIPMENT
Components of property and equipment are as follows:
YEAR ENDED DECEMBER
31,
-------------------
1998 1999
------ -------
Computer equipment.......................................... $ 457 $1,231
Office equipment and fixtures............................... 236 912
Leasehold improvements...................................... -- 299
----- ------
693 2,442
Less accumulated depreciation and amortization.............. (454) (668)
----- ------
$ 239 $1,774
===== ======
During 1997, the Company acquired office furniture and fixtures in exchange
for services provided during 1996. The fair market value of the furniture
acquired totaled $208 which is included in property and equipment, along with
related accumulated depreciation.
Assets acquired under capitalized lease obligations are included in
property and equipment and totaled $356 and $1,204, with related accumulated
amortization of $203 and $368 at December 31, 1998 and 1999, respectively.
(4) INVESTMENT
At December 31, 1999, other assets includes an investment in the Series A
Preferred Stock of Web Connect Company, Inc. (Web Connect), which is recorded at
its historical cost of $450, using the cost basis method of accounting as the
Company's ownership interest is less than 5% in the entity. Although the market
value of the investment is not readily determinable, management believes the
fair value of the investment does not materially differ from its carrying
amount.
During 1999, the Company entered into an agreement to provide custom
development services and ongoing support to Web Connect for $1,300, of which
$683 was performed and recognized in 1999 in product and related services
revenues.
(5) NOTES PAYABLE TO STOCKHOLDER
In November 1997, the Company entered into a $93 note payable for
consulting services with a shareholder. This note is non-interest bearing and is
due in equal monthly installments of $3 over three years beginning December
1997. The outstanding balance at December 31, 1998 was $93. The note was paid in
1999.
In September 1998, the Company repurchased 283,506 shares of Series A
Preferred stock from a former shareholder and issued a note for $125 at an
interest rate of 10% per annum. The note is payable with an initial payment of
$5 followed by monthly payments of $10, $15, and continuing payments of $20,
until paid in full. At December 31, 1998, the Company had recorded accrued
interest in the amount of $2 relating to this note. The outstanding balance at
December 31, 1998 and 1999 was $111 and $28, respectively.
(6) CONVERTIBLE NOTES PAYABLE
At various times throughout 1998, the Company issued convertible notes and
common stock warrants to various creditors and shareholders. The notes have a
stated interest rate of 10% per annum. The notes
F-16
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
are unsecured and mature at the earlier of an equity financing of at least
$5,000, or on June 30, 1999 and June 30, 2000. The notes can be converted at the
election of the note holders to preferred Series B shares at $1.00 per share. At
December 31, 1998, the outstanding balance was $1,065. The notes were retired in
1999 (see note 7).
The estimated fair value of the warrants of $148 was determined using an
option pricing model. As a result, the convertible notes payable of $1,165 were
recorded net of a discount of $148, which was accreted over approximately a one
year period. During the years ended December 31, 1998 and 1999, the accretion
was approximately $48 and $100, respectively. At December 31, 1998, the
unaccreted discount was $100. The warrants entitle the holders to purchase up to
582,600 shares of common stock at $1.00 per share on or before June 30, 2003.
The Company had accrued interest related to these notes of $40 at December
31, 1998. The entire principal amount was classified as current at December 31,
1998. The entire balance of these notes was either redeemed or converted into
Series B Convertible Preferred Stock in 1999 (see note 7).
(7) STOCKHOLDERS' EQUITY (DEFICIT)
(A) STOCK SPLIT AND REINCORPORATION
In December 1999, the Company completed a two-for-one stock split, effected
in the form of a stock dividend of one share of the Company's stock for each
share of stock outstanding to stockholders of record. All share, per share and
related data presented in the consolidated financial statements and footnotes
has been retroactively adjusted to reflect this stock split.
Also in December 1999, the Company amended its certificate of incorporation
and increased its total authorized shares to 120,000,000, of which 100,000,000
shares are Common Stock, and 20,000,000 shares are Preferred Stock. Of the
20,000,000 shares designated as Preferred Stock, 2,220,000 shares are designated
as Series A Preferred Stock, 7,823,740 shares are designated as Series B
Preferred Stock, 3,777,778 shares are designated as Series C Preferred Stock and
6,178,482 shares are undesignated. The Common Stock, and the Series A, B and C
Preferred Stock each were changed to have a $.01 par value. This change in par
value has been retroactively adjusted throughout the consolidated financial
statements.
(B) CONVERTIBLE PREFERRED STOCK
During the period from July 1996 to January 1997, the Company issued $465
of 10% Convertible Promissory Notes ("10% Notes"). In September 1997, the 10%
Notes, with accrued interest thereon, were converted into 1,690,980 shares of
Series A Convertible Preferred Stock at $.485 per share. The holders of the 10%
Notes were granted warrants to purchase 526,082 shares of Series A Convertible
Preferred Stock at an exercise price of $.485 per share. The value of the
warrants at the time of issuance of $137 using the Black-Scholes pricing model
was amortized as interest expense over the period the 10% Notes were
outstanding. The warrants are exercisable at any time prior to June 2001. In
December 1997, holders of these warrants exercised their rights to purchase
197,752 shares of Series A Convertible Preferred Stock at an exercise price of
$.485 per share for aggregate proceeds of approximately $96.
In December 1997, the Company offered to the holders of its warrants, in
consideration for exercising their warrants to purchase Series A Convertible
Preferred or Common Stock, as applicable, prior to January 15, 1998, additional
shares of Common Stock at the rate of 50% of the number of shares exercised. In
consideration for exercising their warrants, these Series A Convertible
Preferred Stock warrant holders received 98,876 additional shares of Common
Stock in accordance with the Company's offer. The Company recognized a preferred
stock dividend and additional paid-in capital of approximately
F-17
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
$49 to reflect the inducement. The Company has reserved 328,330 shares of Series
A Convertible Preferred Stock for the exercise of the remaining warrants.
During the period from March 1997 to July 1997, the Company issued $306 of
10% Convertible Promissory Notes (the "Notes"). In September 1997, the Notes,
with accrued interest thereon, were mandatorily converted into 638,816 shares of
Series A Convertible Preferred Stock at $.485 per share. The holders of the
Notes were granted warrants to purchase 612,000 shares of Common Stock at an
exercise price of $.05 per share. These warrants were required to be exercised
upon the mandatory conversion of the promissory note. In September 1997, these
warrants were exercised for aggregate proceeds to the Company of $31. The value
of the warrants at issuance was not material.
In December 1998, the Company issued 2,171,000 shares of Series B
Convertible Preferred Stock at $1.00 per share totaling $2,171. With each share
purchased, a warrant was issued to purchase one share of Common Stock at the
price of the shares when the Company completes an initial public stock offering.
The value of the warrants at issuance was not material.
During the second quarter of 1999, the Company repurchased 181,672 shares
of Series A Convertible Preferred Stock for $88.
In February 1999, the Company completed the issuance of a second round of
3,514,178 shares of Series B Convertible Preferred Stock at $1.00 per share for
$3,514. This additional round of Series B Convertible Preferred Stock carries
the same rights and privileges as the first round described above. With each
share purchased, a warrant was issued to purchase one share of common stock at
the price of the shares when the Company completes an initial public stock
offering. The value of the warrants at issuance was not material.
During 1999, warrants to purchase 1,873,882 shares of common stock with
exercise prices ranging from $.50 to $4.50, were exercised for $5,050. Also
during 1999, warrants to purchase 227,092 shares of Series A Convertible
Preferred Stock, with an exercise price of $.50, were exercised for $110.
In March 1999, the Company was required as a result of the issuance of the
second round of Series B Convertible Preferred Stock, as described above, to
retire the outstanding convertible notes as described in note 6. The notes were
retired by repaying $719 to nonconverting note holders and issuing 446,000
shares of Series B Convertible Preferred Stock valued at $446 to converting note
holders. In addition, $26 was paid in accrued interest and 24,646 shares of
Series B Convertible Preferred Stock were issued for $25 of accrued interest
relating to the converted notes (see note 6).
In December 1999, the Company issued 3,777,778 shares of Series C
Convertible Preferred Stock at $4.50 per share totaling $16,218, net of
placement agent discount and commissions. Of this issuance 271,112 shares
immediately converted into shares of common stock. As of December 31, 1999, the
Company had not received $759 of the net proceeds and has recorded subscriptions
receivable of this amount.
CONVERSION RIGHTS
Each share of Series A, Series B and Series C Convertible Preferred Stock
outstanding is convertible at the option of the holder into one share of common
stock, subject to certain adjustments, and automatically converts immediately
prior to completion of an underwritten public offering of common stock with
gross proceeds of at least $5,000 and, for Series A and Series B, an offering
price of no less than $1.50 per share. During 1999, 1,012 shares and 11,554
shares of Series A and Series B Convertible Preferred Stock, respectively, were
converted into 12,566 shares of common stock. A total of 1,649,634,
F-18
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6,144,270 and 3,777,778 shares of common stock has been reserved for issuance in
the event of the conversion of the remaining Series A, Series B and Series C
Convertible Preferred Stock, respectively.
DIVIDEND AND VOTING RIGHTS
Each share of Series A, Series B and Series C Convertible Preferred Stock
entitles its holder to one vote for each common share into which such shares
would convert. Dividends shall be paid, when and if declared by the Board of
Directors, at the rate of $.02425, $.06 and $.27 per share of the outstanding
Series A, Series B and Series C Convertible Preferred Stock, respectively, and
shall be payable out of funds legally available. No dividends have been declared
to date.
LIQUIDATION RIGHTS
The holders of the Series A, Series B and Series C Convertible Preferred
Stock are entitled to receive their original issuance price of $.485, $1.00 and
$4.50 per share, respectively, in liquidation, plus an amount equal to all
declared but unpaid dividends. Series A, Series B and Series C Convertible
Preferred Stock share parity liquidation rights, prior to and in preference to
any distribution to the holders of common stock. At December 31, 1999, the
aggregate liquidation preference of the Series A, Series B and Series C
Convertible Preferred Stock was approximately $800, $6,144 and $15,780,
respectively.
(C) COMMON STOCK WARRANTS
In September 1997, the Company issued warrants to purchase 109,300 shares
of common stock at $.50 per share in connection with a consulting agreement. The
warrants expire in September 2002. The Company recognized costs valued using the
Black-Scholes pricing model totaling $35 at the time of issuance, which was
charged to general and administrative expense. The Company has reserved 109,300
shares of Common Stock for the exercise of these warrants.
In September 1997, the Company issued warrants to purchase 240,000 shares
of common stock at an exercise price of $.50 per share in connection with
placement services of an investment banker. The warrants expire in September
2002. In December 1997, the holder of these warrants exercised its right to
purchase 60,000 shares of common stock and received an additional 30,000 shares
of common stock in accordance with the Company's agreement to issue additional
shares to warrant holders who exercised their warrants on or prior to January
15, 1998. The Company has reserved 180,000 shares of Common Stock for the
exercise of the remaining warrants.
In January 1998, the Company offered an additional 2,695,000 shares of
common stock in a private placement offering. Proceeds of $1,300 from this
offering were received between February and April 1998. In addition, warrants to
purchase 300,000 shares of common stock were issued to cover issuance costs in
connection with this financing. The Company valued such warrants using the
Black-Scholes pricing model at $97 at the time of issuance, which was recorded
net of issuance of common stock. The Company has reserved 300,000 shares of
common stock for the exercise of these warrants.
Between January and June 1998, the Company issued warrants to purchase
315,000 shares of Common Stock at a price ranging from $.50 to $1.00 per share,
primarily in connection with a consulting agreement. The warrants expire between
January and June 2003. The Company valued such warrants using the Black-Scholes
pricing model at $97 as the performance under the consulting agreement was
completed, which amount was charged to general and administrative expense. The
Company has reserved 315,000 shares of Common Stock for the exercise of these
warrants.
During 1999, the Company issued warrants to purchase 435,000 shares of
common stock at a price of $1.00 per share as commissions related to the
issuance of Series B Convertible Preferred Stock. The fair
F-19
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
value of the warrants at the time of issuance was approximately $100, which was
recorded within additional paid-in capital.
During 1999, the Company issued warrants to purchase 55,670 shares of
Common Stock at a price of $4.50 per share in connection with services provided.
The Company recognized costs valued, using the Black-Scholes pricing model, at
$52 at the time of completion of services, which was charged to operating
expenses. The Company has reserved 55,670 shares of Common Stock for the
exercise of these warrants.
(D) ISSUANCE OF COMMON STOCK AND STOCK OPTIONS FOR SERVICES
During 1999, the Company issued 29,776 shares of Common Stock for services
provided during 1999. The fair value of the shares at the time of issuance was
approximately $134, which was charged to general and administrative expense. In
addition, the Company issued 187,260 shares of Common Stock for services
provided during 1999. The fair value of the shares at the time of issuance was
approximately $723, and was charged to sales and marketing expense. In December
1999, the Company issued 68,000 shares of common stock to several franchisees in
connection with the establishment of franchises with the Company. The fair value
of the common stock of $306 was recorded as a reduction of revenue during 1999
in the accompanying consolidated statement of operations.
In August 1999, the Company issued options to purchase 492,000 shares of
Common Stock at an exercise price of $4.50 per share in connection with a
consulting agreement with a member of the board of directors for services to be
rendered through September 2001. The Company valued the options using the
Black-Scholes pricing model totaling approximately $494, of which approximately
$82 was charged to general and administrative expense in 1999. The agreement was
amended subsequent to December 31, 1999 to remove any future performance
requirements. As such, the Company plans to charge the remaining $412 to general
and administrative expense in the first fiscal quarter of 2000 (unaudited). The
Company also issued options to purchase 8,000 shares of Common Stock in
connection with the achievement of certain sales goals. The Company recognized
costs valued using the Black-Scholes pricing model totaling approximately $8 at
the time of issuance, which was charged to sales and marketing expense.
(E) 1997 STOCK OPTION PLAN
The Company has reserved an aggregate of 18,000,000 shares of Common Stock
for issuance under its 1997 Stock Plan (the Plan). The Plan provides for grants
of options to employees and consultants (including officers and directors) of
the Company. Options must be granted at not less than 85% of fair value (as
determined by the Board of Directors) at the date of grant (110% of fair value
if the option holder also holds 10% or more of the voting stock of the Company).
Except in the case of certain options granted to officers, directors and
consultants, options typically vest over 4 years at a rate of 25% after 12
months with the remainder vesting at 1/36 a month over the remaining 3 years.
Options granted to officers, directors and consultants vest over periods ranging
from upon issuance to 4 years.
In connection with the Plan, the Company also implemented an employee stock
purchase plan ("ESPP") in accordance with Section 423 of the Internal Revenue
Code whereby eligible employees may authorize payroll deductions of up to 10% of
their salary to purchase shares of the Company's Common Stock at the fair market
value of common stock on the exercise date. Approximately 290,732 shares were
issued under this plan during 1999 for total consideration of $713.
F-20
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Stock option activity is summarized as follows:
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
---------- --------------
Outstanding at December 31, 1996........................... -- $ --
Granted.................................................. 963,992 .19
Exercised................................................ (665,992) .05
Canceled................................................. (1,000) .50
----------
Outstanding at December 31, 1997........................... 297,000 .50
Granted.................................................. 4,331,560 .50
Exercised................................................ (1,157,460) .50
Canceled................................................. (214,000) .50
----------
Outstanding at December 31, 1998........................... 3,257,100 .50
Granted.................................................. 8,439,032 4.37
Exercised................................................ (298,846) 2.40
Canceled................................................. (258,074) .50
----------
Outstanding at December 31, 1999........................... 11,139,212 3.36
==========
As of December 31, 1997, 1998 and 1999, the number of options exercisable
was 297,000, 500,036 and 1,862,522, respectively, and the weighted average
exercise price of those options was $.50, $.50 and $1.57, respectively.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
RANGE OF AS OF EXERCISE REMAINING AS OF EXERCISE
EXERCISE DECEMBER 31, PRICE PER CONTRACTUAL DECEMBER 31, PRICE PER
PRICES 1999 OPTION LIFE (YEARS) 1999 OPTION
------------- ------------ --------- ------------ ------------ ---------
$ .50.. 3,167,712 $ .50 8.56 1,363,080 $ .50
1.31......... 2,870 1.31 9.92 -- 1.31
3.26......... 24,112 3.26 9.92 -- 3.26
4.50......... 7,944,518 4.50 9.70 499,442 4.50
---------- ---------
$.50 to
$4.50...... 11,139,212 3.36 9.38 1,862,522 1.57
========== =========
In January 1997, the Company granted 325,992 Common Stock options at an
exercise price of $.05 per share to employees in lieu of a cash bonus. These
options vested and were exercised in 1997.
F-21
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, with the exception of the
option grant discussed in the preceding paragraph, no compensation cost has been
recognized for stock options issued to employees in the consolidated financial
statements for the years ended December 31, 1997, 1998 and 1999 as all grants
were made at fair values as determined by the Board of Directors. Had the
Company determined compensation cost based upon the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net loss would have
increased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31
---------------------------
1997 1998 1999
------ ------ -------
Net loss applicable to common stockholders, as reported..... $1,934 $5,367 $13,643
Assumed stock compensation cost............................. 1 99 937
------ ------ -------
Pro forma net loss.......................................... $1,935 $5,466 $14,580
====== ====== =======
Basic and diluted net loss per share as reported............ $ (.23) $ (.33) $ (.73)
Pro forma diluted net loss per share........................ $ (.23) $ (.34) $ (.79)
====== ====== =======
The per share weighted-average fair value of stock options granted during
fiscal year 1999 was $0.90 on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions:
YEAR ENDED DECEMBER 31
-----------------------------
1997 1998 1999
------- ------- -------
Dividend yield.............................................. 0.0% 0.0% 0.0%
Risk-free interest rate..................................... 6.3% 5.0% 5.46%
Average expected lives...................................... 5 years 4 years 4 years
======= ======= =======
The Black-Scholes model, as well as other currently accepted option
valuation models, was developed to estimate the fair value of freely-tradable,
fully-transferable options without vesting restrictions, which significantly
differ from the Company's stock option plans. These models also require highly
subjective assumptions, including future stock price volatility and expected
time until exercise, which greatly affect the calculated fair value on the grant
date.
The Company applied the minimum value method in determining the fair value
of the Company's employee stock options. The minimum value method is only
allowed for non-public entities, as public entities are required to include an
expected volatility factor in addition to the factors described above. As such,
the pro forma effect of applying SFAS No. 123 above is not likely to be
representative of the pro forma effects in future years.
(F) STOCKHOLDERS RIGHTS PLAN
On February 14, 2000, the Board of Directors adopted a rights plan, which
is commonly known as a poison pill, and which expires ten years from the closing
of the Company's proposed initial public offering. In connection with the
adoption of the rights plan, the Board of Directors declared, effective as of
the closing of the Company's proposed initial public offering, a dividend of one
stockholder right for each share of common stock which is outstanding as of the
closing of the Company's proposed initial public offering and a dividend of one
stockholder right for each share of common stock that becomes outstanding
between the closing of the Company's proposed initial public offering and the
earlier of the expiration date and the distribution date as defined.
F-22
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(8) INCOME TAXES
The components of net loss before income taxes are as follows for the years
ended December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A reconciliation of the expected U.S. Federal tax expense (benefit)
attributable to income from continuing operations differed from the amounts
computed by applying the U.S. Federal statutory tax rate to pretax income from
continuing operations as follows:
1997 1998 1999
----- ----- -----
Expected U.S. Federal tax................................... (34.0)% (34.0)% (34.0)%
State taxes................................................. (8.8) (8.7) (7.0)
Change in valuation allowance............................... 42.1 42.0 31.8
Intangible assets........................................... -- -- 8.8
Other....................................................... 0.7 0.7 0.4
----- ----- -----
Actual effective tax rate................................. 0.0% 0.0% 0.0%
===== ===== =====
At December 31, 1999, the Company had net operating loss carry forwards for
income tax purposes of approximately $9,500 for both federal and state. These
losses are available to offset future taxable income, if any, through 2011 and
2004, respectively. The future utilization of the net operating loss carry
forwards may be subject to significant limitations under Internal Revenue Code
Section 382. Due to the uncertainty of whether the Company's future taxable
income will be sufficient to utilize its net deferred tax assets, the Company
has provided a full valuation allowance against the total net deferred tax
assets.
(9) RELATED PARTY TRANSACTIONS
(A) CONSULTING AGREEMENTS
In 1997, the Company entered into consulting agreements with a stockholder
and a relative of certain officers of the Company pursuant to which the Company
received consulting services valued at $36. In exchange for services provided,
the Company issued 340,000 options to purchase shares of common stock at an
exercise price of $.05 per share, with the remaining $15 paid in cash during
1998.
Also in 1997, the Company entered into an agreement for network operating
services with a stockholder, and recorded a total of $54 in expenses. In
addition, the Company received ongoing consulting services from stockholders
during 1997, 1998 and 1999. For the years ended December 31, 1997, 1998 and 1999
the total value of these consulting services was $261, $240 and $220,
respectively.
During the year ended December 31, 1999, the Company issued options to
purchase 492,000 shares of common stock to a member of the board of directors in
addition to paying this member $72 in connection with a consulting agreement
(see note 7).
(B) SALES AGREEMENT AND NOTE RECEIVABLE FROM STOCKHOLDER
In July 1996, the Company sold six franchise territories to a stockholder
in exchange for $39 in cash and a note receivable of $68. Interest was payable
at the rate of 6% per annum. Payment terms were extended to be received in equal
monthly installments beginning January 1999 through December 1999. In addition,
there was accrued interest of $10 at December 31, 1998. During 1999, the
stockholder returned the six territories to the Company. In return, the Company
forgave the $68 note receivable and $14 of accrued interest receivable.
Additionally, the Company issued 8,667 shares of Series C Convertible Preferred
Stock for the $39 previously paid. No amounts were recorded in franchise
revenues related to this transaction.
F-24
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(C) DEBT CONVERSION
In October 1997, the Company owed $448 for amounts loaned by stockholders.
This debt was converted into 895,566 shares of common stock at the then current
value of $.50 per share in 1997.
(D) EMPLOYEE LOAN AGREEMENT
In connection with the employment of an officer of the Company in July
1999, the Company entered into a $125 loan agreement. The agreement provides for
a nominal interest rate. The imputed interest associated with this loan
agreement was not material to the consolidated financial statements. The
remaining balance at December 31, 1999 was included in prepaid expenses and
other current assets in the accompanying balance sheet.
(10) INTERNATIONAL REVENUES AND SIGNIFICANT CUSTOMERS
The Company operates in one industry segment -- the development and
marketing of Web-based software applications that enable small and mid-sized
businesses to cost-effectively take their operations online and automate their
business processes. The Company provides solutions to its customers through a
franchise network of local e-business professionals.
The Company attributes sales to and revenues from customers in different
geographical areas on the basis of customer locations, as follows:
The long lived assets of the Company's foreign subsidiaries are not
material at December 31, 1999.
(11) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases certain computer equipment and office furniture and
fixtures under long-term lease agreements which are reported as capitalized
lease obligations. The terms of the leases are three years, with purchase
options at the end of the respective lease terms. The Company intends to
exercise such purchase options, which require minimal payments. Capitalized
lease obligations at December 31, 1999 are at interest rates ranging from 8% to
17% and are payable at various dates through 2003. The borrowings are secured by
the equipment purchased.
The Company leases its facilities under two non-cancelable operating leases
which expire in November 2002 and 2004, with options to extend the leases for
five years at the then prevailing fair value. The Company leases its network
operating centers under two non-cancellable operating leases which expire in
fiscal year 2000. Rental expense is recorded using the straight-line method and
totaled $95, $110 and $310 for the years ended December 31, 1997, 1998 and 1999,
respectively.
F-25
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Future minimum lease payments under all non-cancelable capitalized and
operating leases as of December 31, 1999 are as follows:
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
Year ending December 31:
2000...................................................... $428 $1,344
2001...................................................... 378 1,014
2002...................................................... 129 993
2003...................................................... 18 754
2004...................................................... -- 710
Thereafter................................................ -- --
---- ------
Total minimum lease payments...................... 953 $4,815
======
Less amounts representing interest........................ 134
----
Present value of future minimum capitalized lease
obligations..................................... 819
Less current installments of capitalized lease
obligations............................................ 352
----
Capitalized lease obligations, excluding current
installments.................................... $467
====
(B) LEASING LINES OF CREDIT
The Company has three lines of credit in place at December 31, 1999 for
leasing of equipment. The first line of credit expires in April 2002. At
December 31, 1999, there was approximately $477 outstanding, and approximately
$273 available under this line of credit. The interest rate on this line of
credit was 11.75% at December 31, 1999. The second line of credit expires in
December 2002. At December 31, 1999, there was approximately $248 outstanding
and approximately $445 available under this line of credit. The interest rate on
this line of credit at December 31, 1999 was 8.99%. The third line expires in
October 2002. At December 31, 1999, no amounts were outstanding under this line
of credit, and approximately $450 was available. The interest rate on this line
of credit at December 31, 1999 was 10.75%.
(C) LITIGATION
The Company is engaged in pending or threatened legal actions arising in
the ordinary course of its business. With respect to these legal actions, the
Company, based on advice of legal counsel, believes that it has adequate legal
defenses and that the ultimate outcome will not have a material adverse effect
on the Company's consolidated financial position or results of operations.
Between October 1998 and March 2000, the Company sold franchises to ten
general partnerships organized by VentureLink Capital Corporation (VentureLink),
an unaffiliated company, pursuant to franchise agreements with the partnerships.
These general partnerships financed the acquisition and initial operation of
their franchises with funds raised from general partners. In March 1999, the
Company received subpoenas from the Securities and Exchange Commission (the
SEC), seeking testimony from its Chairman and Chief Executive Officer, and its
Vice President of Corporate Development, and production of documents relating
to, among other things, the Company's franchise program and its relationship
with VentureLink. After initial response to the subpoenas, the Company was
advised that no further action was required. In February 2000, the Company
received a new document subpoena to which they have responded. The Company has
been advised that the SEC is conducting a fact-finding investigation into, among
other things, the circumstances surrounding the organization of the general
partnerships, their structure, operations and membership, the solicitation of
investments in the general partnerships and the
F-26
ZLAND.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
subsequent conversion of these partnerships to limited liability companies and
the relationship between VentureLink and the Company. The Company has been
advised that the investigation is broad in scope, and continuing. The Company is
cooperating with the investigation fully. The Company believes that the
investigation pertains to (but may not be limited to) possible violations of the
securities laws arising from the offering and sales of the general partnership
interests.
The Company entered into a contract with VentureLink in October 1998, which
was renewed in October 1999 for one year, pursuant to which the Company agreed
to sell franchises to partnerships to be formed by VentureLink. In January 2000
the Company negotiated a termination and release of the contract with
VentureLink, effective March 31, 2000.
The Company cannot predict the outcome of the SEC investigation, the scope
of the investigation, its conclusions or when it might be completed. If the SEC
asserts and successfully prosecutes a claim against the Company or any of its
personnel for involvement with VentureLink or for any other aspect of its
operations, the Company could be liable for substantial damages and penalties
and could be subjected to injunctive remedies as well.
The Company does not believe that the outcome of this matter will have a
material adverse effect on its consolidated financial position, results of
operations or liquidity.
(12) SUBSEQUENT EVENT
In January 2000, the Company acquired substantially all of the assets of
Central Technologies, Inc., (Central) a California corporation for 322,222
shares of the Company's Common Stock valued at $4.50 per share. The aggregate
purchase price was $1,350 net of cash acquired. Central is based in Moorpark,
California and provides products and services to serve the needs of accountants,
including financial management and reporting software applications for small to
mid-sized businesses. The acquisition will be accounted for using the purchase
method of accounting.
F-27
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Appintec Corp., dba ActionWare:
We have audited the accompanying balance sheet of Appintec Corp., dba
ActionWare, as of June 30, 1999 and the related statements of operations,
stockholders' 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 Appintec Corp., dba
ActionWare, as of June 30, 1999 and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Orange County, California
January 19, 2000
F-28
APPINTEC CORP., DBA ACTIONWARE
BALANCE SHEET
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash...................................................... $ 13
Accounts receivable, net of allowance for doubtful
accounts of $22........................................ 196
Prepaid expenses and other current assets................. 16
-----
Total current assets.............................. 225
Property and equipment, net................................. 186
Other assets................................................ 10
-----
$ 421
=====
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank line of credit....................................... $ 197
Accounts payable.......................................... 71
Accrued expenses.......................................... 208
Current portion of capitalized lease obligations.......... 65
Deferred revenue.......................................... 221
-----
Total current liabilities......................... 762
Long-term portion of capitalized lease obligations.......... 93
-----
855
Commitments and contingencies (note 6)......................
Subsequent event (note 7)...................................
Stockholders' deficit:
Common stock, 25,000,000 shares authorized; 4,225,250
shares issued and outstanding.......................... 399
Accumulated deficit....................................... (833)
-----
Total stockholders' deficit....................... (434)
-----
$ 421
=====
See accompanying notes to financial statements.
F-29
APPINTEC CORP., DBA ACTIONWARE
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999
(IN THOUSANDS)
Revenue:
Software licenses......................................... $1,102
Services and maintenance.................................. 1,068
------
Total revenues.................................... 2,170
------
Cost of revenues:
Software licenses......................................... 94
Services and maintenance.................................. 352
------
Total cost of revenues............................ 446
------
Gross profit...................................... 1,724
------
Operating expenses:
Research and development.................................. 972
Sales and marketing....................................... 390
General and administrative................................ 508
------
Total operating expenses.......................... 1,870
------
Operating loss.............................................. (146)
Other expense, net.......................................... (55)
------
Net loss before income taxes...................... (201)
Provision for income taxes.................................. 12
------
Net loss.......................................... $ (213)
======
See accompanying notes to financial statements.
F-30
APPINTEC, CORP., DBA ACTIONWARE
STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK TOTAL
------------------- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
--------- ------ ----------- -------------
Balance at June 30, 1998...................... 2,822,625 $ 33 $(620) $(587)
Common stock options exercised................ 225,959 22 -- 22
Issuance of common stock...................... 496,666 50 -- 50
Issuance of common stock for services
provided.................................... 680,000 294 -- 294
Net loss...................................... -- -- (213) (213)
--------- ---- ----- -----
Balance at June 30, 1999...................... 4,225,250 $399 $(833) $(434)
========= ==== ===== =====
See accompanying notes to financial statements.
F-31
APPINTEC CORP., DBA ACTIONWARE
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1999
(IN THOUSANDS)
Cash flows from operating activities:
Net loss.................................................. $(213)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 98
Issuance of common stock for services provided......... 294
Changes in assets and liabilities:
Accounts receivable.................................. (5)
Prepaid expenses and other assets.................... 4
Accounts payable..................................... 103
Accrued expenses and deferred revenue................ (92)
-----
Net cash provided by operating activities......... 189
-----
Cash flows from investing activities:
Purchases of property and equipment....................... (86)
-----
Net cash used in investing activities............. (86)
-----
Cash flows from financing activities:
Principal payments on capitalized lease obligations....... (242)
Proceeds from issuance of common stock.................... 72
Net borrowings on bank line of credit..................... 1
-----
Net cash used in financing activities............. (169)
-----
Net decrease in cash.............................. (66)
Cash, beginning of year..................................... 79
-----
Cash, end of year........................................... $ 13
=====
Supplementary disclosures of cash flow information:
Cash paid during the year for interest.................... $ 39
Cash paid during the year for income taxes................ 1
=====
See accompanying notes to financial statements.
F-32
APPINTEC CORP., DBA ACTIONWARE
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) THE COMPANY
Appintec Corp., a California corporation, dba ActionWare (the "Company" or
"ActionWare"), was founded in 1981 and is in the business of designing,
developing, producing and marketing software which addresses the needs of a
business interacting with its customers, including automating front office
operations in areas such as customer support, sales, field service, product
quality assurance and help desk.
(B) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
respective reporting periods. Actual results could differ from those estimates.
(C) REVENUE RECOGNITION
The Company licenses software under noncancelable license agreements.
License fee revenues are recognized when a noncancelable license agreement is in
force, the product has been shipped, the license fee is fixed or determinable
and collectibility is reasonably assured. Maintenance and support revenue is
recognized ratably over the contract period, usually one year. The Company's
revenue recognition policies are in compliance with the American Institute of
Certified Public Accountants' Statements of Position 97-2 and 98-9, Software
Revenue Recognition.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Assets held under capitalized lease obligations are recorded at the lesser of
cost or the present value of the minimum lease payments at lease inception.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets, which range from three to seven years.
(E) CAPITALIZED SOFTWARE COSTS
Costs incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological feasibility
is established, any additional costs are capitalized in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed". Because
management believes that its current process for developing software is
essentially completed concurrently with the establishment of technological
feasibility, no internally generated software development costs were capitalized
as of June 30, 1999.
(F) LONG-LIVED ASSETS
The Company applies the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Under the provisions of SFAS No. 121, the recoverability of long-lived assets is
assessed by determining whether the carrying value of the asset can be recovered
through projected undiscounted future operating cash flows over its remaining
life. The amount
F-33
APPINTEC CORP., DBA ACTIONWARE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
of impairment, if any, is measured based upon projected discounted future
operating cash flows. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
(G) ACCOUNTING FOR STOCK OPTIONS
The Company accounts for its employee stock-based compensation plans in
accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, using the intrinsic value-based method of accounting,
as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. The
Company has made the pro forma net loss disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS No. 123 had been
applied.
Equity instruments issued to nonemployees are measured using the fair value
of the equity instruments using the stock price and other measurement
assumptions as of the earlier of the date at which a performance commitment to
earn the equity instruments is reached or the date at which the performance is
complete.
(H) INCOME TAXES
The Company accounts for income taxes using the asset and liability method
as prescribed by SFAS No. 109, Accounting for Income Taxes. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be "more likely than not" realized
in future tax returns.
(I) COMPREHENSIVE LOSS
The Company has adopted SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes the rules for the reporting of comprehensive loss and its
components. During 1999, the Company did not have any components of other
comprehensive income, and thus net loss equals comprehensive loss in the
accompanying financial statements.
(J) SEGMENT REPORTING
The Company has adopted SFAS No. 131, Disclosure about Segments of a
Business Enterprise and Related Information, which requires entities to report
financial and descriptive information about its reportable operating segments.
The Company operates in one segment -- the design, development, production, and
marketing of software which address the needs of a business interacting with its
customers.
(K) CONCENTRATION OF CREDIT RISK
The Company is in the business of designing, developing, producing and
marketing software which addresses the needs of a business interacting with its
customers, including automating front office operations in areas such as
customer support, sales, field service, product quality assurance and help desk.
This market is characterized by rapid technological developments, frequent new
product introductions and changes in end user requirements.
F-34
APPINTEC CORP., DBA ACTIONWARE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
During the year ended June 30, 1999 and at June 30, 1999, no customers
accounted for more than 10% of net revenues or net accounts receivable,
respectively.
The Company performs ongoing credit evaluations of its customers' financial
condition and limits the amount of credit extended when deemed necessary, but
generally does not require collateral. Management believes that any risk of loss
is significantly reduced due to the number of its customers and geographic sales
areas. The Company maintains a provision for potential credit losses, and
write-offs of accounts receivable were insignificant during the year ended June
30, 1999.
(L) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 was effective for all fiscal quarters or fiscal years beginning after June
15, 1999. In August 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133. This statement defers the effective date of SFAS No.
133 to all fiscal quarters or fiscal years which begin after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments embedded in other contracts and for hedging activities. Application
of this standard is not expected to have a material impact on the Company's
financial position or results of operations.
(2) PROPERTY AND EQUIPMENT
A summary of property and equipment at June 30, 1999, at cost, is as
follows:
Equipment................................................... $ 630
Furniture and fixtures...................................... 103
Equipment under capitalized lease obligations............... 196
Software.................................................... 76
Automobile.................................................. 31
Leasehold improvements...................................... 16
------
1,052
Less accumulated depreciation and amortization.............. (866)
------
$ 186
======
Assets acquired under capitalized lease obligations are included in
property and equipment and totaled $196, with related accumulated amortization
of $41 at June 30, 1999.
(3) STOCKHOLDER'S DEFICIT
(A) ISSUANCE OF COMMON STOCK FOR SERVICES
During fiscal year 1999, the Company issued 680,000 shares of common stock
for services performed during the year. Of this amount, 500,000 shares related
to services performed by a third party on the Company's Java software
development at a fair value of $281. The fair value of the services was expensed
to research and development during fiscal year 1999. The remaining 180,000
shares were issued for consulting services performed during the year. The fair
value of these services of $13 was expensed to general and administrative
expense during fiscal year 1999.
F-35
APPINTEC CORP., DBA ACTIONWARE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(B) STOCK OPTION PLAN
The Company granted 3,048,000 incentive stock options on March 1, 1997.
Long-term employees were granted fully vested options and those recently
employed were granted options that vested over a four-year period. The options
were granted with an exercise price at the then fair market value of the common
stock of $.10 per share. On June 1, 1998, an additional 1,222,500 options were
granted with an exercise price at the then fair market value of $.25 per share.
These options vested 20% on July 1, 1998 and thereafter one thirty-sixth on the
first of the month for 36 months. During the year ended June 30, 1999, an
additional 180,000 options were granted with an exercise price at the then fair
market value of $.25 per share. For these grants, 140,000 of the options were
fully vested when granted, and the remaining options vest ratably over 24
months. All of the options granted have 10-year terms.
Stock option activity for the year ended June 30, 1999 is summarized as
follows:
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at June 30, 1998................................ 2,829,875 $.16
Granted................................................... 180,000 .25
Exercised................................................. (225,959) .17
Cancelled................................................. (532,500) .21
---------
Outstanding at June 30, 1999................................ 2,251,416 .16
=========
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE OUTSTANDING AS OF CONTRACTUAL EXERCISE OUTSTANDING AS OF EXERCISE
PRICES JUNE 30, 1999 LIFE PRICE JUNE 30, 1999 PRICE
---------- ----------------- ----------- --------- ----------------- ---------
$ .10 1,356,875 7.7 $.10 1,313,750 $.10
.25 894,541 9.0 .25 505,709 .25
--------- ---------
.10 - .25 2,251,416 8.2 .16 1,819,459 .14
========= =========
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for stock options issued to employees in the financial
statements for the year ended June 30, 1999. Had the Company determined
compensation cost based upon the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss for the year ended June 30,
1999 would have increased to the pro forma amounts indicated below:
Net loss as reported........................................ $(213)
Assumed stock compensation cost............................. (9)
-----
Pro forma net loss.......................................... $(222)
=====
The fair value of each option grant is estimated on the date of grant using
the minimum value method as prescribed in SFAS No. 123. Assumptions used for
options granted during the year ended June 30, 1999 were as follows:
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The minimum value method requires input of highly subjective assumptions in
which changes in those assumptions could materially affect the fair value
estimate. In addition, the minimum value method is only allowed for non-public
entities as public entities are required to include an expected volatility
factor in addition to the factors described above. As such, the pro forma effect
of applying SFAS 123 above is not likely to be representative of the pro forma
effects in future years.
(4) BANK LINE OF CREDIT
The bank line of credit is with a domestic commercial bank and provides for
borrowings up to $200. Interest is at the prime rate plus 4.5%, and the line of
credit is secured by substantially all assets of the Company and is guaranteed
by the Company's chief executive officer, who is also a shareholder. The line of
credit expired on March 10, 2000 and was repaid in full.
(5) INCOME TAXES
The provision for income tax expense for the year ended June 30, 1999
consists of the following:
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at June 30, 1999 are presented
below:
Net operating loss.......................................... $ 255
Accrued vacation............................................ 2
-----
Total deferred tax assets......................... 257
Less: valuation allowance................................... (257)
-----
Net deferred tax assets........................... $ --
=====
The expected U.S. Federal tax benefit attributable to loss from continuing
operations for the year ended June 30, 1999 differed from the amounts computed
by applying the U.S. Federal statutory tax rate to pretax loss from continuing
operations as follows:
Expected U.S. Federal tax................................... (34.0)%
State taxes................................................. 2.9
Change in valuation allowance............................... 33.8
Other....................................................... 3.2
-----
Actual effective tax rate................................... 5.9%
=====
At June 30, 1999, the Company had net operating loss carryforwards for
Federal and state income tax purposes of approximately $675 and $292,
respectively. These losses are available to offset taxable income,
F-37
APPINTEC CORP., DBA ACTIONWARE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
if any, through 2018 and 2003, respectively. The future utilization of the net
operating loss carryforwards is subject to significant limitations due to the
sale of the Company in November 1999 (see note 7). Due to uncertainty of whether
the Company's future taxable income will be sufficient to utilize these tax
benefits, the Company has provided a full valuation allowance against the
deferred tax assets.
(6) COMMITMENTS AND CONTINGENCIES
(A) COMMITMENTS
The Company leases certain computer equipment and office furniture and
fixtures under long-term lease agreements which are reported as capitalized
lease obligations. The terms of the leases are between three and five years,
with bargain purchase options at the end of the respective lease terms.
Capitalized lease obligations at June 30, 1999 are at interest rates ranging
from 8% to 17% and are payable at various dates through 2004. The borrowings are
secured by the assets leased.
The Company leases its facility under a non-cancelable operating lease
which expires in November 2000. Rent expense was approximately $155 for the year
ended June 30, 1999.
Future minimum lease payments under all non-cancelable capitalized lease
obligations and operating leases as of June 30, 1999 are as follows:
CAPITALIZED
LEASE OPERATING
OBLIGATIONS LEASES
----------- ---------
Year ending June 30:
2000...................................................... $ 61 $166
2001...................................................... 38 73
2002...................................................... 34 --
2003...................................................... 22 --
2004 and thereafter....................................... 8 --
---- ----
Total minimum payments............................ 163 $239
====
Amount representing interest.............................. 5
----
Present value of capitalized lease obligations.... 158
Less current portion...................................... 65
----
Noncurrent portion of capitalized lease
obligations..................................... $ 93
====
(B) CONTINGENCIES
From time to time the Company may be party to suits and other judicial and
administrative proceedings incidental to its business. Although occasional
adverse decisions may occur, the Company believes that the final disposition of
all such matters will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.
(7) SUBSEQUENT EVENT
In November 1999, all of the Company's common stock was acquired by
ZLand.com, Inc., (ZLand) for 475,000 shares of ZLand common stock and $320 in
cash. ZLand is based in Aliso Viejo, California, and is an applications service
provider offering proprietary Internet software applications that enable small
and mid-sized businesses to cost-effectively take their operations online and
automate their business processes.
F-38
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following pro forma financial data is based upon data derived from
ZLand.com, Inc.'s historical consolidated financial statements and has been
prepared to illustrate the effects on this data of the acquisitions of
ActionWare and EMT. The unaudited pro forma statement of operations for the year
ended December 31, 1999 gives effect to the acquisitions as if these
transactions had occurred as of January 1, 1999. The acquisitions were recorded
using the purchase method of accounting.
The pro forma financial data are not necessarily indicative of the results
we would have obtained had these events occurred at the beginning of the period,
as assumed, or of our future results as a combined entity.
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
ACQUISITION
ADJUSTMENTS PRO FORMA
ZLAND ACTIONWARE EMT (A) COMBINED
-------- ---------- ------- ----------- ---------
Revenues:
Franchise revenues...................... $ 4,669 $ -- $ -- $ $ 4,669
Product and related services............ 1,793 2,102 849 4,744
-------- ------ ------- ------- --------
Total revenues............................ 6,462 2,102 849 9,413
Cost of revenues........................ 1,200 374 120 1,694
-------- ------ ------- ------- --------
Gross profit.............................. 5,262 1,728 729 7,719
-------- ------ ------- ------- --------
Operating expenses:
Research and development................ 3,146 924 382 4,452
Sales and marketing..................... 9,915 370 153 10,438
General and administrative.............. 4,449 483 199 453(B) 5,584
In-process research and development..... 1,304 -- -- (1,304)(C) --
-------- ------ ------- ------- --------
Total operating expenses.................. 18,814 1,777 734 (851) 20,474
-------- ------ ------- ------- --------
Operating loss............................ (13,552) (49) (5) 851 (12,755)
Interest expense, net..................... 87 56 (5) 138
-------- ------ ------- ------- --------
Net loss before income taxes.............. (13,639) (105) -- 851 (12,893)
Provision for income taxes................ 4 -- -- 4
-------- ------ ------- ------- --------
Net loss.................................. $(13,643) $ (105) $ -- $ 851 $(12,897)
======== ====== ======= ======= ========
Net loss per share: basic and diluted..... $ (0.73) $ (0.68)
======== ========
Shares used in per share computations:
basic and diluted....................... 18,570 19,082
======== ========
(A) Includes adjustments directly attributable to the acquisitions.
(B) Reflects the amortization of goodwill and other intangibles of $453
attributable to the acquisitions, amortized on a straight line basis over
three to five year periods.
(C) Reflects the reversal of the in-process research and development charge
recorded in connection with the acquisition of ActionWare.
F-39
ZLAND.COM, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS --
BEGINNING COSTS AND AMOUNTS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES WRITTEN OFF END OF PERIOD
----------- ---------- ---------- ------------- -------------
Year Ended December 31, 1997:
Allowance for doubtful accounts............ $ -- $ 10 $ -- $ 10
==== ==== ==== ====
Year Ended December 31, 1998:
Allowance for doubtful accounts............ $ 10 $121 $ 6 $125
==== ==== ==== ====
Year Ended December 31, 1999:
Allowance for doubtful accounts............ $125 $286 $287 $124
==== ==== ==== ====
S-1
[LOGO -- ZLAND.COM e-business for everyone(TM)]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
It is estimated that the following expenses will be incurred in connection
with the proposed offering hereunder. All of such expenses will be borne by the
registrant:
AMOUNT
-------
Securities and Exchange Commission registration fee......... $13,200
Nasdaq National Market listing fee.......................... $
NASD filing fee............................................. $ 5,500
Legal fees and expenses..................................... $
Accounting fees and expenses................................ $
Blue sky qualification fees and expenses (including counsel
fees)..................................................... $
Transfer agent and registrar fees........................... $
Printing and engraving expenses............................. $
Miscellaneous............................................... $
-------
TOTAL............................................. $
=======
All amounts except the Securities and Exchange Commission registration fee,
the Nasdaq National Market listing fee and the NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was a director, officer, employee or agent of the
corporation or is or was serving at its request in such capacity in another
corporation or business association, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
Section 107(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability (a) for any breach of the director's duty of loyalty to the
corporation or its shareholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the Delaware General Corporation Law, or (d) for any transaction
from which the director derived an improper personal benefit.
Article IV of the registrant's second restated certificate of incorporation
provides for the elimination of personal liability for a director for breach of
fiduciary duty as permitted by 102(b)(7) of the Delaware General Corporation
Law. Article VI of the registrant's bylaws provide that the registrant shall
indemnify its directors, officers and employees to the full extent permitted by
Section 145 of the Delaware General Corporation Law.
The underwriting agreement (filed as Exhibit 1.1 hereto) provides for
indemnification by the underwriters of the registrant and its directors,
officers and controlling persons for certain liabilities arising under the
Securities Act or otherwise.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 1997, we have sold the following unregistered securities:
(1) Pursuant to the merger of Z Land LLC and Zavada LLC into Z Land
Acquisition, Inc., we assumed an existing agreement with Technology
Strategies & Alliances, an independent consultant. Under the agreement, Z
Land LLC agreed to issue a warrant to purchase 1% of the total number of
shares of the company outstanding upon the close of our first round of
equity financing as a transaction fee for providing strategic advisory
services and assistance in raising capital. Accordingly, in September 1997,
we issued a warrant to Technology Strategies & Alliances to purchase
109,300 shares of our common stock at a price of $0.50 per share (the same
price per share paid by the investors participating in the round).
(2) In August 1997, we issued and sold 3,334,008 shares of our common
stock at the then fair market value of $0.05 per share to Grey Fox, Inc. in
exchange for cancellation of $166,700 owed to Grey Fox by us for unpaid
consulting fees. In October 1997, we sold 795,566 shares of our common
stock to Grey Fox for $0.50 per share in exchange for cancellation of an
outstanding debt of $398,000.
(3) In August 1997, in connection with the issuance of $306,000 of
convertible subordinated notes, we issued warrants to fourteen third-party
lenders to purchase an aggregate of 612,000 shares of common stock for
$0.05 per share. Pursuant to the terms of the notes, the unpaid principal
and accrued interest on the notes existing after the closing of a $1
million equity financing was automatically convertible into shares of
Series A Preferred Stock. Accordingly, in October 1997, we issued 638,816
shares of Series A Preferred Stock to the third-party lenders. In addition,
all warrant holders exercised their warrants to purchase the shares of
common stock in October 1997.
(4) Pursuant to our 1997 Stock Plan, we issued an aggregate of 665,992
shares of common stock on August 12, 1997 for $0.50 per share, as stock
bonuses to certain employees and directors in lieu of a cash bonus
otherwise due to each of the employees or directors.
(5) In September 1997, we issued 2,000,000 shares of our common stock
to various third-party investors located in Canada, Switzerland and
Guernsey for $1 million. We also issued two warrants to our Canadian-based
placement agent in the transaction, CanAccord Capital Corporation, to
purchase an aggregate of 240,000 shares of our common stock for $0.50 per
share.
(6) In October 1997, we issued 100,000 shares of our common stock to
Patricia Tyson, an employee of the company, in exchange for cancellation of
our $50,000 indebtedness to Ms. Tyson.
(7) In December 1997, we issued an aggregate of 200,000 shares of our
common stock to Solid Technology, Inc., Keith Buck, Craig Jones, James
Batman, Don Thomson and Vassili Jabin in exchange for the transfer of
certain intellectual property valued at $100,000.
(8) In January 1998, we issued a warrant to CanAccord Capital
Corporation to purchase 40,000 shares of common stock for $0.50 per share
in connection with a bridge loan of $200,000.
(9) During the period between February 1998 through April 1998, we
sold 1,710,000 shares of our common stock for $0.50 per share to investors
in the United States. We also sold an aggregate of 890,000 shares of common
stock at the same purchase price to investors located in Canada. In
connection with this financing, we issued warrants to purchase an aggregate
of 171,000 shares of our common stock for $0.50 per share to Meridian
Capital Holdings, Inc., our U.S. placement agent, and its designated
representatives. In addition, we issued a warrant for the purchase of
89,000 shares of our common stock for $0.50 per share to CanAccord Capital
Corporation, our Canadian placement agent.
(10) In December 1997, we offered a 50% common stock bonus to any
holder of preferred stock warrants or common stock warrants who agreed to
exercise some or all of each such holder's respective warrants prior to
December 31, 1997. As a result, in April 1998, we issued an aggregate of
128,876 shares of our common stock to three warrant holders who exercised
their warrants, providing
II-2
a bonus to each such holder of one share of common stock for every two
shares of preferred or common stock so exercised by each of the three
warrant holders.
(11) In May 1998, we issued a warrant to purchase 75,000 shares of our
common stock for $1.00 per share to El Camino Resources, Ltd. in connection
with an equipment lease of which El Camino was lessor. In July 1999, we
issued another warrant to El Camino to purchase 6,670 shares of common
stock at an exercise price of $4.50 per share.
(12) Between December 1998 and April 1999, we issued an aggregate of
5,685,178 shares of Series B Preferred Stock for $1.00 per share to various
accredited investors. In the same transaction, we also issued warrants to
purchase 5,685,178 shares of our common stock at a price equal to the
initial public offering price. In connection with this transaction, we
issued warrants to purchase 435,000 shares of our common stock for $1.00
per share to nine persons or entities as commissions.
(13) Between July 1998 and November 1998, we issued $1.2 million of
convertible bridge notes to various accredited investors. In connection
with this transaction, we issued warrants to purchase 610,100 shares of our
common stock for $1.00 per share. Upon conversion of certain of these notes
in March 1999, we issued an aggregate of 470,646 shares of Series B
Preferred Stock and warrants to purchase an aggregate of 470,646 shares of
our common stock at the initial public offering price.
(14) In October 1999, we issued two warrants to purchase up to an
aggregate of 40,000 shares of common stock at $4.50 per share to two
parties in connection with an agreement with Web Connect.
(15) In November 1999, we issued an aggregate of 85,000 shares of our
common stock, valued at $4.50 per share, to security holders of Emerging
Market Technologies, Inc.
(16) In December 1999, we issued an aggregate of 475,000 shares of our
common stock, valued at $4.50 per share, to security holders of Appintec
Corp., dba ActionWare, in connection with our acquisition of ActionWare.
(17) In December 1999 and January 2000, in connection with a financing
for $20.8 million, we issued an aggregate of 3,777,778 shares of Series C
Preferred Stock to accredited investors for $4.50 per share, and issued an
aggregate of 607,456 shares of our common stock to accredited investors for
$4.50 per share.
(18) In December 1999 and January 2000, pursuant to an incentive
program for certain of our franchisees, we issued an aggregate of 88,000
shares of our common stock at a value of $4.50 per share.
(19) In December 1999 and January 2000, we issued an aggregate of
133,660 shares of our common stock to certain individuals in connection
with an agreement with HotNet.
(20) In connection with certain equipment lease agreements, we issued
warrants to LINC Capital, MicroTech Leasing Corp. and Infuzion Capital.com
to purchase an aggregate of 21,110 shares of our common stock at an
exercise price of $4.50 per share.
(21) In January 2000, we issued an aggregate of 322,222 shares of our
common stock, valued at $4.50 per share, to the sole security holder of
Central Technologies, Inc. in connection with our acquisition of
substantially all of the assets used in that company's business.
(22) In January 2000, we issued a total of 80,000 shares of our common
stock, at a value of $4.50 per share, pursuant to an incentive program with
our original franchises.
(23) Pursuant to our Second Amended and Restated 1997 Stock Plan, we
have granted options to purchase an aggregate of 6,877,450 shares of common
stock to our employees, directors, consultants and franchisees. We have
granted to our executive officers options to purchase an aggregate of
6,065,200 shares of common stock. During the period between December 11,
1996 and April 16, 1999, all options granted, consisting of a total of
3,405,900 shares, had an exercise price of
II-3
$0.50. Between April 29, 1999 and March 15, 2000, we granted options to
purchase an aggregate of 9,508,135 shares exercisable at $4.50 per share.
During December 1999, we granted options to purchase 2,870 shares of common
stock at $1.305 and 25,744 options to purchase common stock at $3.26 in
connection with the acquisitions of Emerging Market Technologies, Inc. and
Appintec Corp., dba ActionWare, respectively.
(24) Between December 1997 and March 15, 2000, we granted stock
purchase rights under our Second Amended and Restated 1997 Stock Plan to
our employees, directors and consultants. Of these, 1,391,184 shares of
common stock were purchased for $0.50 per share prior to April 12, 1999,
and 112,008 shares of common stock were purchased for $4.50 per share
thereafter.
(25) In March 2000, we sold 250,000 shares of common stock to two
strategic partners for $6.00 per share.
There were no underwriters for any of the transactions described above.
None of the foregoing transactions involved any public offering. The
issuance of securities described in paragraphs (2), (3), (7), (9) and (11)-(22)
and (25) were deemed to be exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof or Regulation D promulgated
thereunder. There was no general solicitation by us or any of our officers or
directors in connection with the sale of any of these securities, and we believe
that each acquirer qualified as an accredited investor, as such term is defined
in Rule 501 of the Securities Act. In addition, the recipients of securities in
each such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. Prior to each
issuance of securities, each recipient had access to the kind of information
regarding the company that would have been disclosed had the securities been
registered under the Securities Act.
The sales of securities outside of the United States described in
paragraphs (5) and (8) were conducted under the exemption from registration
provided by Regulation S of the Securities Act. We did no engage in any directed
selling efforts in the United States and the offer and sale of the securities
was made only to persons located outside of the United States in offshore
transactions.
The sales of securities described in paragraphs (1) and (6) were conducted
under the exemption from registration provided by Section 3(a)(11) of the
Securities Act. We offered and sold the securities only to residents of the
State of California, our state of incorporation at the time of issuance.
The sale of securities described in paragraph (10) was conducted under the
exemption from registration provided by Section 3(a)(9) of the Securities Act.
The offer of securities was made only to existing security holders of the
company and no commission or other remuneration was paid or given directly or
indirectly to any party for soliciting the exchange of company securities.
The issuances of securities under our Second Amended and Restated 1997
Stock Option Plan described in paragraphs (4), (23) and (24) were exempt from
registration pursuant to Rule 701 of the Securities Act as an offer and sale of
securities under a compensatory benefit plan between us and our employees,
directors, consultants and franchisees at a time when we were not required to
report under the Securities Exchange Act of 1934. In addition, all stock options
granted to franchisees in reliance on the exemption provided by Rule 701 were
made prior to the amendments to Rule 701 effected on April 7, 1999. The
issuances of securities to our executive officers and to certain of our
franchisees described in paragraph (23) were exempt from registration under
Section 4(2) of the Securities Act, as discussed above.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Form of Underwriting Agreement+
3.1 Second Restated Certificate of Incorporation of the
Registrant*
II-4
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.2 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock*
3.3 Bylaws of the Registrant*
4.1 Specimen Stock Certificate+
4.2 Form of Rights Agreement*
5.1 Opinion of Rutan & Tucker, LLP+
10.1 Second Amended and Restated 1997 Stock Plan*
10.2 Form of Second Amended and Restated 1997 Stock Plan Stock
Option Agreement*
10.3 Form of Second Amended and Restated 1997 Stock Plan Notice
of Grant of Stock Purchase Right and Restricted Stock
Purchase Agreement*
10.4 Form of Indemnification Agreement*
10.5 Deferred Compensation Agreement dated December 27, 1999
between the Registrant and John Veenstra*
10.6 Lease dated February 26, 1999 between the Registrant and
CarrAmerica Realty Corporation, First Amendment thereto
dated July 21, 1999 and Second Amendment thereto dated as of
January 11, 2000*
10.7 Master Services Agreement dated December 28, 1999 between
the Registrant and Exodus Communications, Inc.*
10.8 Wholesale Service Agreement dated June 13, 1997 between the
Registrant and Solid Technology, Inc.*
10.9 Agreement to Purchase Franchise Territories dated November
29, 1999 between the Registrant and Dorado Resources Corp.*
10.10 Operating Assistance Agreement dated November 30, 1999
between the Registrant and Dorado Resources Corp.*
10.11 Form of Business Program Franchise Agreement (U.S.)*
10.12 Form of Business Program Franchise Agreement (Canada)*
10.13 Form of Business Program Franchise Agreement (Germany)*
10.14 Form of Franchise and Agency Agreement (Australia)*
10.15 Employment Agreement dated July 8, 1999 between the
Registrant and John Veenstra*
10.16 Employment Agreement dated May 20, 1999 between the
Registrant and Glenn E. Abood*
10.17 Employment Agreement dated December 1, 1999 between the
Registrant and Joan Nagelkirk*
10.18 Employment Agreement dated December 1, 1999 between the
Registrant and Gregg Amber*
10.19 Consulting Agreement dated August 30, 1999 between the
Registrant and Jack Harding*
21.1 Subsidiaries*
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of KPMG LLP*
23.3 Consent of KPMG LLP*
27.1 Financial Data Schedule*
* Filed herewith.
+ To be filed by a subsequent amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedules are filed herewith:
Report of Independent Public Accountants
Schedule II -- Valuation and qualifying accounts
Other schedules have been omitted because of the absence of conditions
under which they are required or because the required information is included in
the financial statements or notes thereto.
II-5
ITEM 17. UNDERTAKINGS
The registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-6
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 Aliso Viejo, California,
on March 28, 2000.
By: /s/ JOHN W. VEENSTRA
------------------------------------
John W. Veenstra
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Glenn E.
Abood, Joan Nagelkirk and Gregg Amber his true and lawful attorneys-in-fact and
for him and in his name, place and stead, at any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
that each of said attorneys-in-fact and agents, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
NAME TITLE DATE
---- ----- ----
/s/ JOHN W. VEENSTRA Chief Executive Officer and March 28, 2000
--------------------------------------------------- Director (Principal
John W. Veenstra Executive Officer)
/s/ KEVIN PALATNIK Chief Financial Officer March 28, 2000
--------------------------------------------------- (Principal Accounting
Kevin Palatnik Officer)
/s/ JOAN NAGELKIRK Director March 28, 2000
---------------------------------------------------
Joan Nagelkirk
/s/ HANS SEVERIENS Director March 28, 2000
---------------------------------------------------
Hans Severiens
/s/ SIDNEY JANSMA, JR. Director March 28, 2000
---------------------------------------------------
Sidney Jansma, Jr.
/s/ JACK HARDING Director March 28, 2000
---------------------------------------------------
Jack Harding
/s/ THOMAS GLASGOW, JR. Director March 28, 2000
---------------------------------------------------
Thomas Glasgow, Jr.
/s/ WOLFGANG HANRIEDER Director March 28, 2000
---------------------------------------------------
Wolfgang Hanrieder
II-7
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Form of Underwriting Agreement+
3.1 Second Restated Certificate of Incorporation of the
Registrant*
3.2 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock*
3.3 Bylaws of the Registrant*
4.1 Specimen Stock Certificate+
4.2 Form of Rights Agreement*
5.1 Opinion of Rutan & Tucker, LLP+
10.1 Second Amended and Restated 1997 Stock Plan*
10.2 Form of Second Amended and Restated 1997 Stock Plan Stock
Option Agreement*
10.3 Form of Second Amended and Restated 1997 Stock Plan Notice
of Grant of Stock Purchase Right and Restricted Stock
Purchase Agreement*
10.4 Form of Indemnification Agreement*
10.5 Deferred Compensation Agreement dated December 27, 1999
between the Registrant and John Veenstra*
10.6 Lease dated February 26, 1999 between the Registrant and
CarrAmerica Realty Corporation, First Amendment thereto
dated July 21, 1999 and Second Amendment thereto dated as of
January 11, 2000*
10.7 Master Services Agreement dated December 28, 1999 between
the Registrant and Exodus Communications, Inc.*
10.8 Wholesale Service Agreement dated June 13, 1997 between the
Registrant and Solid Technology, Inc.*
10.9 Agreement to Purchase Franchise Territories dated November
29, 1999 between the Registrant and Dorado Resources Corp.*
10.10 Operating Assistance Agreement dated November 30, 1999
between the Registrant and Dorado Resources Corp.*
10.11 Form of Business Program Franchise Agreement (U.S.)*
10.12 Form of Business Program Franchise Agreement (Canada)*
10.13 Form of Business Program Franchise Agreement (Germany)*
10.14 Form of Franchise and Agency Agreement (Australia)*
10.15 Employment Agreement dated July 8, 1999 between the
Registrant and John Veenstra*
10.16 Employment Agreement dated May 20, 1999 between the
Registrant and Glenn E. Abood*
10.17 Employment Agreement dated December 1, 1999 between the
Registrant and Joan Nagelkirk*
10.18 Employment Agreement dated December 1, 1999 between the
Registrant and Gregg Amber*
10.19 Consulting Agreement dated August 30, 1999 between the
Registrant and Jack Harding*
21.1 Subsidiaries*
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of KPMG LLP*
23.3 Consent of KPMG LLP*
27.1 Financial Data Schedule*
* Filed herewith.
+ To be filed by a subsequent amendment.
EXHIBIT 3.1
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
ZLAND, INC.
ZLand, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
1. The present name of the Corporation is ZLand., Inc. ZLand, Inc. was
originally incorporated under the name ZLand, Inc., and the original Certificate
of Incorporation of the Corporation was filed with the Secretary of State of the
State of Delaware on July 29, 1999.
2. This Second Restated Certificate of Incorporation was duly adopted in
accordance with Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware and restates, integrates and further amends the provisions of
the Restated Certificate of Incorporation of the Corporation.
3. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:
I
1.1 Name. The name of the Corporation is ZLand.com, Inc.
1.2 Purpose and Duration. The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may now or hereafter be
organized under the General Corporation Law of the State of Delaware. The
Corporation is to have perpetual existence.
II
2.1 Registered Office and Agent. The address of the Corporation's
registered office in the State of Delaware is 1013 Centre Road, Wilmington, New
Castle County, Delaware 19805-1297. The registered agent for service of process
at that address is Corporation Service Company.
2.2 Directors. The number of directors which shall constitute the whole
Board of Directors of the Corporation (the "Board of Directors") shall be fixed
by or in the manner provided in the Bylaws of the Corporation. Directors need
not be elected by written ballot.
2.3 Changes to Certificate of Incorporation and Bylaws. The Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
alter, amend or repeal the Bylaws of the Corporation.
III
3.1 General. The authorized capital stock of the Corporation is as
follows:
3.1.1 Number and Class. The Corporation is authorized to issue
two classes of shares, designated "Common Stock" and "Preferred Stock." The
total number of shares which the Corporation shall have authority to issue is
120,000,000, of which 100,000,000 shares shall be Common Stock, $.01 par value
per share, and 20,000,000 shares shall be Preferred Stock, $.01 par value per
share. Of the 20,000,000 shares designated as Preferred Stock, 2,220,000 shares
shall be designated as "Series A Preferred Stock" (the "Series A Preferred"),
and shall have the rights, preferences, privileges and restrictions specified in
Section 3.2 below, 7,823,740 shares shall be designated as "Series B Preferred
Stock" (the "Series B Preferred"), and shall have the rights, preferences,
privileges and restrictions specified in Section 3.3 below, and 3,333,333 shall
be designated as "Series C Preferred Stock" (the "Series C Preferred"), and
shall have the rights, preferences, privileges and restrictions specified in
Section 3.4 below. Upon the amendment of this Section 3.1.1 to read as herein
set forth, each outstanding share of Common Stock, Series A Preferred and Series
B Preferred is split up and converted into 2 fully paid and nonassessable shares
of Common Stock, Series A Preferred or Series B Preferred, as the case may be;
provided, however, that any fractional shares resulting from such split up and
conversion shall be rounded to the nearest whole.
3.1.2 Rank. The Series A Preferred, the Series B Preferred and
the Series C Preferred shall rank (i) senior to the Common Stock of the
Corporation as to payment of dividends and distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, (ii) on a parity with one another as to payment of dividends and
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and (iii) on a parity with or
senior to any additional series of Preferred Stock of any class which the Board
of Directors or the stockholders may from time to time authorize, both as to
payment of dividends and as to distributions of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
3.1.3 Undesignated Preferred Stock. The remaining 6,622,927
shares of the shares designated as Preferred Stock may be issued in one or more
series. The Board of Directors is hereby authorized, subject to any limitations
prescribed by the laws of the State of Delaware, (i) to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock consistent with the limitations of
this Certificate of Incorporation, (ii) to fix the number of shares comprising
any such series and the designation thereof, within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series, and (iii) to increase or
decrease the number of shares of any such series subsequent to the issuance of
shares of that series (but not below the number of shares of such series then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or the conversion of any outstanding
securities issued by the Corporation into shares of such series).
3.2 Series A Preferred. A statement of the rights, preferences,
privileges and restrictions granted to or imposed on the Series A Preferred and
the holders thereof is as follows:
-2-
3.2.1 Dividends. The holders of Series A Preferred shall have
dividend rights as follows:
(a) The holders of the Series A Preferred, on a pari passu
basis with the holders of shares of any class or series of the Corporation's
capital stock ranking, as to dividends, on a parity ("Parity Dividend Stock")
with the Series A Preferred, shall be entitled to receive, out of any funds
legally available therefor, dividends at the rate of $.02425 per share, per
annum, payable in preference and priority to any payment of any dividend on
Common Stock or shares of any other class or series of the Corporation's capital
stock ranking, as to dividends, junior to the Series A Preferred, when and as
declared by the Board of Directors. The right to such dividends on the Series A
Preferred shall not be cumulative, and no right shall accrue to holders of
Series A Preferred by reason of the fact that dividends on such shares are not
declared or paid in any prior year. After payment of such dividends to the
holders of the Series A Preferred and any Parity Dividend Stock, any additional
dividends declared shall be distributed among holders of shares of any other
class or series of the Corporation's capital stock ranking, as to dividends,
senior to Common Stock, in accordance with the terms of such class or series,
and finally among all holders of Series A Preferred, Parity Dividend Stock,
Common Stock and shares of any other class or series of the Corporation's
capital stock having dividend rights, pro rata as if all shares of Series A
Preferred, Parity Dividend Stock and shares of such other class or series of the
Corporation's capital stock that are convertible into or exchangeable for shares
of Common Stock had been converted into or exchanged for Common Stock at such
time and the dividends were being distributed in equal shares among all shares
of Common Stock that would be outstanding in such case.
(b) No dividends shall be paid or declared and set apart
for payment on any Parity Dividend Stock for any period unless all accrued but
unpaid dividends have been, or contemporaneously are, paid or declared and set
apart for such payment on the Series A Preferred. No full dividends shall be
paid or declared and set apart for payment on the Series A Preferred for any
period, no purchase, redemption or other acquisition of Parity Dividend Stock
shall be made and no monies shall be paid or made available for a sinking fund
for the purchase, redemption or other acquisition of any Series A Preferred or
any Parity Dividend Stock unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such dividends. When dividends are not paid in full upon the Series A
Preferred and the Parity Dividend Stock, all dividends paid or declared and set
apart for payment upon shares of Series A Preferred and Parity Dividend Stock
shall be paid or declared and set apart for payment pro rata, so that the amount
of dividends paid or declared and set apart for payment per share on the Series
A Preferred and the Parity Dividend Stock shall in all cases bear to each other
the same ratio that accrued and unpaid dividends per share on the shares of
Series A Preferred and the Parity Dividend Stock bear to each other.
(c) If the Corporation has declared but unpaid dividends
outstanding immediately prior to, and in the event of, a conversion of the
Series A Preferred (as provided in Section 3.2.3), the Corporation shall,
subject to the availability of funds from which such dividends may lawfully be
paid, at the option of each holder, pay in cash to each holder of Series A
Preferred subject to conversion the full amount of any such dividends or allow
such dividends
-3-
to be converted into Common Stock in accordance with, and pursuant to the terms
specified in, Section 3.2.3.
3.2.2 Liquidation Preference. The holders of Series A Preferred
shall have a liquidation preference as follows:
(a) Relative Preferences. Upon any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series A Preferred shall be entitled to receive, on a pari
passu basis with holders of any other class or series of the Corporation's
capital stock having parity as to liquidation rights ("Parity Liquidation
Stock") with the Series A Preferred and prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock or shares of any other class or series of the
Corporation's capital stock ranking, as to liquidation rights, junior to the
Series A Preferred, by reason of their ownership thereof, the amount of $.485
per share (as adjusted for stock splits, stock dividends, recapitalizations and
the like) for each share of Series A Preferred then held by them plus an amount
equal to all declared but unpaid dividends on such shares of Series A Preferred.
If, upon occurrence of such event, the assets and funds thus distributed among
the holders of the Series A Preferred and the Parity Liquidation Stock are
insufficient to permit the payment to the holders of the Series A Preferred the
full preferential amounts to which they are entitled pursuant to this Section
3.2.2(a), then the entire assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of the Series A
Preferred and the Parity Liquidation Stock in proportion to the full liquidation
preference to which such holder is entitled.
(b) Distribution. After payment has been made to the
holders of the Series A Preferred and the Parity Liquidation Stock of the
respective amounts to which they shall be entitled as provided in Section
3.2.2(a) above, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among holders of shares of any
other class or series of the Corporation's capital stock ranking, as to
liquidation rights, senior to the Common Stock, in accordance with the terms of
such class or series, and finally among the holders of Series A Preferred,
Parity Liquidation Stock, Common Stock and shares of any other class or series
of the Corporation's capital stock having liquidation rights, pro rata as if all
shares of Series A Preferred, Parity Liquidation Stock and shares of such other
class or series of the Corporation's capital stock that are convertible into or
exchangeable for shares of Common Stock had been converted into or exchanged for
Common Stock at such time and such assets were being distributed in equal shares
among all shares of Common Stock that would be outstanding in such case.
3.2.3 Conversion. The holders of the Series A Preferred shall
have conversion rights as follows:
(a) Right to Convert. Each share of Series A Preferred
shall be convertible, at the option of the holder thereof, at any time after the
issuance of such share, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $.485 by the then applicable Series
A Conversion Price (as defined below), determined as hereinafter provided. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Series A Preferred (the "Series A Conversion Price") shall initially be
$.485
-4-
per share of Common Stock. Such initial Series A Conversion Price shall be
subject to adjustment as hereinafter provided.
(b) Automatic Conversion. Each share of Series A Preferred
shall automatically be converted into shares of Common Stock at the then
effective Series A Conversion Price, as applicable, (i) upon the effectiveness
of a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock for the account of the Corporation to the
public at a price per share of at least $1.50 (as adjusted for stock splits,
reverse stock splits and the like) and an aggregate offering price to the public
of not less than $5,000,000, (ii) upon the affirmative vote of the holders of a
majority of the shares of Series A Preferred, voting as a single class,
outstanding at the time of such vote or (iii) upon the closing of an
underwritten public offering pursuant to approval of an application to list the
Corporation's Common Stock on the Neuer Markt of the Frankfurt Stock Exchange.
In the event of a public offering described in clauses (i) or (iii) of the
preceding sentence, the person(s) entitled to receive the Common Stock issuable
upon such conversion of Series A Preferred shall not be deemed to have converted
such Series A Preferred until immediately prior to the closing of such public
offering.
(c) Mechanics of Conversion. No fractional shares of
Common Stock shall be issued upon conversion of Series A Preferred. In lieu of
any fractional share to which a holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the per share
fair market value of the Common Stock as determined by the Board of Directors.
Before any holder of Series A Preferred shall be entitled to convert the same
into full shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series A Preferred, and shall give written notice to the
Corporation at such office that he elects to convert the same. Such notice shall
also state whether the holder elects, pursuant to Section 3.2.1, to receive
declared but unpaid dividends on the Series A Preferred proposed to be converted
in cash, or to convert such dividends into shares of Common Stock at their fair
market value as determined by the Board of Directors. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Series A Preferred, a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled as aforesaid and a check payable to
the holder in the amount of any cash amounts payable as the result of a
conversion into a fractional share of Common Stock, and any declared but unpaid
dividends on the converted Series A Preferred which the holder elected to
receive in cash. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series A Preferred to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date. If the conversion is in connection with an
underwritten public offering of securities as described in clauses (i) or (iii)
of the preceding paragraph, the conversion shall be conditioned upon the closing
of such public offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Series A Preferred shall not
be deemed to have converted such Series A Preferred until immediately prior to
such closing.
-5-
(d) Adjustments to Series A Conversion Price for Diluting
Issues.
(i) Special Definitions. For purposes of this
Section 3.2.3 and Section 3.3.3, the following definitions shall apply.
(1) "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock, the Series A
Preferred and the Series B Preferred) or other securities convertible into or
exchangeable for Common Stock.
(3) "Series A Original Issue Date" shall
mean the date on which the first share of Series A Preferred was first issued by
the Corporation's predecessor, ZLand, Inc., a California corporation ("ZLand
California").
(4) "Series B Original Issue Date" means the
date on which the first share of Series B Preferred was first issued by ZLand
California.
(5) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Section
3.2.3(d)(iii) or 3.3.3(d)(iii), deemed to be issued) by the Corporation or ZLand
California other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of the
Series A Preferred or the Series B Preferred;
(B) to officers or employees or
directors of, or consultants to, the Corporation or ZLand California pursuant to
a stock grant, option plan or purchase plan or other employee stock incentive
program (collectively, the "Plans") approved by the Board of Directors of such
company;
(C) as a dividend or distribution on
the Series A Preferred or the Series B Preferred;
(D) upon exercise or conversion of
warrants to purchase shares of stock of the Corporation or ZLand California
issued in connection with equipment lease financing transactions, bank financing
transactions or real estate leasing transactions approved by the Board of
Directors of such company, where the issuance of such warrants is not
principally for the purpose of raising additional equity capital for such
company;
(E) upon exercise of warrants issued
by ZLand California in connection with the Series B Preferred, of existing
warrants issued by ZLand California to purchase up to 724,300 shares of Common
Stock, of existing warrants issued by ZLand California to purchase up to 328,330
shares of Series A Preferred and of existing warrants issued by ZLand California
to purchase up to 449,640 shares of Series B Preferred, and upon
-6-
conversion of convertible notes issued by ZLand California convertible into up
to 899,280 shares of Series B Preferred;
(F) by way of dividend or other
distribution on shares of Common Stock excluded from the definition of
Additional Shares of Common Stock by the foregoing clauses (A), (B), (C), (D)
and (E) or on shares of Common Stock so excluded; and
(G) pursuant to any transaction
effective after the Series A Original Issue Date or Series B Original Issue
Date, as the case may be, and with respect to which the holders of a majority of
the then outstanding Series A Preferred or the Series B Preferred, as the case
may be, consent in writing to the waiver of the adjustment provision of this
Section 3.2.3(d)(i)(5).
(ii) No Adjustment of Series A Conversion Price. No
adjustment in the Series A Conversion Price shall be made in respect of the
issuance of Additional Shares of Common Stock unless the consideration per share
for an Additional Share of Common Stock issued or deemed to be issued by the
Corporation or ZLand California is less than the Series A Conversion Price in
effect on the date of, and immediately prior to such issue. No adjustment in the
Series A Conversion Price pursuant to Section 3.2.3(d)(iv) shall be made as a
result of any stock dividend or subdivision which causes an adjustment in the
Series A Conversion Price pursuant to Section 3.2.3(e).
(iii) Deemed Issue of Additional Shares of Common
Stock. Subject to Section 3.2.3(d)(i)(5), if the Corporation at any time or from
time to time after the Series A Original Issue Date issues any Options or
Convertible Securities or fixes a record date for the determination of holders
of any class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued with respect to the Series A Preferred unless the
consideration per share (determined pursuant to Section 3.2.3(d)(v)) of such
Additional Shares of Common Stock would be less than the Series A Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be, and provided further that in any case in which
Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the
Series A Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the
-7-
consideration payable to the Corporation, or increase or decrease in the number
of shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Series A Conversion Price, computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities; and
(C) on the expiration or
cancellation of any Options or the termination of the right to convert or
exchange any Convertible Securities which have not been exercised, if the Series
A Conversion Price has been adjusted upon the original issuance thereof or has
been subsequently adjusted pursuant to clause (B) above, the Series A Conversion
Price shall be recomputed as if:
(1) in the case of
Convertible Securities or Options to purchase Common Stock, the only Additional
Shares of Common Stock issued were shares of Common Stock, if any, actually
issued upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, and the consideration received therefor was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration actually received by
the Corporation upon such exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged plus the consideration
actually received by the Corporation upon such conversion or exchange, if any,
and
(2) in the case of Options to
purchase Convertible Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at the time of issue of
such Options and the consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the Corporation upon the issue of the Convertible Securities with
respect to which such Options were actually exercised;
(D) no readjustment pursuant to
clauses (B) and (C) above shall have the effect of increasing the Series A
Conversion Price to an amount which exceeds the lower of (i) the Series A
Conversion Price on the original adjustment date, or (ii) the Series A
Conversion Price that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such readjustment date.
(iv) Adjustment of Series A Conversion Price of
Series A Preferred Upon Issuance of Additional Shares of Common Stock. If after
the Series A Original Issue Date Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
3.2.3(d)(iii)) are issued without consideration or for a consideration per share
less than the Series A Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, the Series A Conversion Price shall
be reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Series A Conversion Price by a fraction, the
numerator of which shall be the
-8-
number of shares of Common Stock outstanding immediately prior to such issue
plus the number of shares of Common Stock which the aggregate consideration
received for the total number of Additional Shares of Common Stock so issued
would purchase at such Series A Conversion Price; and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued;
and provided further that, for the purposes of this Section 3.2.3(d)(iv) all
shares of Common Stock issuable upon conversion of outstanding Convertible
Securities, Options and the Series A Preferred shall be deemed to be
outstanding, and immediately after any Additional Shares of Common Stock are
deemed issued pursuant to Section 3.2.3(d)(iii), such Additional Shares of
Common Stock shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes of
this Section 3.2.3(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration
shall:
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation;
(B) insofar as it consists of
securities (i) if the securities are then traded on a national securities
exchange, the Nasdaq Stock Market or a similar national quotation system (or, if
the securities are not traded on a national securities exchange, the Nasdaq
Stock Market or a similar national quotation system but are traded on an
internationally recognized exchange), then the value shall be computed based on
the average of the closing prices of the securities on such exchange or system
over the 30-day period ending three days prior to receipt by the Corporation,
(ii) if the securities are actively traded over-the-counter, then the value
shall be computed based on the average of the closing bid prices over the 30-day
period ending three days prior to the receipt by the Corporation, and (iii) if
there is no active public market, then the value shall be computed based on the
fair market value thereof on the date of receipt by the Corporation, as
determined in good faith by the Board of Directors of the Corporation;
(C) insofar as it consists of
property other than cash and securities, be computed at the fair value thereof
at the time of such issue, as determined in good faith by the Board of
Directors; and
(D) if Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A), (B) and (C)
above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 3.2.3(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
-9-
(x) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of
Common Stock (as set forth in the instrument relating thereto, without regard to
any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) Adjustments for Stock Dividends, Subdivisions,
Combinations, or Consolidations. If the Corporation pays a stock dividend on the
Common Stock, or the outstanding shares of Common Stock are subdivided, combined
or consolidated, by reclassification, stock split or otherwise, into a greater
or lesser number of shares of Common Stock, the Series A Conversion Price in
effect immediately prior to such dividend, subdivision, combination or
consolidation shall, concurrently with the effectiveness of such dividend,
subdivision, combination or consolidation, be proportionately adjusted.
(f) No Impairment. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
assets, merger, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation but will at all times
in good faith assist in the carrying out of all the provisions of this Section
3.2.3 and in the taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the holders of the Series A Preferred
against impairment.
(g) Notices of Record Date. If the Corporation shall
propose at any time:
(i) to declare any dividend or distribution upon
its Common Stock, whether in cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not out of earnings or earned
surplus,
(ii) to offer for subscription pro rata to the
holders of any class or series of its stock any additional shares of stock of
any class or series or other rights,
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
(iv) to merge with or into any other corporation
(other than a merger in which the holders of the outstanding voting equity
securities of the Corporation immediately prior to such merger hold more than
50% of the voting power of the surviving entity immediately following such
merger), or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
-10-
then, in connection with each such event, the Corporation shall send to the
holders of the Series A Preferred:
(1) at least 20 days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in subparagraphs (iii) and (iv) above; and
(2) in the case of the matters referred to
in subparagraphs (iii) and (iv) above, at least 20 days' prior written notice of
the date when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such event).
Each such written notice shall be given by first class mail, postage prepaid,
addressed to the holders of Series A Preferred shares at the address for each
such holder as shown on the books of the Corporation.
(h) Recapitalization. If at any time or from time to time
there is a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3.2.3 or in Section 3.3.3) provision shall be made so that the
holders of the Series A Preferred shall thereafter be entitled to receive upon
conversion of the Series A Preferred the number of shares of stock or other
securities or property of the Corporation to which a holder of Common Stock
deliverable upon conversion of each share of such series would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3.2.3 with
respect to the rights of the holders of the Series A Preferred after the
recapitalization to the end that the provisions of this Section 3.2.3 (including
adjustment of the Series A Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series A Preferred) shall be
applicable after that event as nearly equivalent as may be practicable.
3.2.4 Voting Rights. Except as otherwise required by law and as
provided in Section 3.2.5, the holders of Series A Preferred shall be entitled
to notice of any stockholders' meeting and to vote with the Common Stock and any
other series of Preferred Stock having the right to vote generally as a single
class upon any matter submitted to the stockholders for a vote. Each holder of
Series A Preferred shall have one vote for each full share of Common Stock into
which its respective shares of Series A Preferred would be convertible on the
record date for the vote.
3.2.5 Protective Provisions. In addition to any other rights
provided by law and except as provided by law, so long as any Series A Preferred
shall be outstanding, the Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of a majority of the
outstanding shares of Series A Preferred, voting as a separate class on an
as-converted basis:
-11-
(a) authorize or issue shares of any class of stock having
any preference or priority as to voting, dividends or upon liquidation superior
to or on a parity with any such preference or priority of the Series A
Preferred, or authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of the Corporation having
any preference or priority as to voting, dividends or upon liquidation superior
to or on a parity with any such preference or priority of the Series A
Preferred;
(b) redeem or purchase any of the Common Stock; provided,
however, that this restriction shall not apply to the repurchase of shares of
Common Stock at the original cost paid for such shares (unless a repurchase
price other than such cost is unanimously approved by the Board of Directors)
from employees, officers, directors, consultants or other persons performing
services for the Corporation upon the termination of the employment, consulting
or other relationship between the Corporation and such persons;
(c) increase the total number of authorized shares of
Series A Preferred;
(d) amend or repeal any provision of, or add any provision
to, the Corporation's Certificate of Incorporation or Bylaws if such action
would alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred so as to affect
them adversely;
(e) consummate a sale of all or substantially all of the
Corporation's assets or any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
which would result in the holders of the outstanding voting equity securities of
the Corporation immediately prior to such transaction holding less than 50% of
the voting power of the surviving entity immediately following such transaction.
3.2.6 Status of Converted Stock. If any shares of Series A
Preferred are converted into Common Stock pursuant to Section 3.2.3, the shares
of Series A Preferred so converted shall be canceled and shall not be issuable
by the Corporation, and the Certificate of Incorporation of the Corporation
shall be appropriately amended to effect the corresponding reduction in the
Corporation's authorized capital stock.
3.2.7 Residual Rights. All rights accruing to the outstanding
shares of the Corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
3.3 Series B Preferred. A statement of the rights, preferences,
privileges and restrictions granted to or imposed on the Series B Preferred and
the holders thereof is as follows:
3.3.1 Dividends.
(a) The holders of the Series B Preferred, on a pari passu
basis with the holders of any Parity Dividend Stock, shall be entitled to
receive, out of any funds legally available therefor, dividends at the rate of
$.06 per share, per annum, payable in preference and priority to any payment of
any dividend on Common Stock or shares of any other class or series
-12-
of the Corporation's capital stock ranking, as to dividends, junior to the
Series B Preferred, when and as declared by the Board of Directors. The right to
such dividends on the Series B Preferred shall not be cumulative, and no right
shall accrue to holders of Series B Preferred by reason of the fact that
dividends on such shares are not declared or paid in any prior year. After
payment of such dividends to the holders of the Series B Preferred and any
Parity Dividend Stock, any additional dividends declared shall be distributed
among holders of shares of any other class or series of the Corporation's
capital stock ranking, as to dividends, senior to the Common Stock, in
accordance with the terms of such class or series, and finally among all holders
of Series B Preferred, Parity Dividend Stock, Common Stock and shares of any
other class or series of the Corporation's capital stock having dividend rights,
pro rata as if all shares of Series B Preferred, Parity Dividend Stock and
shares of such other class or series of the Corporation's capital stock that are
convertible into or exchangeable for shares of Common Stock had been converted
into or exchanged for Common Stock at such time and the dividends were being
distributed in equal shares among all shares of Common Stock that would be
outstanding in such case.
(b) No dividends shall be paid or declared and set apart
for payment on any Parity Dividend Stock for any period unless all accrued but
unpaid dividends have been, or contemporaneously are, paid or declared and set
apart for such payment on the Series B Preferred. No full dividends shall be
paid or declared and set apart for payment on the Series B Preferred for any
period, no purchase, redemption or other acquisition of Parity Dividend Stock
shall be made and no monies shall be paid or made available for a sinking fund
for the purchase, redemption or other acquisition of any Series B Preferred or
any Parity Dividend Stock unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such dividends. When dividends are not paid in full upon the Series B
Preferred and the Parity Dividend Stock, all dividends paid or declared and set
apart for payment upon shares of Series B Preferred and Parity Dividend Stock
shall be paid or declared and set apart for payment pro rata, so that the amount
of dividends paid or declared and set apart for payment per share on the Series
B Preferred and the Parity Dividend Stock shall in all cases bear to each other
the same ratio that accrued and unpaid dividends per share on the shares of
Series B Preferred and Parity Dividend Stock bear to each other.
(c) If the Corporation has declared but unpaid dividends
outstanding immediately prior to, and in the event of, a conversion of the
Series B Preferred (as provided in Section 3.3.3), the Corporation shall,
subject to the availability of funds from which such dividends may lawfully be
paid, at the option of each holder, pay in cash to each holder of Series B
Preferred subject to conversion the full amount of any such dividends or allow
such dividends to be converted into Common Stock in accordance with, and
pursuant to the terms specified in, Section 3.3.3.
3.3.2 Liquidation Preference. The holders of Series B Preferred
shall have a liquidation preference as follows:
(a) Relative Preferences. Upon any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series B Preferred shall be entitled to receive, on a pari
passu basis with the holders of any Parity Liquidation Stock and prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation
-13-
to the holders of the Common Stock or shares of any other class or series of the
Corporation's capital stock ranking, as to liquidation rights, junior to the
Series B Preferred, by reason of their ownership thereof, a liquidation
preference in the amount of $1.00 per share (as adjusted for stock splits, stock
dividends, recapitalizations and the like) for each share of Series B Preferred
then held by them plus an amount equal to all declared but unpaid dividends on
such shares of Series B Preferred. If, upon occurrence of such event, the assets
and funds thus distributed among the holders of the Series B Preferred and the
Parity Liquidation Stock are insufficient to permit the payment to the holders
of the Series B Preferred the full preferential amounts to which they are
entitled pursuant to this Section 3.3.2(a), then the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred and the Parity Liquidation Stock in
proportion to the full liquidation preference to which such holder is entitled.
(b) Distribution. After payment has been made to the
holders of the Series B Preferred and the Parity Liquidation Stock of the
respective amounts to which they shall be entitled as provided in Section
3.3.2(a), the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among holders of shares of any other class or
series of the Corporation's capital stock ranking, as to liquidation rights,
senior to the Common Stock, in accordance with the terms of such class or
series, and finally among the holders of Series B Preferred, Parity Liquidation
Stock, Common Stock and shares of any other class or series of the Corporation's
capital stock having liquidation rights, pro rata as if all shares of Series B
Preferred, Parity Liquidation Stock and shares of such other class or series of
the Corporation's capital stock that are convertible into or exchangeable for
shares of Common Stock had been converted into Common Stock at such time and
such assets were being distributed in equal shares among all shares of Common
Stock that would be outstanding in such case.
3.3.3 Conversion. The holders of the Series B Preferred shall
have conversion rights as follows:
(a) Right to Convert. Each share of Series B Preferred
shall be convertible, at the option of the holder thereof, at any time after the
issuance of such share, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $1.00 by the then applicable Series
B Conversion Price (as defined below), determined as hereinafter provided. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Series B Preferred ("Series B Conversion Price") shall initially be $1.00
per share of Common Stock. The initial Series B Conversion Price shall be
subject to adjustment as hereinafter provided.
(b) Automatic Conversion. Each share of Series B Preferred
shall automatically be converted into shares of Common Stock at the then
effective Series B Conversion Price, as applicable, (i) upon the effectiveness
of a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock for the account of the Corporation to the
public at a price per share of at least $1.50 (as adjusted for stock splits,
reverse stock splits and the like) and an aggregate offering price to the public
of not less than $5,000,000, (ii) upon the affirmative vote of the holders of a
majority of the shares of Series B Preferred, voting as a
-14-
single class, outstanding at the time of such vote or (iii) upon the closing of
an underwritten public offering pursuant to approval of an application to list
the Corporation's Common Stock on the Neuer Markt of the Frankfurt Stock
Exchange. In the event of a public offering described in clauses (i) or (iii) of
the preceding sentence, the person(s) entitled to receive the Common Stock
issuable upon such conversion of Series B Preferred shall not be deemed to have
converted such Series B Preferred until immediately prior to the closing of such
public offering.
(c) Mechanics of Conversion. No fractional shares of
Common Stock shall be issued upon conversion of Series B Preferred. In lieu of
any fractional share to which a holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the per share
fair market value of the Common Stock as determined by the Board of Directors.
Before any holder of Series B Preferred shall be entitled to convert the same
into full shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series B Preferred, and shall give written notice to the
Corporation at such office that he elects to convert the same. Such notice shall
also state whether the holder elects, pursuant to Section 3.3.1, to receive
declared but unpaid dividends on the Series B Preferred proposed to be converted
in cash, or to convert such dividends into shares of Common Stock at their fair
market value as determined by the Board of Directors. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Series B Preferred, a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled as aforesaid and a check payable to
the holder in the amount of any cash amounts payable as the result of a
conversion into a fractional share of Common Stock, and any declared but unpaid
dividends on the converted Series B Preferred which the holder elected to
receive in cash. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series B Preferred to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date. If the conversion is in connection with an
underwritten public offering of securities as described in clauses (i) or (iii)
of the preceding paragraph, the conversion shall be conditioned upon the closing
of such public offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Series B Preferred shall not
be deemed to have converted such Series B Preferred until immediately prior to
such closing.
(d) Adjustments to Series B Conversion Price for Diluting
Issues.
(i) No Adjustment of Series B Conversion Price. No
adjustment in the Series B Conversion Price shall be made in respect of the
issuance of Additional Shares of Common Stock unless the consideration per share
for an Additional Share of Common Stock issued or deemed to be issued by the
Corporation or ZLand California is less than the Series B Conversion Price in
effect on the date of, and immediately prior to such issue. No adjustment in the
Series B Conversion Price pursuant to Section 3.3.3(d)(iii) shall be made as a
result of any stock dividend or subdivision which causes an adjustment in the
Series B Conversion Price pursuant to Section 3.3.3(e) below.
(ii) Deemed Issue of Additional Shares of Common
Stock. Subject to Section 3.2.3(d)(i)(5), if the Corporation at any time or from
time to time after the
-15-
Series B Original Issue Date issues any Options or Convertible Securities or
fixes a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such number)
of Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued with
respect to the Series B Preferred unless the consideration per share (determined
pursuant to Section 3.3.3(d)(iv)) of such Additional Shares of Common Stock
would be less than the Series B Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any case in which Additional Shares of Common Stock are
deemed to be issued:
(A) no further adjustment in the
Series B Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
increase or decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Series B Conversion Price,
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities; and
(C) on the expiration or
cancellation of any Options or the termination of the right to convert or
exchange any Convertible Securities which have not been exercised, if the Series
B Conversion Price has been adjusted upon the original issuance thereof or has
been subsequently adjusted pursuant to clause (B) above, the Series B Conversion
Price shall be recomputed as if:
(1) in the case of
Convertible Securities or Options to purchase Common Stock, the only Additional
Shares of Common Stock issued were shares of Common Stock, if any, actually
issued upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, and the consideration received therefor was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration actually received by
the Corporation upon such exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged plus the consideration
actually received by the Corporation upon such conversion or exchange, if any,
and
-16-
(2) in the case of Options to
purchase Convertible Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at the time of issue of
such Options and the consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the Corporation upon the issue of the Convertible Securities with
respect to which such Options were actually exercised;
(D) no readjustment pursuant to
clauses (B) and (C) above shall have the effect of increasing the Series B
Conversion Price to an amount which exceeds the lower of (i) the Series B
Conversion Price on the original adjustment date, or (ii) the Series B
Conversion Price that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such readjustment date.
(iii) Adjustment of Series B Conversion Price Upon
Issuance of Additional Shares of Common Stock. If after the Series B Original
Issue Date Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 3.3.3(d)(ii)) are issued
without consideration or for a consideration per share less than the Series B
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, the Series B Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying the Series B Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received for the total number of Additional Shares
of Common Stock so issued would purchase at such Series B Conversion Price; and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; and provided further that, for the purposes of
this Section 3.3.3(d)(iii), all shares of Common Stock issuable upon conversion
of outstanding Convertible Securities, Options and the Series B Preferred shall
be deemed to be outstanding, and immediately after any Additional Shares of
Common Stock are deemed issued pursuant to Section 3.3.3(d)(ii), such Additional
Shares of Common Stock shall be deemed to be outstanding.
(iv) Determination of Consideration. For purposes
of this Section 3.3.3(d) the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration
shall:
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation;
(B) insofar as it consists of
securities (i) if the securities are then traded on a national securities
exchange, the Nasdaq Stock Market or a similar national quotation system (or, if
the securities are not traded on a national securities exchange, the Nasdaq
Stock Market or a similar national quotation system but are traded on an
-17-
internationally recognized exchange), then the value shall be computed based on
the average of the closing prices of the securities on such exchange or system
over the 30-day period ending three days prior to receipt by the Corporation,
(ii) if the securities are actively traded over-the-counter, then the value
shall be computed based on the average of the closing bid prices over the 30-day
period ending three days prior to the receipt by the Corporation, and (iii) if
there is no active public market, then the value shall be computed based on the
fair market value thereof on the date of receipt by the Corporation, as
determined in good faith by the Board of Directors of the Corporation;
(C) insofar as it consists of
property other than cash and securities, be computed at the fair value thereof
at the time of such issue, as determined in good faith by the Board of
Directors; and
(D) if Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in paragraphs (A), (B) and (C)
above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 3.3.3(d)(ii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of
Common Stock (as set forth in the instrument relating thereto, without regard to
any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) Adjustments for Stock Dividends, Subdivisions,
Combinations, or Consolidations. If the Corporation pays a stock dividend on the
Common Stock, or the outstanding shares of Common Stock are subdivided, combined
or consolidated, by reclassification, stock split or otherwise, into a greater
or lesser number of shares of Common Stock, the Series B Conversion Price in
effect immediately prior to such dividend, subdivision, combination or
consolidation shall, concurrently with the effectiveness of such dividend,
subdivision, combination or consolidation, be proportionately adjusted.
(f) No Impairment. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
assets, merger, dissolution,
-18-
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation but will at all times in good faith
assist in the carrying out of all the provisions of this Section 3.3.3 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series B Preferred against
impairment.
(g) Notices of Record Date. If the Corporation proposes at
any time:
(i) to declare any dividend or distribution upon
its Common Stock, whether in cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the
holders of any class or series of its stock any additional shares of stock of
any class or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
(iv) to merge with or into any other corporation
(other than a merger in which the holders of the outstanding voting equity
securities of the Corporation immediately prior to such merger hold more than
50% of the voting power of the surviving entity immediately following such
merger), or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of the Series B Preferred:
(1) at least 20 days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in paragraphs (iii) and (iv) above; and
(2) in the case of the matters referred to
in paragraphs (iii) and (iv) above, at least 20 days' prior written notice of
the date when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such event).
Each such written notice shall be given by first class mail, postage prepaid,
addressed to the holders of Series B Preferred shares at the address for each
such holder as shown on the books of the Corporation.
(h) Recapitalization. If at any time or from time to time
there is a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3.3.3 or in Section 3.2.3) provision shall be made so that the
holders of the Series B Preferred shall thereafter be entitled to receive upon
conversion of the Series B Preferred the number of shares of stock or other
securities or
-19-
property of the Corporation to which a holder of Common Stock deliverable upon
conversion of each share of such series would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3.3.3 with respect to the rights
of the holders of the Series B Preferred after the recapitalization to the end
that the provisions of this Section 3.3.3 (including adjustment of the Series B
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series B Preferred) shall be applicable after that event as
nearly equivalent as may be practicable.
3.3.4 Voting Rights. Except as otherwise required by law and as
provided in Section 3.3.5, the holders of Series B Preferred and the holders of
Common Stock shall be entitled to notice of any stockholders' meeting and to
vote with the Common Stock and any other series of Preferred Stock having the
right to vote generally as a single class upon any matter submitted to the
stockholders for a vote. Each holder of Series B Preferred shall have one vote
for each full share of Common Stock into which its respective shares of Series B
Preferred would be convertible on the record date for the vote.
3.3.5 Protective Provisions. In addition to any other rights
provided by law and except as provided by law, so long as any Series B Preferred
shall be outstanding, the Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of a majority of the
outstanding shares of Series B Preferred, voting as a separate class on an
as-converted basis:
(a) authorize or issue shares of any class of stock having
any preference or priority as to voting, dividends or upon liquidation superior
to or on a parity with any such preference or priority of the Series B
Preferred, or authorize or issue shares of stock of any class of any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of the Corporation having
any preference or priority as to voting, dividends or upon liquidation superior
to or on a parity with any such preference or priority of the Series B
Preferred;
(b) redeem or purchase any of the Common Stock; provided,
however, that this restriction shall not apply to the repurchase of shares of
Common Stock at the original cost paid for such shares (unless a repurchase
price other than such cost is unanimously approved by the Board of Directors)
from employees, officers, directors, consultants or other persons performing
services for the Corporation upon the termination of the employment, consulting
or other relationship between the Corporation and such persons;
(c) increase the total number of authorized shares of
Series B Preferred;
(d) amend or repeal any provision of, or add any provision
to, the Corporation's Certificate of Incorporation or Bylaws if such action
would alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series B Preferred so as to alter
them adversely; or
(e) consummate a sale of all or substantially all of the
Corporation's assets or any transaction or series of related transactions
(including, without limitation, any
-20-
reorganization, merger or consolidation) which would result in the holders of
the outstanding voting equity securities of the Corporation immediately prior to
such transaction holding less than 50% of the voting power of the surviving
entity immediately following such transaction.
3.3.6 Status of Converted Stock. If any shares of Series B
Preferred are converted into Common Stock pursuant to Section 3.3.3, the shares
of Series B Preferred so converted shall be canceled and shall not be issuable
by the Corporation, and the Certificate of Incorporation of the Corporation
shall be appropriately amended to effect the corresponding reduction in the
Corporation's authorized capital stock.
3.3.7 Residual Rights. All rights accruing to the outstanding
shares of the Corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
3.4 Series C Preferred. A statement of the rights, preferences,
privileges and restrictions granted to or imposed on the Series C Preferred and
the holders thereof is as follows:
3.4.1 Dividends. The holders of Series C Preferred shall have
dividend rights as follows:
(a) The holders of the Series C Preferred, on a pari passu
basis with the holders of any Parity Dividend Stock, shall be entitled to
receive, out of any funds legally available therefor, dividends at the rate of
$.27 per share, per annum, payable in preference and priority to any payment of
any dividend on Common Stock or shares of any other class or series of the
Corporation's capital stock ranking, as to dividends, junior to the Series C
Preferred, when and as declared by the Board of Directors. The right to such
dividends on the Series C Preferred shall not be cumulative, and no right shall
accrue to holders of Series C Preferred by reason of the fact that dividends on
such shares are not declared or paid in any prior year. After payment of such
dividends to the holders of the Series C Preferred and any Parity Dividend
Stock, any additional dividends declared shall be distributed among holders of
shares of any other class or series of the Corporation's capital stock ranking,
as to dividends, senior to Common Stock, in accordance with the terms of such
class or series, and finally among all holders of Series C Preferred, Parity
Dividend Stock, Common Stock and shares of any other class or series of the
Corporation's capital stock having dividend rights, pro rata as if all shares of
Series C Preferred, Parity Dividend Stock and shares of such other class or
series of the Corporation's capital stock that are convertible into or
exchangeable for shares of Common Stock had been converted into or exchanged for
Common Stock at such time and the dividends were being distributed in equal
shares among all shares of Common Stock that would be outstanding in such case.
(b) No dividends shall be paid or declared and set apart
for payment on any Parity Dividend Stock for any period unless all accrued but
unpaid dividends have been, or contemporaneously are, paid or declared and set
apart for such payment on the Series C Preferred. No full dividends shall be
paid or declared and set apart for payment on the Series C Preferred for any
period, no purchase, redemption or other acquisition of Parity Dividend Stock
shall be made and no monies shall be paid or made available for a sinking fund
for the purchase, redemption or other acquisition of any Series C Preferred or
any Parity Dividend Stock unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set
-21-
apart for payment on the Parity Dividend Stock for all dividend periods
terminating on or prior to the date of payment of such dividends. When dividends
are not paid in full upon the Series C Preferred and the Parity Dividend Stock,
all dividends paid or declared and set apart for payment upon shares of Series C
Preferred and Parity Dividend Stock shall be paid or declared and set apart for
payment pro rata, so that the amount of dividends paid or declared and set apart
for payment per share on the Series C Preferred and the Parity Dividend Stock
shall in all cases bear to each other the same ratio that accrued and unpaid
dividends per share on the shares of Series C Preferred and the Parity Dividend
Stock bear to each other.
(c) If the Corporation has declared but unpaid dividends
outstanding immediately prior to, and in the event of, a conversion of the
Series C Preferred (as provided in Section 3.4.3), the Corporation shall,
subject to the availability of funds from which such dividends may lawfully be
paid, at the option of each holder, pay in cash to each holder of Series C
Preferred subject to conversion the full amount of any such dividends or allow
such dividends to be converted into Common Stock in accordance with, and
pursuant to the terms specified in, Section 3.4.3.
3.4.2 Liquidation Preference. The holders of Series C Preferred
shall have a liquidation preference as follows:
(a) Relative Preferences. Upon any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series C Preferred shall be entitled to receive, on a pari
passu basis with holders of any Parity Liquidation Stock and prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock or shares of any other class or
series of the Corporation's capital stock ranking, as to liquidation rights,
junior to the Series C Preferred, by reason of their ownership thereof, the
amount of $4.50 per share (as adjusted for stock splits, stock dividends,
recapitalizations and the like) for each share of Series C Preferred then held
by them plus an amount equal to all declared but unpaid dividends on such shares
of Series C Preferred. If, upon occurrence of such event, the assets and funds
thus distributed among the holders of the Series C Preferred and the Parity
Liquidation Stock are insufficient to permit the payment to the holders of the
Series C Preferred the full preferential amounts to which they are entitled
pursuant to this Section 3.4.2(a), then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series C Preferred and the Parity Liquidation Stock in
proportion to the full liquidation preference to which such holder is entitled.
(b) Distribution. After payment has been made to the
holders of the Series C Preferred and the Parity Liquidation Stock of the
respective amounts to which they shall be entitled as provided in Section
3.4.2(a), the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among holders of shares of any other class or
series of the Corporation's capital stock ranking, as to liquidation rights,
senior to the Common Stock, in accordance with the terms of such class or
series, and finally among the holders of Series C Preferred, Parity Liquidation
Stock, Common Stock and shares of any other class or series of the Corporation's
capital stock having liquidation rights, pro rata as if all shares of Series C
Preferred, Parity Liquidation Stock and shares of such other class or series of
the Corporation's capital stock that are convertible into or exchangeable for
shares of Common
-22-
Stock had been converted into or exchanged for Common Stock at such time and
such assets were being distributed in equal shares among all shares of Common
Stock that would be outstanding in such case.
3.4.3 Conversion. The holders of the Series C Preferred shall
have conversion rights as follows:
(a) Right to Convert. Each share of Series C Preferred
shall be convertible, at the option of the holder thereof, at any time after the
issuance of such share, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $4.50 by the then applicable Series
C Conversion Price (as defined below), determined as hereinafter provided. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Series C Preferred ("Series C Conversion Price") shall initially be $4.50
per share of Common Stock. The initial Series C Conversion Price shall be
subject to adjustment as hereinafter provided.
(b) Automatic Conversion. Each share of Series C Preferred
shall automatically be converted into shares of Common Stock at the then
effective Series C Conversion Price, as applicable, (i) upon the closing of a
firm commitment underwritten public offering of Common Stock for the account of
the Corporation to the public at a price per share of at least $4.50 (as
adjusted for stock splits, reverse stock splits and the like) and an aggregate
offering price to the public of not less than $10,000,000 and net proceeds to
the Corporation of at least $8,000,000 or (ii) upon the affirmative vote of the
holders of at least 2/3 (66.67%) of the shares of Series C Preferred, voting as
a single class, outstanding at the time of such vote. In the event of an
offering described in clause (i) of the preceding sentence, the person(s)
entitled to receive the Common Stock issuable upon such conversion of Series C
Preferred shall not be deemed to have converted such Series C Preferred until
immediately prior to the closing of such underwritten public offering.
(c) Mechanics of Conversion. No fractional shares of
Common Stock shall be issued upon conversion of Series C Preferred. In lieu of
any fractional share to which a holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the fair market
value of the Common Stock as determined by the Board of Directors. Before any
holder of Series C Preferred shall be entitled to convert the same into full
shares of Common Stock, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series C Preferred, and shall give written notice to the
Corporation at such office that he elects to convert the same. Such notice shall
also state whether the holder elects, pursuant to Section 3.4.1, to receive
declared but unpaid dividends on the Series C Preferred proposed to be converted
in cash, or to convert such dividends into shares of Common Stock at their fair
market value as determined by the Board of Directors. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Series C Preferred, a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled as aforesaid and a check payable to
the holder in the amount of any cash amounts payable as the result of a
conversion into a fractional share of Common Stock, and any declared but unpaid
dividends on the converted Series C Preferred which the holder elected to
receive in cash. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series C
-23-
Preferred to be converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date. If the conversion is in connection with an underwritten public offering of
securities, the conversion shall be conditioned upon the closing of such public
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Series C Preferred shall not be deemed to
have converted such Series C Preferred until immediately prior to such closing.
(d) Adjustments to Series C Conversion Price for Diluting
Issues.
(i) Special Definitions. For purposes of this
Section 3.4.3, the following definitions shall apply.
(1) "Options" means rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "Convertible Securities" means any
evidences of indebtedness, shares (other than Common Stock, the Series A
Preferred, the Series B Preferred and the Series C Preferred) or other
securities convertible into or exchangeable for Common Stock.
(3) "Original Issue Date" means the date on
which the first share of Series C Preferred was first issued.
(4) "Additional Shares of Common Stock"
means all shares of Common Stock issued (or, pursuant to Section 3.4.3(d)(iii),
deemed to be issued) by the Corporation other than shares of Common Stock issued
or issuable:
(A) upon conversion of shares of the
Series A Preferred, the Series B Preferred or the Series C Preferred;
(B) to officers or employees or
directors of, or consultants to, the Corporation pursuant to a stock grant,
option plan or purchase plan or other employee stock incentive program
(collectively, the "Plans") approved by the Board of Directors;
(C) as a dividend or distribution on
the Series A Preferred, the Series B Preferred or the Series C Preferred;
(D) upon exercise or conversion of
warrants to purchase shares of stock of the Corporation issued in connection
with equipment lease financing transactions, bank financing transactions or real
estate leasing transactions approved by the Board of Directors, where the
issuance of such warrants is not principally for the purpose of raising
additional equity capital for the Corporation;
(E) upon exercise of warrants to
purchase Common Stock of the Corporation and upon conversion of notes
convertible into Common Stock or any series of Preferred Stock of the
Corporation outstanding on the Original Issue Date;
-24-
(F) by way of dividend or other
distribution on shares of Common Stock excluded from the definition of
Additional Shares of Common Stock by the foregoing clauses (A), (B), (C), (D)
and (E) or on shares of Common Stock so excluded; and
(G) pursuant to any transaction
effective after the Original Issue Date and with respect to which the holders of
a majority of the then outstanding Series C Preferred consent in writing to the
waiver of the adjustment provision of this Section 3.4.3(d)(i)(4).
(ii) No Adjustment of Series C Conversion Price. No
adjustment in the Series C Conversion Price shall be made in respect of the
issuance of Additional Shares of Common Stock unless the consideration per share
for an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Series C Conversion Price in effect on the date of,
and immediately prior to such issue. No adjustment in the Series C Conversion
Price pursuant to Section 3.4.3(d)(iv) shall be made as a result of any stock
dividend or subdivision which causes an adjustment in the Series C Conversion
Price pursuant to Section 3.4.3(e).
(iii) Deemed Issue of Additional Shares of Common
Stock. Subject to Section 3.4.3(d)(i)(4), if the Corporation at any time or from
time to time after the Original Issue Date issues any Options or Convertible
Securities or fixes a record date for the determination of holders of any class
of securities entitled to receive any such Options or Convertible Securities,
then the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued with respect to the Series C Preferred unless the
consideration per share (determined pursuant to Section 3.4.3(d)(v) of such
Additional Shares of Common Stock would be less than the Series C Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be, and provided further that in any case in which
Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the
Series C Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
increase or decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Series C Conversion Price,
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such
-25-
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities; and
(C) on the expiration or
cancellation of any Options or the termination of the right to convert or
exchange any Convertible Securities which shall have not been exercised, if the
Series C Conversion Price shall have been adjusted upon the original issuance
thereof or shall have been subsequently adjusted pursuant to clause (ii) above,
the Series C Conversion Price shall be recomputed as if:
(1) in the case of
Convertible Securities or Options to purchase Common Stock, the only Additional
Shares of Common Stock issued were shares of Common, if any, actually issued
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, and the consideration received therefor was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration actually received by
the Corporation upon such exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged plus the consideration
actually received by the Corporation upon such conversion or exchange, if any,
and
(2) in the case of Options to
purchase Convertible Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at the time of issue of
such Options and the consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the Corporation upon the issue of the Convertible Securities with
respect to which such Options were actually exercised;
(D) no readjustment pursuant to
clauses (B) and (C) above shall have the effect of increasing the Series C
Conversion Price to an amount which exceeds the lower of (i) the Series C
Conversion Price on the original adjustment date, or (ii) the Series C
Conversion Price that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such readjustment date.
(iv) Adjustment of Series C Conversion Price Upon
Issuance of Additional Shares of Common Stock. If, after the Original Issue
Date, Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 3.4.3(d)(iii)) are issued without
consideration or for a consideration per share less than the Series C Conversion
Price in effect on the date of and immediately prior to such issue, then and in
such event, the Series C Conversion Price shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying the Series C Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series C Conversion
Price; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately
-26-
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; and provided further that, for the purposes of this Section
3.4.3(d)(iv), all shares of Common Stock issuable upon conversion of outstanding
Convertible Securities, Options and the Series C Preferred shall be deemed to be
outstanding, and immediately after any Additional Shares of Common Stock are
deemed issued pursuant to Section 3.4.3(d)(iii), such Additional Shares of
Common Stock shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes of
this Section 5.4, the consideration received by the Corporation for the issue of
any Additional Shares of Common stock shall be computed as follows:
(1) Cash and Property. Such consideration
shall:
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation;
(B) insofar as it consists of
securities (i) if the securities are then traded on a national securities
exchange, the Nasdaq Stock Market or a similar national quotation system (or, if
the securities are not traded on a national securities exchange, the Nasdaq
Stock Market or a similar national quotation system but are traded on an
internationally recognized exchange), then the value shall be computed based on
the average of the closing prices of the securities on such exchange or system
over the 30-day period ending three days prior to receipt by the Corporation,
(ii) if the securities are actively traded over-the-counter, then the value
shall be computed based on the average of the closing bid prices over the 30-day
period ending three days prior to the receipt by the Corporation, and (iii) if
there is no active public market, then the value shall be computed based on the
fair market value thereof on the date of receipt by the Corporation, as
determined in good faith by the Board of Directors of the Corporation;
(C) insofar as it consists of
property other than cash and securities, be computed at the fair value thereof
at the time of such issue, as determined in good faith by the Board of
Directors; and
(D) if Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in paragraphs (A), (B) and (C)
above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 3.4.3(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options
-27-
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of
Common Stock (as set forth in the instrument relating thereto, without regard to
any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) Adjustments for Stock Dividends, Subdivisions,
Combinations, or Consolidations. If the Corporation pays a stock dividend on the
Common Stock, or the outstanding shares of Common Stock are subdivided, combined
or consolidated, by reclassification, stock split or otherwise, into a greater
or lesser number of shares of Common Stock, the Series C Conversion Price in
effect immediately prior to such dividend, subdivision, combination or
consolidation shall, concurrently with the effectiveness of such dividend,
subdivision, combination or consolidation, be proportionately adjusted.
(f) No Impairment. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
assets, merger, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation but will at all times
in good faith assist in the carrying out of all the provisions of this Section
3.4.3 and in the taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the holders of the Series C Preferred
against impairment.
(g) Notices of Record Date. If the Corporation proposes at
any time:
(i) to declare any dividend or distribution upon
its Common Stock, whether in cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the
holders of any class or series of its stock any additional shares of stock of
any class or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
(iv) to merge with or into any other corporation
(other than a merger in which the holders of the outstanding voting equity
securities of the Corporation immediately prior to such merger hold more than
50% of the voting power of the surviving entity immediately following such
merger), or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of the Series C Preferred:
(1) at least 20 days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights (and
-28-
specifying the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote in respect of the matters referred to
in paragraphs (c) and (d) above; and
(2) in the case of the matters referred to
in paragraphs (c) and (d) above, at least 20 days' prior written notice of the
date when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such event).
Each such written notice shall be given by first class mail, postage prepaid,
addressed to the holders of Series C Preferred shares at the address for each
such holder as shown on the books of this Corporation.
(h) Recapitalization. If at any time or from time to time
there is a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3.4.3 or in Section 3.4.2) provision shall be made so that the
holders of the Series C Preferred shall thereafter be entitled to receive upon
conversion of the Series C Preferred the number of shares of stock or other
securities or property of the Corporation to which a holder of Common Stock
deliverable upon conversion of each share of such series would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3.4.3 with
respect to the rights of the holders of the Series C Preferred after the
recapitalization to the end that the provisions of this Section 3.4.3 (including
adjustment of the Series C Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series C Preferred) shall be
applicable after that event as nearly equivalent as may be practicable.
3.4.4 Voting Rights.
(a) Except as otherwise required by law and as provided in
Section 3.4.5, the holders of Series C Preferred and the holders of Common Stock
shall be entitled to notice of any stockholders' meeting and to vote with the
Common Stock and any other series of Preferred Stock having the right to vote
generally as a single class upon any matter submitted to the stockholders for a
vote, as follows: (i) each holder of Series C Preferred shall have one vote for
each full share of Common Stock into which its respective shares of Series C
Preferred would be convertible on the record date for the vote and (ii) the
holders of Common Stock shall have one vote per share of Common Stock.
(b) The holders of Series C Preferred, voting as a
separate class, shall be entitled to elect one (1) member of the Board of
Directors at each meeting or pursuant to each consent of the Corporation's
stockholders for the election of directors.
3.4.5 Protective Provisions. In addition to any other rights
provided by law and except as provided by law, so long as any Series C Preferred
is outstanding, the Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of a majority of the
outstanding shares of Series C Preferred, voting as a separate class on an
as-converted basis:
-29-
(a) authorize or issue shares of any class of stock having
any preference or priority as to voting, dividends or upon liquidation superior
to or on a parity with any such preference or priority of the Series C
Preferred, or authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of this Corporation having
any preference or priority as to voting, dividends or upon liquidation superior
to or on a parity with any such preference or priority of the Series C
Preferred;
(b) redeem or purchase any of the Common Stock, provided,
however, that this restriction shall not apply to the repurchase of shares of
Common Stock at the original cost paid for such shares (unless a repurchase
price other than cost is unanimously approved by the Board of Directors) from
employees, officers, directors, consultants or other persons performing services
for the Corporation upon the termination of the employment, consulting or other
relationship between the Corporation and such persons;
(c) increase the total number of authorized shares of
Series C Preferred;
(d) amend or repeal any provision of, or add any provision
to, the Corporation's Certificate of Incorporation or Bylaws if such action
would alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series C Preferred so as to affect
them adversely;
(e) consummate a sale of all or substantially all of the
Corporation's assets or any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
which would result in the holders of the outstanding voting equity securities of
the Corporation immediately prior to such transaction holding less than 50% of
the voting power of the surviving entity immediately following such transaction.
3.4.6 Status of Converted Stock. If any shares of Series C
Preferred are converted into Common Stock pursuant to Section 3.4.3, the shares
of Series C Preferred so converted shall be canceled and shall not be issuable
by the Corporation, and the Certificate of Incorporation of the Corporation
shall be appropriately amended to effect the corresponding reduction in the
Corporation's authorized capital stock.
3.4.7 Residual Rights. All rights accruing to the outstanding
shares of the Corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
IV
4.1 Limitation of Directors' Liability. A director shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided that this Article IV shall
not eliminate or limit the liability of a director (i) for any breach of his
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the director
derives an improper personal benefit.
-30-
4.2 Indemnification of Corporate Agents.
4.2.1 The Corporation shall, to the broadest and maximum extent
permitted by Delaware law, as the same exists from time to time indemnify each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding.
4.2.2 In addition, the Corporation shall, to the broadest and
maximum extent permitted by Delaware law, as the same may exist from time to
time, pay to such person any and all expenses (including attorneys' fees)
incurred in defending or settling any such action, suit or proceeding in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer, to repay such amount if
it shall ultimately be determined by a final judgment or other final
adjudication that he is not entitled to be indemnified by the Corporation as
authorized in this Article.
4.2.3 Sections 4.2.1 and 4.2.2 to the contrary notwithstanding,
the Corporation shall not indemnify any such person with respect to any of the
following matters: (i) remuneration paid to such person if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law; or (ii) any accounting of profits made
from the purchase or sale by such person of the Corporation's securities within
the meaning of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law; or (iii) actions brought about or contributed to by the
dishonesty of such person, if a final judgment or other final adjudication
adverse to such person establishes that acts of active and deliberate dishonesty
were committed or attempted by such person with actual dishonest purpose and
intent and were material to the adjudication; or (iv) actions based on or
attributable to such person having gained any personal profit or advantage to
which he was not entitled, in the event that a final judgment or other final
adjudication adverse to such person establishes that such person in fact gained
such personal profit or other advantage to which he was not entitled; or (v) any
matter in respect of which a final decision by a court with competent
jurisdiction shall determine that indemnification is unlawful.
4.2.4 The rights to indemnification and to the advancement of
expenses conferred in this Article IV shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
Certificate of Incorporation, the Bylaws of the Corporation, by agreement, vote
of stockholders, or disinterested directors or otherwise.
4.3 Repeal or Modification. Any repeal or modification of the foregoing
provisions of this Article IV by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
-31-
IN WITNESS WHEREOF, this Second Restated Certificate of Incorporation
has been executed by the undersigned duly authorized officer of the Corporation
on December 29, 1999.
A. They are the President and Secretary, respectively, of ZLand.com,
Inc., a Delaware corporation (the "Corporation").
B. Pursuant to authority given by the Corporation's Second Restated
Certificate of Incorporation and pursuant to Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation adopted the following resolution on February 14, 2000 creating a
series of Preferred Stock designated as "Series A Junior Participating Preferred
Stock":
RESOLVED, that pursuant to the authority vested in the
Board of Directors of the Corporation in accordance with the
provisions of the Restated Certificate of Incorporation, a series
of Preferred Stock, par value $.01 per share, of the Corporation
be and hereby is created, and that the designation and number of
shares thereof and the voting and other powers, preferences and
relative, participating, optional or other rights of the shares
of such series and the qualifications, limitations and
restrictions thereof are as follows:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation, Amount and Ranking. There shall be a series of Preferred
Stock that shall be designated as "Series A Junior Participating Preferred
Stock," and the number of shares constituting such series shall be 100,000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, however, that no decrease shall reduce the number of shares
of Series A Junior Participating Preferred Stock to less than the number of
shares then issued and outstanding plus the number of shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation. The Series A Junior
Participating Preferred Stock shall rank junior to all other series of Preferred
Stock as to the payment of dividends and as to the distribution of assets upon
liquidation, dissolution or winding up, whether voluntary or involuntary, unless
the terms of any such series shall provide otherwise, and shall rank senior to
the common stock, par value $.01 per share ("Common Stock"), of the Corporation
as to such matters.
2. Dividends and Distribution.
(A) Subject to the prior and superior rights of the holders of any
shares of any class or series of stock of the Corporation ranking prior and
superior to the shares of Series A Junior Participating Preferred Stock with
respect to dividends, the holders of shares of Series A Junior Participating
Preferred Stock, in preference to the holders of shares of any class or series
of stock of the Corporation ranking junior to the Series A Junior Participating
Preferred Stock in respect thereof, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last day of January, April,
July and October, in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $1.00 or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Junior Participating
Preferred Stock. The "Adjustment Number" shall initially be 1,000. If the
Corporation shall at any time after the record date for the initial dividend of
Series A Junior Participating Preferred Stock (i) declare and pay any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such
-2-
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 60 days prior to the
date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A Junior Participating
Preferred Stock shall have the following voting rights:
(A) Holders of Series A Junior Participating Preferred Stock shall
be entitled to notice of any stockholders' meeting and to vote together as a
single class with holders of the Common Stock and any other series of Preferred
Stock having the right to vote generally upon any matter submitted to the
stockholders for a vote. Each share of Series A Junior Participating Preferred
Stock shall entitle the holder thereof to a number of votes equal to the
Adjustment Number on all such matters.
(B) Except as required by law, by Section 3(C) and by Section 10
hereof, holders of Series A Junior Participating Preferred Stock shall have no
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
(C) If, at the time of any annual meeting of stockholders for the
election of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Junior Participating
Preferred Stock are in default, the number of directors constituting the Board
of Directors of the Corporation shall be increased by two. In addition to voting
together with the holders of Common Stock for the election of other directors of
the Corporation, the holders of record of the Series A Junior Participating
Preferred Stock, voting separately as a class to the exclusion of the holders of
Common Stock, shall be entitled at said meeting of stockholders (and at each
subsequent annual meeting of stockholders), unless all dividends in arrears on
the Series A Junior Participating Preferred Stock have been paid or declared and
set apart for payment prior thereto, to vote for the election of two directors
of the Corporation, the holders of any Series A Junior Participating Preferred
Stock being entitled to cast a number of votes per share of Series A Junior
Participating Preferred Stock as is specified in paragraph (A) of this Section
3. Until the default in payments of all dividends which permitted the election
of said directors shall cease to exist, any director who shall have been so
elected pursuant to the provisions of this Section 3(C) may be removed at any
time, without cause, only by the affirmative vote of the holders of the shares
of Series A Junior Participating Preferred Stock at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such director
at a special meeting of such holders called for that purpose, and any vacancy
thereby created may be filled by the vote of such holders. If and when such
default ceases to exist, the holders of the Series A Junior Participating
Preferred Stock shall be divested of the foregoing special voting rights,
subject to revesting in the event of each and every subsequent like default in
payments of dividends. Upon the termination of the foregoing special voting
rights, the terms of office of all persons who may have been elected directors
pursuant to said special voting rights shall forthwith terminate, and the number
of directors constituting the Board of Directors shall be reduced by two. The
voting rights granted by this Section 3(C) shall be in addition to any other
voting rights granted to the holders of the Series A Junior Participating
Preferred Stock in this Section 3.
-3-
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior Participating
Preferred Stock, except dividends paid ratably on the Series A Junior
Participating Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled; or
(iii) purchase or otherwise acquire for consideration any shares
of Series A Junior Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Junior Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of Series A Junior
Participating Preferred Stock, or to such holders and holders of any such shares
ranking on a parity therewith, upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired promptly after the acquisition thereof. All such
shares shall upon their retirement become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
any conditions and restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the
Corporation, voluntary or otherwise, no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
-4-
Participating Preferred Stock unless, prior thereto, the holders of shares of
Series A Junior Participating Preferred Stock shall have received an amount per
share (the "Series A Liquidation Preference") equal to the greater of (i) $1.00
plus an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, or (ii) the Adjustment
Number times the per share amount of all cash and other property to be
distributed in respect of the Common Stock upon such liquidation, dissolution or
winding up of the Corporation.
(B) If, however, there are not sufficient assets available to permit
payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other classes and series of stock of the Corporation, if any,
that rank on a parity with the Series A Junior Participating Preferred Stock in
respect thereof, then the assets available for such distribution shall be
distributed ratably to the holders of the Series A Junior Participating
Preferred Stock and the holders of such parity shares in proportion to their
respective liquidation preferences.
(C) Neither the merger or consolidation of the Corporation into or
with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6.
7. Consolidation, Merger, Etc. If the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the outstanding
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
8. No Redemption. Shares of Series A Junior Participating Preferred
Stock shall not be subject to redemption by the Corporation.
9. Amendment. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Certificate of Incorporation
of the Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds of the outstanding shares of
Series A Junior Participating Preferred Stock, voting separately as a class.
10. Fractional Shares. Series A Junior Participating Preferred Stock may
be issued in fractions of a share that are integral multiple of one
one-thousandth of a share of Series A Junior Participating Preferred Stock and
that shall entitle the holder, in proportion to such holder's fractional shares,
to exercise voting rights, receive dividends, participate in distributions and
to have the benefit of all other rights of holders of Series A Junior
Participating Preferred Stock.
-5-
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Designation on the 14th day of February, 2000.
Glenn E. Abood, President
Gregg Amber, Secretary
EXHIBIT 3.3
BYLAWS
OF
ZLAND, INC.,
A DELAWARE CORPORATION
TABLE OF CONTENTS
PROVISION PAGE
--------- ----
ARTICLE I MEETINGS OF STOCKHOLDERS.......................................................................1
Section 1.1. Annual Meetings......................................................................1
Section 1.2. Special Meetings.....................................................................1
Section 1.3. Notice of Meetings...................................................................1
Section 1.4. Adjournments.........................................................................1
Section 1.5. Quorum...............................................................................1
Section 1.6. Organization.........................................................................2
Section 1.7. Voting; Proxies......................................................................2
Section 1.8. Fixing Date for Determination of Stockholders of Record..............................2
Section 1.9. List of Stockholders Entitled to Vote................................................3
Section 1.10. Action By Written Consent of Stockholders...........................................3
Section 1.11. Record Date for Action by Written Consent...........................................4
Section 1.12. Inspectors of Election..............................................................5
Section 1.13. Conduct of Meetings.................................................................5
Section 1.14. Notice of Stockholder Business and Nominations......................................6
ARTICLE II BOARD OF DIRECTORS.............................................................................8
Section 2.1. Number; Qualifications...............................................................8
Section 2.2. Election; Resignation; Vacancies.....................................................8
Section 2.3. Regular Meetings.....................................................................9
Section 2.4. Special Meetings.....................................................................9
Section 2.5. Telephonic Meetings Permitted........................................................9
Section 2.6. Quorum; Vote Required for Action.....................................................9
Section 2.7. Organization.........................................................................9
Section 2.8. Action by Written Consent of Directors...............................................9
ARTICLE III COMMITTEES...................................................................................10
Section 3.1. Committees..........................................................................10
Section 3.2. Committee Rules.....................................................................10
ARTICLE IV OFFICERS......................................................................................10
Section 4.1. Executive Officers; Election; Qualifications;
Term of Office; Resignation; Removal; Vacancies................................10
Section 4.2. Powers and Duties of Executive Officers.............................................11
i
TABLE OF CONTENTS
PROVISION PAGE
--------- ----
ARTICLE V STOCK..........................................................................................11
Section 5.1. Certificates........................................................................11
Section 5.2. Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates...................................................11
ARTICLE VI INDEMNIFICATION...............................................................................11
Section 6.1. Right to Indemnification............................................................11
Section 6.2. Prepayment of Expenses..............................................................12
Section 6.3. Claims..............................................................................12
Section 6.4. Nonexclusivity of Rights............................................................12
Section 6.5. Other Sources.......................................................................12
Section 6.6. Amendment or Repeal.................................................................12
Section 6.7. Other Indemnification and Prepayment of Expenses....................................12
ARTICLE VII MISCELLANEOUS.................................................................................12
Section 7.1. Fiscal Year.........................................................................12
Section 7.2. Seal................................................................................13
Section 7.3. Manner of Notice....................................................................13
Section 7.4. Waiver of Notice of Meetings of Stockholders,
Directors and Committees.......................................................13
Section 7.5. Form of Records.....................................................................13
Section 7.6. Amendment of Bylaws.................................................................13
ii
BYLAWS
OF
ZLAND, INC.,
a Delaware corporation
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1.1. Annual Meetings. If required by applicable law, an annual
meeting of stockholders shall be held for the election of directors at such
date, time and place, either within or without the State of Delaware, as may be
designated by resolution of the Board of Directors from time to time. Any other
proper business may be transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors, but
such special meetings may not be called by any other person or persons. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the Certificate of Incorporation or
these Bylaws, the written notice of any meeting shall be given not less than ten
nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, at each meeting of stockholders
the presence in person or by proxy of the holders of a majority in voting power
of the outstanding shares of stock entitled to vote at the meeting shall be
necessary and sufficient to constitute a quorum. In the absence
1
of a quorum, the stockholders so present may, by a majority in voting power
thereof, adjourn the meeting from time to time in the manner provided in Section
1.4 of these Bylaws until a quorum shall attend. Shares of its own stock
belonging to the corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the corporation, shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of the corporation or any subsidiary of the
corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his absence by the President, or in his
absence by a Vice President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Except as otherwise provided by or
pursuant to the provisions of the Certificate of Incorporation, each stockholder
entitled to vote at any meeting of stockholders shall be entitled to one vote
for each share of stock held by such stockholder which has voting power upon the
matter in question. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance with
applicable law bearing a later date to the Secretary of the corporation. Voting
at meetings of stockholders need not be by written ballot. At all meetings of
stockholders for the election of directors, a plurality of the votes cast shall
be sufficient to elect. All other elections and questions shall, unless
otherwise provided by the Certificate of Incorporation, these Bylaws, the rules
or regulations of any stock exchange applicable to the corporation, or
applicable law or pursuant to any regulation applicable to the corporation or
its securities, be decided by the affirmative vote of the holders of a majority
in voting power of the shares of stock of the corporation which are present in
person or by proxy and entitled to vote thereon.
Section 1.8. Fixing Date for Determination of Stockholders of Record.
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action
(other than to express consent to corporate action in writing without a
meeting), the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date:
2
(1) in the case of determination of stockholders entitled to vote at any meeting
of stockholders or adjournment thereof, shall, unless otherwise required by law,
not be more than 60 nor less than ten days before the date of such meeting and
(2) in the case of any other action (other than to express consent to corporate
action in writing without a meeting), shall not be more than 60 days prior to
such other action. If no record date is fixed: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held and (2) the record
date for determining stockholders for any other purpose (other than to express
consent to corporate action in writing without a meeting) shall be at the close
of business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. Except as otherwise provided by law, the stock ledger shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list of stockholders or the books of the corporation, or to vote in
person or by proxy at any meeting of stockholders.
Section 1.10. Action By Written Consent of Stockholders. Unless
otherwise restricted by the Certificate of Incorporation, any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which minutes of proceedings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall, to the extent required by law, be given to
those stockholders who have not consented in writing and who, if the action had
been taken at a meeting, would have been entitled to notice of the
3
meeting if the record date for such meeting had been the date that written
consents signed by a sufficient number of holders to take the action were
delivered to the corporation.
Section 1.11. Record Date for Action by Written Consent.
(A) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten days after the date on
which such a request is received, adopt a resolution fixing the record date
(unless a record date has previously been fixed by the Board of Directors
pursuant to the first sentence of this Section 1.11). If no record date has been
fixed by the Board of Directors pursuant to the first sentence of this Section
1.11 or otherwise within ten days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or to any officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors pursuant to the first sentence of this Section 1.11, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting if prior action by the Board of Directors is
required by law shall be at the close of business on the date on which the Board
of Directors adopts the resolution taking such prior action.
(B) Inspectors of Written Consent. In the event of the delivery, in the
manner provided by Section 1.11 of this Article I, to the corporation of written
consent or consents to take corporate action and/or any related revocation or
revocations, the corporation shall engage independent inspectors of elections
for the purpose of performing promptly a ministerial review of the validity of
the consents and revocations. For the purpose of permitting the inspectors to
perform such review, no action by written consent without a meeting shall be
effective until such date as the independent inspectors certify to the
corporation that the consents delivered to the corporation in accordance with
Section 1.11 of this Article I represent at least the minimum number of votes
that would be necessary to take the corporate action. Nothing contained in this
Section 1.11(B) shall in any way be construed to suggest or imply that the Board
of Directors or any stockholder shall not be entitled to contest the validity of
any consent or revocation thereof, whether before or after such certification by
the independent inspectors, or to take any other action (including, without
limitation, the commencement, prosecution or defense of any litigation with
respect thereto, and the seeking of injunctive relief in such litigation).
4
(C) Effectiveness of Written Consent. Every written consent shall bear
the date of signature of each stockholder who signs the consent and no written
consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the earliest dated written consent received in
accordance with Section 1.11 of this Article I, a written consent or consents
signed by a sufficient number of holders to take such action are delivered to
the corporation in the manner prescribed in Section 1.11 of this Article I.
Section 1.12. Inspectors of Election. The corporation may, and shall if
required by law, in advance of any meeting of stockholders, appoint one or more
inspectors of election, who may be employees of the corporation, to act at the
meeting or any adjournment thereof and to make a written report thereof. The
corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. In the event that no inspector so appointed or
designated is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspector or
inspectors so appointed or designated shall (i) ascertain the number of shares
of capital stock of the corporation outstanding and the voting power of each
such share, (ii) determine the shares of capital stock of the corporation
represented at the meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares of
capital stock of the corporation represented at the meeting and such inspectors'
count of all votes and ballots. Such certification and report shall specify such
other information as may be required by law. In determining the validity and
counting of proxies and ballots cast at any meeting of stockholders of the
corporation, the inspectors may consider such information as is permitted by
applicable law. No person who is a candidate for an office at an election may
serve as an inspector at such election.
Section 1.13. Conduct of Meetings. The date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and regulations
as adopted by the Board of Directors, the person presiding over any meeting of
stockholders shall have the right and authority to convene and to adjourn the
meeting, to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the presiding officer of the meeting,
may include, without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the corporation, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or comments by participants.
Unless and to the
5
extent determined by the Board of Directors or the person presiding over the
meeting, meetings of stockholders shall not be required to be held in accordance
with the rules of parliamentary procedure.
Section 1.14. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors
of the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders only (a) pursuant
to the corporation's notice of meeting (or any supplement thereto), (b) by or at
the direction of the Board of Directors or (c) by any stockholder of the
corporation who was a stockholder of record of the corporation at the time the
notice provided for in this Section 1.14 is delivered to the Secretary of the
corporation, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Section 1.14.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Section 1.14, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation and any such proposed business other
than the nominations of persons for election to the Board of Directors must
constitute a proper matter for stockholder action. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting (provided, however, that in the event that
the date of the annual meeting is more than 30 days before or more than 70 days
after such anniversary date, notice by the stockholder must be so delivered not
earlier than the close of business on the 120th day prior to such annual meeting
and not later than the close of business on the later of the 90th day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made by the corporation). In
no event shall the public announcement of an adjournment or postponement of an
annual meeting commence a new time period (or extend any time period) for the
giving of a stockholder's notice as described above. Such stockholder's notice
shall set forth: (a) as to each person whom the stockholder proposes to nominate
for election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder (and such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the text of the proposal or business (including the text of
any resolutions proposed for consideration and in the event that such business
includes a proposal to amend the bylaws of the corporation, the language of the
proposed amendment), the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the
6
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder, as they appear on the corporation's
books, and of such beneficial owner, (ii) the class and number of shares of
capital stock of the corporation which are owned beneficially and of record by
such stockholder and such beneficial owner, (iii) a representation that the
stockholder is a holder of record of stock of the corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
propose such business or nomination, and (iv) a representation whether the
stockholder or the beneficial owner, if any, intends or is part of a group which
intends (a) to deliver a proxy statement and/or form of proxy to holders of at
least the percentage of the corporation's outstanding capital stock required to
approve or adopt the proposal or elect the nominee and/or (b) otherwise to
solicit proxies from stockholders in support of such proposal or nomination. The
corporation may require any proposed nominee to furnish such other information
as it may reasonably require to determine the eligibility of such proposed
nominee to serve as a director of the corporation.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 1.14 to the contrary, if the number of directors to be
elected to the Board of Directors of the corporation at an annual meeting is
increased and there is no public announcement by the corporation naming the
nominees for the additional directorships at least 100 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this Section 1.14 shall also be considered timely, but only with
respect to nominees for the additional directorships, if it shall be delivered
to the Secretary at the principal executive offices of the corporation not later
than the close of business on the tenth day following the day on which such
public announcement is first made by the corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
corporation's notice of meeting (1) by or at the direction of the Board of
Directors or (2) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
corporation who is a stockholder of record at the time the notice provided for
in this Section 1.14 is delivered to the Secretary of the corporation, who is
entitled to vote at the meeting and upon such election and who complies with the
notice procedures set forth in this Section 1.14. If the corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder entitled to vote in
such election of directors may nominate a person or persons (as the case may be)
for election to such position(s) as specified in the corporation's notice of
meeting, if the stockholder's notice required by paragraph (A)(2) of this
Section 1.14 shall be delivered to the Secretary at the principal executive
offices of the corporation not earlier than the close of business on the 120th
day prior to such special meeting and not later than the close of business on
the later of the 90th day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment or postponement of a special meeting commence a new time period (or
extend any time period) for the giving of a stockholder's notice as described
above.
7
(C) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.14 shall be eligible to be elected at an
annual or special meeting of stockholders of the corporation to serve as
directors, and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 1.14. Except as otherwise provided by
law, the chairman of the meeting shall have the power and duty (a) to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.14 (including whether the stockholder or beneficial
owner, if any, on whose behalf the nomination or proposal is made solicited (or
is part of a group which solicited) or did not so solicit, as the case may be,
proxies in support of such stockholder's nominee or proposal in compliance with
such stockholder's representation as required by clause (A)(2)(c)(iv) of this
Section 1.14) and (b) if any proposed nomination or business was not made or
proposed in compliance with this Section 1.14, to declare that such nomination
shall be disregarded or that such proposed business shall not be transacted.
(2) For purposes of this Section 1.14, "public announcement" shall
include disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 1.14,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 1.14. Nothing in this Section 1.14 shall be deemed to
affect any rights (a) of stockholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act, if
applicable to the corporation, or (b) of the holders of any series of Preferred
Stock to elect directors pursuant to any applicable provisions of the
Certificate of Incorporation.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. Number; Qualifications. The Board of Directors shall
consist of one or more members, the number thereof to be determined from time to
time by resolution of the Board of Directors. Directors need not be
stockholders.
Section 2.2. Election; Resignation; Vacancies. The Board of Directors
shall initially consist of the persons named as directors in the Certificate of
Incorporation or elected by the incorporator of the corporation, and each
director so elected shall hold office until the first annual meeting of
stockholders or until his successor is duly elected and qualified. At the first
annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors each of whom shall hold office for a term of
one year or until his successor is duly elected and qualified, subject to such
director's earlier death, resignation, disqualification
8
or removal. Any director may resign at any time upon written notice to the
corporation. Unless otherwise provided by law or the certificate of
incorporation, any newly created directorship or any vacancy occurring in the
Board of Directors for any cause may be filled by a majority of the remaining
members of the Board of Directors, although such majority is less than a quorum,
or by a plurality of the votes cast at a meeting of stockholders, and each
director so elected shall hold office until the expiration of the term of office
of the director whom he has replaced or until his successor is elected and
qualified.
Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the President, any Vice President, the Secretary, or
by any member of the Board of Directors. Notice of a special meeting of the
Board of Directors shall be given by the person or persons calling the meeting
at least 24 hours before the special meeting.
Section 2.5. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors, a majority of the whole Board of Directors shall constitute
a quorum for the transaction of business. Except in cases in which the
Certificate of Incorporation, these Bylaws or applicable law otherwise provides,
the vote of a majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8. Action by Written Consent of Directors. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or such committee.
9
ARTICLE III
COMMITTEES
Section 3.1. Committees. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules,
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
Section 4.1. Executive Officers; Election; Qualifications; Term of
Office; Resignation; Removal; Vacancies. The Board of Directors shall elect a
President and Secretary, and it may, if it so determines, choose a Chairman of
the Board and a Vice Chairman of the Board from among its members. The Board of
Directors may also choose one or more Vice Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers. Each such officer
shall hold office until the first meeting of the Board of Directors after the
annual meeting of stockholders next succeeding his election, and until his
successor is elected and qualified or until his earlier resignation or removal.
Any officer may resign at any time upon written notice to the corporation. The
Board of Directors may remove any officer with or without cause at any time, but
such removal shall be without prejudice to the contractual rights of such
officer, if any, with the corporation. Any number of offices may be held by the
same person. Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting.
Section 4.2. Powers and Duties of Executive Officers. The officers of
the corporation shall have such powers and duties in the management of the
corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
10
ARTICLE V
STOCK
Section 5.1. Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the corporation by the Chairman
or Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the corporation certifying the number of shares owned
by him in the corporation. Any of or all the signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent, or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
INDEMNIFICATION
Section 6.1. Right to Indemnification. The corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person (a "Covered Person")
who was or is made or is threatened to be made a party or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director or officer of the
corporation or, while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Covered Person. Notwithstanding the
preceding sentence, except as otherwise provided in Section 6.3, the corporation
shall be required to indemnify a Covered Person in connection with a proceeding
(or part thereof) commenced by such Covered Person only if the commencement of
such proceeding (or part thereof) by the Covered Person was authorized by the
Board of Directors of the corporation.
Section 6.2. Prepayment of Expenses. The corporation shall pay the
expenses (including attorneys' fees) incurred by a Covered Person in defending
any proceeding in advance of its final disposition; provided, however, that, to
the extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Covered Person to repay all amounts advanced if it
11
should be ultimately determined that the Covered Person is not entitled to be
indemnified under this Article VI or otherwise.
Section 6.3. Claims. If a claim for indemnification or advancement of
expenses under this Article VI is not paid in full within 30 days after a
written claim therefor by the Covered Person has been received by the
corporation, the Covered Person may file suit to recover the unpaid amount of
such claim and, if successful in whole or in part, shall be entitled to be paid
the expense of prosecuting such claim. In any such action, the corporation shall
have the burden of proving that the Covered Person is not entitled to the
requested indemnification or advancement of expenses under applicable law.
Section 6.4. Nonexclusivity of Rights. The rights conferred on any
Covered Person by this Article VI shall not be exclusive of any other rights
which such Covered Person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, these Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 6.5. Other Sources. The corporation's obligation, if any, to
indemnify or to advance expenses to any Covered Person who was or is serving at
its request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such Covered Person may collect as indemnification or
advancement of expenses from such other corporation, partnership, joint venture,
trust, enterprise or non-profit enterprise.
Section 6.6. Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any Covered Person in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 6.7. Other Indemnification and Prepayment of Expenses. This
Article VI shall not limit the right of the corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Covered Persons when and as authorized by appropriate corporate
action.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Fiscal Year. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
Section 7.2. Seal. The corporate seal shall have the name of the
corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 7.3. Manner of Notice. Except as otherwise provided herein,
notices to directors and stockholders shall be in writing and delivered
personally or mailed to the directors or stockholders at their addresses
appearing on the books of the corporation. Notice
12
to directors may be given by telegram, telecopier, telephone or other means of
electronic transmission.
Section 7.4. Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 7.5. Form of Records. Any records maintained by the corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time.
Section 7.6. Amendment of Bylaws. These Bylaws may be altered, amended
or re pealed, and new bylaws made, by the Board of Directors, but the
stockholders may make additional bylaws and may alter and repeal any bylaws
whether adopted by them or otherwise.
13
EXHIBIT 4.2
ZLAND.COM, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Rights Agent
RIGHTS AGREEMENT
dated as of____________ , 2000
TABLE OF CONTENTS
Page
1. Certain Definitions............................................................... 1
2. Appointment of Rights Agent....................................................... 5
3. Issue of Right Certificates....................................................... 5
4. Form of Right Certificates........................................................ 7
5. Countersignature and Registration................................................. 7
6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates........................... 8
7. Exercise of Rights; Purchase Price; Expiration Date of Rights..................... 8
8. Cancellation and Destruction of Right Certificates................................10
9. Availability of Shares of Preferred Stock.........................................10
10. Preferred Stock Record Date.......................................................11
11. Adjustment of Purchase Price, Number and Kind of Shares and Number of Rights......11
12. Certificate of Adjusted Purchase Price or Number of Shares........................18
13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power..............19
14. Fractional Rights and Fractional Shares...........................................21
15. Rights of Action..................................................................22
16. Agreement of Right Holders........................................................23
17. Right Certificate Holder Not Deemed a Stockholder.................................23
18. Concerning the Rights Agent.......................................................23
19. Merger or Consolidation or Change of Name of Rights Agent.........................24
20. Duties of Rights Agent............................................................24
21. Change of Rights Agent............................................................26
22. Issuance of New Right Certificates................................................27
23. Redemption........................................................................27
24. Exchange..........................................................................28
25. Notice of Certain Events..........................................................28
26. Notices...........................................................................29
27. Supplements and Amendments........................................................30
28. Successors........................................................................30
29. Benefits of this Agreement........................................................30
30. Severability......................................................................30
31. Governing Law.....................................................................30
32. Counterparts......................................................................31
33. Descriptive Headings..............................................................31
34. Determinations and Actions by the Board of Directors..............................31
Exhibit A - Form of Right Certificate
Exhibit B - Summary of Rights to Purchase Shares of ZLand.com, Inc. Series A
Junior Participating Preferred
Exhibit C - Form of Certificate of Designation of Series A Junior Participating
Preferred Stock
(i)
RIGHTS AGREEMENT
This Rights Agreement (this "Agreement"), dated as of ____________,
2000, is entered into by and between ZLand.com, Inc., a Delaware corporation
(the "Company"), and American Stock Transfer & Trust Company, as Rights Agent
(the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding upon the
closing of the Company's initial public offering of Common Stock (the "Record
Date"), each Right representing the right to purchase one one-thousandth
(1/1000) (subject to adjustment) of a share of Preferred Stock (as hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further authorized and directed the issuance of one Right (subject to adjustment
as provided herein) with respect to each share of Common Stock that shall become
outstanding between the Record Date and the earlier of the Distribution Date and
the Expiration Date (as such terms are hereinafter defined); provided, however,
that Rights may be issued with respect to shares of Common Stock that shall
become outstanding after the Distribution Date and prior to the Expiration Date
in accordance with Section 22.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following
terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which shall be the Beneficial Owner (as such term is
hereinafter defined) of 15% or more of the shares of Common Stock then
outstanding, but shall not include an Exempt Person (as such term is hereinafter
defined); provided, however, that if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person" became the Beneficial Owner of a number of shares of Common Stock such
that the Person would otherwise qualify as an "Acquiring Person" inadvertently
(including, without limitation, because (i) such Person was unaware that it
beneficially owned a percentage of Common Stock that would otherwise cause such
Person to be an "Acquiring Person" or (ii) such Person was aware of the extent
of its Beneficial Ownership of Common Stock but had no actual knowledge of the
consequences of such Beneficial Ownership under this Agreement) and without any
intention of changing or influencing control of the Company, then such Person
shall not be deemed to be or to have become an "Acquiring Person" for purposes
of this Agreement, unless and until such Person shall have failed to divest
itself, as soon as practicable (as determined, in good faith, by the Board of
Directors of the Company), of Beneficial Ownership of a sufficient number of
shares of Common Stock so that such Person would no longer otherwise qualify as
an "Acquiring Person." Notwithstanding the foregoing, (i) if, as of the date
hereof or prior to the first public announcement of the adoption of this
Agreement, any Person is or becomes the Beneficial Owner of 15% or more of the
shares of Common Stock outstanding, such Person will not be deemed to be or to
become an Acquiring Person for any purposes of this Agreement unless and until
such Person acquires Beneficial Ownership of any additional shares
of Common Stock (other than pursuant to a dividend or distribution paid or made
by the Company on the outstanding Common Stock or pursuant to a split or
subdivision of the outstanding Common Stock) after the first public announcement
of adoption of this Agreement unless upon the consummation of the acquisition of
such additional shares of Common Stock such Person does not beneficially own 15%
or more of the shares of Common Stock then outstanding and (ii) no Person shall
become an "Acquiring Person" as the result of an acquisition of shares of Common
Stock by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 15% or more of the shares of Common Stock then outstanding; provided,
however, that if a Person shall become the Beneficial Owner of 15% or more of
the shares of Common Stock then outstanding by reason of such share acquisitions
by the Company and shall thereafter become the Beneficial Owner of any
additional shares of Common Stock (other than pursuant to a dividend or
distribution paid or made by the Company on the outstanding Common Stock or
pursuant to a split or subdivision of the outstanding Common Stock), then such
Person shall be deemed to be an "Acquiring Person" unless upon becoming the
Beneficial Owner of such additional shares of Common Stock such Person does not
beneficially own 15% or more of the shares of Common Stock then outstanding. The
phrase "then outstanding," when used with reference to a Person's Beneficial
Ownership of securities of the Company, shall mean the number of such securities
then issued and outstanding together with the number of such securities not then
actually issued and outstanding which such Person would be deemed to own
beneficially hereunder.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be
deemed to have "Beneficial Ownership" of and shall be deemed to "beneficially
own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, directly or indirectly within the
meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange
Act as in effect on the date of this Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own, (x)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase, (y) securities which such Person
has a right to acquire on the exercise of Rights at any time prior to the time
any Person becomes an Acquiring Person or (z) securities issuable upon exercise
of Rights from and after the time a Person becomes an Acquiring Person if such
Rights were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a) or Section
22 ("original Rights") or pursuant to Section 11(i) or Section 11(n) with
respect
-2-
to an adjustment to original Rights; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any security by
reason of such agreement, arrangement or understanding if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person and with respect to which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by the
proviso to Section 1(c)(ii)(B)) or disposing of such securities of the Company,
provided, however, that no Person who is an officer, director or employee of an
Exempt Person shall be deemed, solely by reason of such Person's status or
authority as such, to be the "Beneficial Owner" of, to have "Beneficial
Ownership" of or to "beneficially own" any securities that are "beneficially
owned" (as defined in this Section 1(c)), including, without limitation, in a
fiduciary capacity, by an Exempt Person or by any other such officer, director
or employee of an Exempt Person.
(d) "Business Day" means any day other than a Saturday, a Sunday, or
a day on which banking institutions in the State of New York or, if different,
the state in which the principal office of the Rights Agent is located, are
authorized or obligated by law or executive order to close.
(e) "close of business" on any given date means 5:00 P.M., New York
City time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business
Day.
(f) "Common Stock" when used with reference to the Company means the
common stock, par value $.01 per share, of the Company. "Common Stock" when used
with reference to any Person other than the Company means the capital stock (or,
in the case of an unincorporated entity, the equivalent equity interest) with
the greatest voting power of such other Person or, if such other Person is a
subsidiary of another Person, the Person or Persons which ultimately control
such first-mentioned Person.
(g) "Distribution Date" has the meaning set forth in Section 3.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Exempt Person" means the Company, any Subsidiary (as such term
is hereinafter defined) of the Company, in each case including, without
limitation, in its fiduciary capacity, any employee benefit plan of the Company
or of any Subsidiary of the Company, or any entity or trustee holding Common
Stock for or pursuant to the terms of any such plan or for
-3-
the purpose of funding any such plan or funding other employee benefits for
employees of the Company or of any Subsidiary of the Company.
(i) "Final Expiration Date" has the meaning set forth in Section 7.
(j) "Nasdaq" means the Nasdaq Stock Market.
(k) "Person" means any individual, firm, corporation, partnership,
limited liability company, trust or other entity, and shall include any
successor (by merger or otherwise) of such entity.
(l) "Preferred Stock" means the Series A Junior Participating
Preferred Stock, par value $.01 per share, of the Company having the rights and
preferences set forth in the form of Certificate of Designation attached to this
Agreement as Exhibit C.
(m) "Principal Party" means
(i) in the case of any transaction described in (i) or (ii) of
the first sentence of Section 13(a): (A) the Person that is the issuer of the
securities into which the shares of Common Stock are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer the shares
of Common Stock of which have the greatest aggregate market value of shares
outstanding, or (B) if no securities are so issued, (x) the Person that is the
other party to the merger, if such Person survives said merger, or, if there is
more than one such Person, the Person the shares of Common Stock of which have
the greatest aggregate market value of shares outstanding or (y) if the Person
that is the other party to the merger does not survive the merger, the Person
that does survive the merger (including the Company if it survives) or (z) the
Person resulting from the consolidation; and
(ii) in the case of any transaction described in (iii) of the
first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred or if the Person receiving the greatest portion of the
assets or earning power cannot be determined, whichever of such Persons as is
the issuer of Common Stock having the greatest aggregate market value of shares
outstanding; provided, however, that in any such case described in the foregoing
clause (i) or (ii), if the Common Stock of such Person is not at such time or
has not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stock of all of which is and has been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of
Common Stock having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (i) and (ii) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall
-4-
bear the obligations set forth in Section 13 in the same ratio as its interest
in such Person bears to the total of such interests.
(n) "Redemption Date" has the meaning set forth in Section 7.
(o) "Securities Act" means the Securities Act of 1933, as amended.
(p) "Stock Acquisition Date" means the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such or such
earlier date as a majority of the Board of Directors shall become aware of the
existence of an Acquiring Person.
(q) "Subsidiary" of any Person means any corporation or other entity
of which securities or other ownership interests having ordinary voting power
sufficient to elect a majority of the board of directors or other persons
performing similar functions are beneficially owned, directly or indirectly, by
such Person, and any corporation or other entity that is otherwise controlled by
such Person.
(r) "Trading Day" means a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.
2. Appointment of Rights Agent. The Company hereby appoints the Rights
Agent to act as agent for the Company and the holders of the Rights (who, in
accordance with Section 3, shall prior to the Distribution Date be the holders
of Common Stock) in accordance with the terms and conditions hereof, and the
Rights Agent hereby accepts such appointment. The Company may from time to time
appoint such co-Rights Agents as it may deem necessary or desirable.
3. Issue of Right Certificates.
(a) Until the close of business on the earlier of (i) the tenth day
after the Stock Acquisition Date or (ii) the tenth business day (or such later
date as may be determined by action of the Board of Directors prior to such time
as any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than an Exempt Person) of, or of the first public announcement
of the intention of such Person (other than an Exempt Person) to commence, a
tender or exchange offer the consummation of which would result in any Person
(other than an Exempt Person) becoming the Beneficial Owner of shares of Common
Stock aggregating 15% or more of the Common Stock then outstanding (including
any such date which is after the date of this Agreement and prior to the
issuance of the Rights; the earlier of such dates being herein referred to as
the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b)) by the certificates for Common Stock registered in
the names of the holders thereof and not by separate Right Certificates, and (y)
the Rights will be transferable only in connection with the transfer of Common
Stock. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign and the Company will send
or cause to be sent (and the Rights Agent will, if requested, send) by
-5-
first-class, insured, postage-prepaid mail, to each record holder of Common
Stock as of the close of business on the Distribution Date (other than any
Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the
address of such holder shown on the records of the Company, a Right Certificate,
in substantially the form of Exhibit A hereto (a "Right Certificate"),
evidencing one Right (subject to adjustment as provided herein) for each share
of Common Stock so held. As of the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Shares of Preferred
Stock, in substantially the form of Exhibit B (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Stock as of
the close of business on the Record Date (other than any Acquiring Person or any
Associate or Affiliate of any Acquiring Person), at the address of such holder
shown on the records of the Company. With respect to certificates for Common
Stock outstanding as of the Record Date, until the Distribution Date, the Rights
will be evidenced by such certificates registered in the names of the holders
thereof together with the Summary of Rights. Until the Distribution Date (or, if
earlier, the Expiration Date), the surrender for transfer of any certificate for
Common Stock outstanding on the Record Date, with or without a copy of the
Summary of Rights, shall also constitute the transfer of the Rights associated
with the Common Stock represented thereby.
(c) Rights shall be issued in respect of all shares of Common Stock
issued or disposed of (including, without limitation, upon disposition of Common
Stock out of treasury stock or issuance or reissuance of Common Stock out of
authorized but unissued shares) after the Record Date but prior to the earlier
of the Distribution Date and the Expiration Date, or in certain circumstances
provided in Section 22 hereof, after the Distribution Date. Certificates issued
for Common Stock (including, without limitation, upon transfer of outstanding
Common Stock, disposition of Common Stock out of treasury stock or issuance or
reissuance of Common Stock out of authorized but unissued shares) after the
Record Date but prior to the earlier of the Distribution Date and the Expiration
Date, or in certain circumstances provided in Section 22 hereof, after the
Distribution Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between
ZLand.com, Inc. and American Stock Transfer & Trust Company, as
Rights Agent, dated as of ________________, 2000 the same may be
amended from time to time (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a copy of
which is on file at the principal executive offices of ZLand.com,
Inc. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates
and will no longer be evidenced by this certificate. ZLand.com,
Inc. will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written
request therefor. Under certain circumstances, as set forth in
the Rights Agreement, Rights owned by or transferred to any
Person
-6-
who is or becomes an Acquiring Person (as defined in the Rights
Agreement) and certain transferees thereof will become null and
void and will no longer be transferable.
With respect to such certificates containing the foregoing legend, until
the Distribution Date, the Rights associated with the Common Stock represented
by such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby. If the Company purchases or otherwise acquires
any Common Stock after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Stock shall be deemed canceled and retired so
that the Company shall not be entitled to exercise any Rights associated with
the Common Stock which are no longer outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
4. Form of Right Certificates. The Right Certificates (and the forms of
election to purchase shares and of assignment to be printed on the reverse
thereof) shall be substantially in the form set forth in Exhibit A hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of Nasdaq or of any other stock exchange
or automated quotation system on which the Rights may from time to time be
listed or quoted, or to conform to usage. Subject to the provisions of this
Agreement, the Right Certificates shall entitle the holders thereof to purchase
such number of one one-thousandths (1/1000) of a share of Preferred Stock as
shall be set forth therein at the price per one one-thousandth (1/1000) of a
share of Preferred Stock set forth therein (the "Purchase Price"), but the
number of such one one-thousandths (1/1000) of a share of Preferred Stock and
the Purchase Price shall be subject to adjustment as provided herein.
5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the
Company by the President, any of the Vice Presidents, the Treasurer or the
Controller of the Company, either manually or by facsimile signature, shall have
affixed thereto the Company's seal or a facsimile thereof and shall be attested
by the Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. If
any officer of the Company who has signed any of the Right Certificates ceases
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Right Certificates may,
nevertheless, be countersigned by the Rights Agent and issued and delivered by
the Company with the same force and effect as though the Person who signed such
Right Certificates had not ceased to be such officer of the Company; and any
Right Certificate may be signed on behalf of the Company by any Person who, at
the actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right
-7-
Certificate, although at the date of the execution of this Agreement any such
Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at an office or agency designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of this Agreement, at any time after
the Distribution Date and prior to the Expiration Date, any Right Certificate or
Right Certificates may be transferred, split up, combined or exchanged for
another Right Certificate or Right Certificates, entitling the registered holder
to purchase a like number of one one-thousandths (1/1000) of a share of
Preferred Stock as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the office or agency of the Rights Agent designated for
such purpose. Thereupon the Rights Agent shall countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
(b) Subject to the provisions of this Agreement, at any time after
the Distribution Date and prior to the Expiration Date, upon receipt by the
Company and the Rights Agent of evidence reasonably satisfactory to them of the
loss, theft, destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
them, and, at the Company's request, reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the Company
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or agency of the Rights Agent designated for such purpose, together with
payment of the Purchase Price for each one one-thousandth (1/1000) of a share of
Preferred Stock (or other securities, cash or other assets, as the case may be)
as to which the Rights are exercised, at any
-8-
time which is both after the Distribution Date and prior to the time (the
"Expiration Date") that is the earliest of (i) the close of business on the date
that is ten years after the Record Date (the "Final Expiration Date"), (ii) the
time at which the Rights are redeemed as provided in Section 23 (the "Redemption
Date") or (iii) the time at which such Rights are exchanged as provided in
Section 24.
(b) The Purchase Price shall be initially $200 for each one
one-thousandth (1/1000) of a share of Preferred Stock purchasable upon the
exercise of a Right. The Purchase Price and the number of one one-thousandths
(1/1000) of a share of Preferred Stock or other securities or property to be
acquired upon exercise of a Right shall be subject to adjustment from time to
time as provided in Sections 11 and 13 and shall be payable in lawful money of
the United States of America in accordance with paragraph (c) of this Section 7.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the shares of Preferred Stock to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9, in cash or by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Stock, or make available if the Rights Agent is the transfer agent
for the Preferred Stock, certificates for the number of shares of Preferred
Stock to be purchased and the Company hereby irrevocably authorizes its transfer
agent to comply with all such requests, or (B) requisition from a depositary
agent appointed by the Company depositary receipts representing interests in
such number of one one-thousandths (1/1000) of a share of Preferred Stock as are
to be purchased (in which case certificates for the Preferred Stock represented
by such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
14, (iii) promptly after receipt of such certificates or depositary receipts,
cause the same to be delivered to or upon the order of the registered holder of
such Right Certificate, registered in such name or names as may be designated by
such holder and (iv) when appropriate, after receipt, promptly deliver such cash
to or upon the order of the registered holder of such Right Certificate.
(d) Except as otherwise provided herein, if the registered holder of
any Right Certificate exercises less than all the Rights evidenced thereby, a
new Right Certificate evidencing Rights equivalent to the exercisable Rights
remaining unexercised shall be issued by the Rights Agent to the registered
holder of such Right Certificate or to his duly authorized assigns, subject to
the provisions of Section 14.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of Rights upon the occurrence of any
purported transfer or exercise of Rights pursuant to Section 6 or this Section 7
unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or form of election to purchase
set forth on the reverse side of the Rights Certificate surrendered for such
transfer or exercise and
-9-
(ii) provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) thereof as the Company shall reasonably request.
8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
9. Availability of Shares of Preferred Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock or any shares of Preferred Stock held in its treasury, the
number of shares of Preferred Stock that will be sufficient to permit the
exercise in full of all outstanding Rights.
(b) If and so long as the shares of Preferred Stock (and, following
the time that a Person becomes an Acquiring Person, shares of Common Stock and
other securities) issuable upon the exercise of Rights may be listed or admitted
to trading on Nasdaq or listed on any other national or internationally-
recognized securities exchange or quotation system, the Company shall use its
best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed or admitted to
trading on Nasdaq or listed on any such other exchange or quotation system upon
official notice of issuance upon such exercise.
(c) From and after such time as the Rights become exercisable, the
Company shall use its best efforts, if then necessary to permit the issuance of
shares of Preferred Stock (and following the time that a Person first becomes an
Acquiring Person, shares of Common Stock and other securities) upon the exercise
of Rights, to register and qualify such shares of Preferred Stock (and following
the time that a Person first becomes an Acquiring Person, shares of Common Stock
and other securities) under the Securities Act and any applicable state
securities or "Blue Sky" laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the date as of which the Rights
are no longer exercisable for such securities and the Expiration Date. The
Company may temporarily suspend, for a period of time not to exceed 90 days, the
exercisability of the Rights in order to prepare and file a registration
statement under the Securities Act and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any
-10-
jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained and until a registration statement under the Securities Act (if
required) shall have been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock (and,
following the time that a Person becomes an Acquiring Person, shares of Common
Stock and other securities) delivered upon exercise of Rights shall, at the time
of delivery of the certificates therefor (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any shares of Preferred Stock (or shares of Common Stock or other
securities) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a Person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Stock (or
shares of Common Stock or other securities) in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or deliver any certificates or depositary receipts for
Preferred Stock (or shares of Common Stock or other securities) upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by that holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's reasonable satisfaction that
no such tax is due.
10. Preferred Stock Record Date. Each Person in whose name any
certificate for Preferred Stock is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock transfer books of the Company
are closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
11. Adjustment of Purchase Price, Number and Kind of Shares and Number
of Rights. The Purchase Price, the number of shares of Preferred Stock or other
securities or property purchasable upon exercise of each Right and the number of
Rights outstanding are subject to adjustment from time to time as provided in
this Section 11.
(a) (i) If the Company at any time after the date of this Agreement
(A) declares and pays a dividend on the Preferred Stock payable in shares of
Preferred Stock, (B)
-11-
subdivides the outstanding Preferred Stock, (C) combines the outstanding
Preferred Stock into a smaller number of shares of Preferred Stock or (D) issues
any shares of its capital stock in a reclassification of the Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a), the number and kind of shares of
capital stock issuable upon exercise of a Right as of the record date for such
dividend or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive the aggregate
number and kind of shares of capital stock which, if such Right had been
exercised immediately prior to such date and at a time when the Preferred Stock
transfer books of the Company were open, the holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right.
(ii) Subject to Section 24 of this Agreement, if any Person
becomes an Acquiring Person, each holder of a Right, except as otherwise
provided in this Section 11(a)(ii) and Section 11(a)(iii) hereof, shall
thereafter have the right to receive, upon exercise thereof at a price equal to
the then current Purchase Price multiplied by the number of one one-thousandths
(1/1000) of a share of Preferred Stock for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of shares of Preferred
Stock, such number of shares of Common Stock as shall equal the result obtained
by (x) multiplying the then current Purchase Price by the number of one
one-thousandths (1/1000) of a share of Preferred Stock for which a Right is then
exercisable and dividing that product by (y) 50% of the then current per share
market price of the Company's Common Stock (determined pursuant to Section
11(d)) on the date of the occurrence of such event; provided, however, that the
Purchase Price (as so adjusted) and the number of shares of Common Stock so
receivable upon exercise of a Right shall thereafter be subject to further
adjustment as appropriate in accordance with Section 11(f). Notwithstanding
anything in this Agreement to the contrary, however, from and after the time
(the "invalidation time") when any Person first becomes an Acquiring Person, any
Rights that are beneficially owned by (x) any Acquiring Person (or any Affiliate
or Associate of any Acquiring Person), (y) a transferee of any Acquiring Person
(or any such Affiliate or Associate) who becomes a transferee after the
invalidation time or (z) a transferee of any Acquiring Person (or any such
Affiliate or Associate) who became a transferee prior to or concurrently with
the invalidation time pursuant to either (I) a transfer from the Acquiring
Person to holders of its equity securities or to any Person with whom it has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (II) a transfer which the Board of Directors has determined is part of
a plan, arrangement or understanding which has the purpose or effect of avoiding
the provisions of this paragraph, and subsequent transferees of such Persons,
shall be void without any further action and any holder of such Rights shall
thereafter have no rights whatsoever with respect to such Rights under any
provision of this Agreement. The Company shall use all reasonable efforts to
ensure that the provisions of this Section 11(a)(ii) are complied with, but
shall have no liability to any holder of Right Certificates or other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder. From and after
the invalidation time, no Right Certificate shall be issued pursuant to Section
3 or Section 6 that represents Rights that are or have become void pursuant to
the provisions of this paragraph, and any Right Certificate delivered to the
-12-
Rights Agent that represents Rights that are or have become void pursuant to the
provisions of this paragraph shall be canceled. From and after the occurrence of
an event specified in Section 13(a), any Rights that theretofore have not been
exercised pursuant to this Section 11(a)(ii) shall thereafter be exercisable
only in accordance with Section 13 and not pursuant to this Section 11(a)(ii).
(iii) The Company may at its option substitute for a share of
Common Stock issuable upon the exercise of Rights in accordance with the
foregoing subparagraph (ii) such number or fractions of shares of Preferred
Stock having an aggregate current market value equal to the current per share
market price of a share of Common Stock. In the event that there shall not be
sufficient shares of Common Stock issued but not outstanding or authorized but
unissued to permit the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii), the Board of Directors shall, to the extent
permitted by applicable law and any material agreements then in effect to which
the Company is a party (A) determine the excess of (1) the value of the shares
of Common Stock issuable upon the exercise of a Right in accordance with the
foregoing subparagraph (ii) (the "Current Value") over (2) the then current
Purchase Price multiplied by the number of one one-thousandths (1/1000) of
shares of Preferred Stock for which a Right was exercisable immediately prior to
the time that the Acquiring Person became such (such excess, the "Spread"), and
(B) with respect to each Right (other than Rights which have become void
pursuant to Section 11(a)(ii)), make adequate provision to substitute for the
shares of Common Stock issuable in accordance with subparagraph (ii) upon
exercise of the Right and payment of the applicable Purchase Price, (1) cash,
(2) a reduction in the applicable Purchase Price, (3) shares of Preferred Stock
or other equity securities of the Company (including, without limitation, shares
or fractions of shares of preferred stock which, by virtue of having dividend,
voting and liquidation rights substantially comparable to those of the shares of
Common Stock, are deemed in good faith by the Board of Directors to have
substantially the same value as the shares of Common Stock (such shares of
Preferred Stock and shares or fractions of shares of preferred stock are
hereinafter referred to as "Common Stock equivalents"), (4) debt securities of
the Company, (5) other assets, or (6) any combination of the foregoing, having a
value which, when added to the value of the shares of Common Stock actually
issued upon exercise of such Right, shall have an aggregate value equal to the
Current Value (less the amount of any reduction in the applicable Purchase
Price), where such aggregate value has been determined by the Board of Directors
upon the advice of a nationally recognized investment banking firm selected in
good faith by the Board of Directors; provided, however, if the Company shall
not make adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the date that the Acquiring Person became such (the
date of the Acquiring Person becoming such being the "Section 11(a)(ii) Trigger
Date"), then the Company shall be obligated to deliver, to the extent permitted
by applicable law and any material agreements then in effect to which the
Company is a party, upon the surrender for exercise of a Right and without
requiring payment of the applicable Purchase Price, shares of Common Stock (to
the extent available), and then, if necessary, such number or fractions of
shares of Preferred Stock (to the extent available) and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the Spread. If,
upon the date any Person becomes an Acquiring Person, the Board of Directors
shall determine in good faith that it is likely that sufficient additional
shares of Common Stock could be authorized for issuance upon exercise in full of
the Rights, then, if the Board of Directors so elects, the thirty (30) day
period set forth above may be extended to the extent necessary, but not more
than ninety (90) days after the Section 11(a)(ii)
-13-
Trigger Date, in order that the Company may seek stockholder approval for the
authorization of such additional shares (such thirty (30) day period, as it may
be extended, is herein called the "Substitution Period"). To the extent that the
Company determines that some action need be taken pursuant to the second and/or
third sentence of this Section 11(a)(iii), the Company (x) shall provide,
subject to Section 11(a)(ii) and the last sentence of this Section 11(a)(iii),
that such action shall apply uniformly to all outstanding Rights and (y) may
suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant to
such second sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11(a)(iii), the value of the shares of Common Stock shall be the
current per share market price (as determined pursuant to Section 11(d)(i)) on
the Section 11(a)(ii) Trigger Date and the per share or fractional value of any
"Common Stock equivalent" shall be deemed to equal the current per share market
price of the Common Stock. The Board of Directors of the Company may, but shall
not be required to, establish procedures to allocate the right to receive shares
of Common Stock upon the exercise of the Rights among holders of Rights pursuant
to this Section 11(a)(iii).
(b) If the Company fixes a record date for the issuance of rights,
options or warrants to all holders of Preferred Stock entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Preferred Stock (or shares having the same rights, privileges and
preferences as the Preferred Stock ("equivalent preferred shares")) or
securities convertible into Preferred Stock or equivalent preferred shares at a
price per share of Preferred Stock or equivalent preferred shares (or having a
conversion price per share, if a security convertible into shares of Preferred
Stock or equivalent preferred shares) less than the then current per share
market price of the Preferred Stock (determined pursuant to Section 11(d)) on
such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of shares of Preferred Stock and equivalent preferred shares outstanding
on such record date plus the number of shares of Preferred Stock and equivalent
preferred shares which the aggregate offering price of the total number of
shares of Preferred Stock and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price, and the denominator
of which shall be the number of shares of Preferred Stock and equivalent
preferred shares outstanding on such record date plus the number of additional
shares of Preferred Stock and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. If such subscription price may be paid in a consideration
part or all of which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent. Shares of Preferred Stock and equivalent preferred shares
owned by or held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
rights, options or warrants are not so issued, the
-14-
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) If the Company fixes a record date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Stock) or subscription rights or warrants (excluding those referred to
in Section 11(b)), the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Preferred Stock (determined pursuant
to Section 11(d)) on such record date, less the fair market value (as determined
in good faith by the Board of Directors of the Company whose determination shall
be described in a statement filed with the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one share of Preferred Stock, and the
denominator of which shall be such current per share market price (determined
pursuant to Section 11(d)) of the Preferred Stock; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company to be
issued upon exercise of one Right. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(d) (i) Except as otherwise provided herein, for the purpose of any
computation hereunder, the "current per share market price" of any security (a
"Security" for the purpose of this Section 11(d)(i)) on any date shall be deemed
to be the average of the daily closing prices per share of such Security for the
thirty (30) consecutive Trading Days immediately prior to such date; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security, and prior to the
expiration of thirty (30) Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported by the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on Nasdaq or, if the Security is not
listed or admitted to trading on Nasdaq, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange or internationally-recognized
exchange on which the Security is listed or admitted to trading or, if the
Security is not listed or admitted to trading on any national or
internationally-recognized securities exchange, the last quoted price or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by Nasdaq or such other system then in use,
or, if on any such date the Security is not quoted by any such organization, the
average of the
-15-
closing bid and asked prices as furnished by a professional market maker making
a market in the Security selected by the Board of Directors of the Company.
(ii) For the purpose of any computation hereunder, if the
Preferred Stock is publicly traded, the "current per share market price" of the
Preferred Stock shall be determined in accordance with the method set forth in
Section 11(d)(i). If the Preferred Stock is not publicly traded but the Common
Stock is publicly traded, the "current per share market price" of the Preferred
Stock shall be conclusively deemed to be the current per share market price of
the Common Stock as determined pursuant to Section 11(d)(i) multiplied by the
then applicable Adjustment Number (as defined in and determined in accordance
with the Certificate of Designation for the Preferred Stock). If neither the
Common Stock nor the Preferred Stock is publicly traded, "current per share
market price" shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest one ten-thousandth
(1/10000) of a share of Preferred Stock or share of Common Stock or other share
or security as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a),
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than the Preferred Stock,
thereafter the Purchase Price and the number of such other shares so receivable
upon exercise of a Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in Sections 11(a), 11(b), 11(c), 11(e),
11(h), 11(i) and 11(m), and the provisions of Sections 7, 9, 10, 13 and 14 with
respect to the Preferred Stock shall apply on like terms to any such other
shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths
(1/1000) of a share of Preferred Stock purchasable from time to time hereunder
upon exercise of the Rights, all subject to further adjustment as provided
herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-thousandths
(1/1000) of a share of Preferred Stock (calculated to the nearest one
ten-thousandth (1/10000) of a share of Preferred Stock) obtained by (i)
multiplying (x) the number of one one-thousandths (1/1000) of a share
purchasable upon the exercise of a Right
-16-
immediately prior to such adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price pursuant to Sections 11(b) or 11(c) hereof to adjust the
number of Rights, in substitution for any adjustment in the number of one
one-thousandths (1/1000) of a share of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one one-thousandths
(1/1000) of a share of Preferred Stock for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth (1/10000)) obtained by dividing
the Purchase Price in effect immediately prior to adjustment of the Purchase
Price by the Purchase Price in effect immediately after adjustment of the
Purchase Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment, and,
if known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Right Certificates have been issued, shall be at least ten days
later than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company may, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14, the additional Rights to which such holders
shall be entitled as a result of such adjustment, or, at the option of the
Company, shall cause to be distributed to such holders of record in substitution
and replacement for the Right Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the Company, new
Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be distributed shall be
issued, executed and countersigned in the manner provided for herein and shall
be registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of one one-thousandths (1/1000) of a share of Preferred Stock
issuable upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price and the number of
one one-thousandths (1/1000) of a share of Preferred Stock which were expressed
in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the fraction of
Preferred Stock or other shares of capital stock issuable upon exercise of a
Right, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Preferred Stock or other such
shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 requires that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised
-17-
after such record date of the Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the Preferred Stock and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such adjustments in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Stock, issuance
wholly for cash of any shares of Preferred Stock at less than the current market
price, issuance wholly for cash of Preferred Stock or securities which by their
terms are convertible into or exchangeable for Preferred Stock, dividends on
Preferred Stock payable in shares of Preferred Stock or issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made by
the Company to holders of its Preferred Stock shall not be taxable to such
stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, if
at any time after the date of this Agreement and prior to the Distribution Date,
the Company (i) declares and pays any dividend on the Common Stock payable in
Common Stock or (ii) effects a subdivision, combination or consolidation of the
Common Stock (by reclassification or otherwise than by payment of a dividend
payable in Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case, the number of Rights associated with each share
of Common Stock then outstanding, or issued or delivered thereafter, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
(o) The Company agrees that, after the earlier of the Distribution
Date or the Stock Acquisition Date, it will not, except as permitted by Sections
23, 24 or 27, take (or permit any Subsidiary to take) any action if at the time
such action is taken it is reasonably foreseeable that such action will diminish
substantially or eliminate the benefits intended to be afforded by the Rights.
12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever
an adjustment is made as provided in Section 11 or 13, the Company shall
promptly (a) prepare a certificate setting forth such adjustment, and a brief
statement of the facts accounting for such adjustment, (b) file with the Rights
Agent and with each transfer agent for the Common Stock or the Preferred Stock a
copy of such certificate and (c) mail a brief summary thereof to each holder of
a Right Certificate in accordance with Section 25 (if so required under Section
25). The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein
-18-
contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such certificate.
13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.
(a) If, directly or indirectly, at any time after any Person has
become an Acquiring Person, (i) the Company consolidates with or merges with and
into any other Person, (ii) any Person merges with and into the Company and the
Company is the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Stock is changed into or
exchanged for stock or other securities of any other Person (or of the Company)
or cash or any other property, or (iii) the Company sells or otherwise transfers
(or one or more of its Subsidiaries sells or otherwise transfers), in one or
more transactions, assets or earning power aggregating 50% or more of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person (other than the Company or one or more of its wholly-owned
Subsidiaries), then upon the first occurrence of such event, proper provision
shall be made so that: (A) each holder of record of a Right (other than Rights
which have become void pursuant to Section 11(a)(ii)) thereafter has the right
to receive, upon the exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-thousandths (1/1000) of a
share of Preferred Stock for which a Right was exercisable (whether or not such
Right was then exercisable) immediately prior to the time that any Person first
became an Acquiring Person (each as subsequently adjusted thereafter pursuant to
Sections 11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m)), in accordance with the
terms of this Agreement and in lieu of shares of Preferred Stock or Common Stock
of the Company, such number of validly authorized and issued, fully paid,
non-assessable and freely tradeable shares of Common Stock of the Principal
Party not subject to any liens, encumbrances, rights of first refusal or other
adverse claims, as shall be equal to the result obtained by (1) multiplying the
then current Purchase Price by the number of one one-thousandths (1/1000) of a
share of Preferred Stock for which a Right was exercisable immediately prior to
the time that any Person first became an Acquiring Person (as subsequently
adjusted thereafter pursuant to Sections 11(a)(i), 11(b), 11(c), 11(h), 11(i)
and 11(m)) and (2) dividing that product by 50% of the then current per share
market price of the Common Stock of such Principal Party (determined pursuant to
Section 11(d)(i)) on the date of consummation of such consolidation, merger,
sale or transfer; provided that the applicable Purchase Price and the number of
shares of Common Stock of such Principal Party issuable upon exercise of each
Right shall be further adjusted as provided in Section 11(f) to reflect any
events occurring in respect of the Common Stock of such Principal Party after
the occurrence of such consolidation, merger, sale or transfer; (B) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale or transfer, all the obligations and duties of
the Company pursuant to this Agreement; (C) the term "Company" shall thereafter
be deemed to refer to such Principal Party; and (D) such Principal Party shall
take such steps (including, but not limited to, the reservation of a sufficient
number of its shares of Common Stock in accordance with Section 9) in connection
with such consummation of any such transaction as may be necessary to assure
that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the shares of its Common Stock thereafter
deliverable upon the exercise of the Rights; provided that, upon the subsequent
occurrence of any consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price as
-19-
provided in this Section 13(a), such cash, shares, rights, warrants and other
property which such holder would have been entitled to receive had such holder,
at the time of such transaction, owned the Common Stock of the Principal Party
receivable upon the exercise of a Right pursuant to this Section 13(a), and such
Principal Party shall take such steps (including, but not limited to,
reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property.
(b) The Company shall not consummate any consolidation, merger, sale
or transfer referred to in Section 13(a) unless prior thereto the Company and
the Principal Party involved therein shall have executed and delivered to the
Rights Agent an agreement confirming that the requirements of Sections 13(a)
shall promptly be performed in accordance with their terms and that such
consolidation, merger, sale or transfer of assets shall not result in a default
by the Principal Party under this Agreement as the same shall have been assumed
by the Principal Party pursuant to Section 13(a) and (b) hereof and providing
that, as soon as practicable after executing such agreement pursuant to this
Section 13, the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its best
efforts to cause such registration statement to become effective as soon as
practicable after such filing and use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the Expiration Date, and
similarly comply with applicable state securities laws;
(ii) use its best efforts, if the Common Stock of the Principal
Party is listed or admitted to trading on Nasdaq or on a national or
internationally-recognized securities exchange, to list or admit to trading (or
continue the listing of) the Rights and the securities purchasable upon exercise
of the Rights on Nasdaq or such securities exchange, or, if the Common Stock of
the Principal Party is not listed or admitted to trading on Nasdaq or a national
or internationally-recognized securities exchange, to cause the Rights and the
securities receivable upon exercise of the Rights to be reported by such other
system then in use;
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(iv) obtain waivers of any rights of first refusal or preemptive
rights in respect of the Common Stock of the Principal Party subject to purchase
upon exercise of outstanding Rights.
(c) If the Principal Party has provision in any of its authorized
securities or in its certificate of incorporation or bylaws or other instrument
governing its affairs, which provision would have the effect of (i) causing such
Principal Party to issue (other than to holders of Rights pursuant to this
Section 13), in connection with, or as a consequence of, the consummation of a
transaction referred to in this Section 13, shares of Common Stock or Common
Stock equivalents of such Principal Party at less than the then current market
price per
-20-
share thereof (determined pursuant to Section 11(d)) or securities exercisable
for, or convertible into, Common Stock or Common Stock equivalents of such
Principal Party at less than such then current market price, or (ii) providing
for any special payment, tax or similar provision in connection with the
issuance of the Common Stock of such Principal Party pursuant to the provisions
of Section 13, then, in such event, the Company hereby agrees with each holder
of Rights that it shall not consummate any such transaction unless prior thereto
the Company and such Principal Party have executed and delivered to the Rights
Agent a supplemental agreement providing that the provision in question of such
Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
(d) The Company covenants and agrees that it shall not, at any time
after a Person first becomes an Acquiring Person, enter into any transaction of
the type contemplated by (i) - (iii) of Section 13(a) if (x) at the time of or
immediately after such consolidation, merger, sale, transfer or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (y)
prior to, simultaneously with or immediately after such consolidation, merger,
sale, transfer or other transaction, the stockholders of the Person who
constitutes, or would constitute, the Principal Party have received a
distribution of Rights previously owned by such Person or any of its Affiliates
or Associates or (z) the form or nature of organization of the Principal Party
would preclude or limit the exercisability of the Rights.
14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights
or to distribute Right Certificates which evidence fractional Rights (except
prior to the Distribution Date in accordance with Section 11(n) hereof). In lieu
of such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on Nasdaq or, if the Rights are not
listed or admitted to trading on Nasdaq, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national or internationally-recognized securities exchange on
which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national or internationally-recognized
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
Nasdaq or such other system then in use or, if on any such date the Rights are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company. If on any such date no such
market maker is making a market in the Rights, the fair value of the
-21-
Rights on such date as determined in good faith by the Board of Directors of the
Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth (1/1000) of a share of Preferred Stock) upon exercise of the
Rights or to distribute certificates which evidence fractional shares of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth (1/1000) of a share of Preferred Stock). Interests in fractions
of Preferred Stock in integral multiples of one one-thousandth (1/1000) of a
share of Preferred Stock may, at the election of the Company, be evidenced by
depositary receipts, pursuant to an appropriate agreement between the Company
and a depositary selected by it; provided, that such agreement shall provide
that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Stock represented by such depositary receipts. In lieu of
fractional shares of Preferred Stock that are not integral multiples of one
one-thousandth (1/1000) of a share of Preferred Stock, the Company shall pay to
the registered holders of Right Certificates at the time such Rights are
exercised or exchanged as herein provided an amount in cash equal to the same
fraction of the current market value of one share of Preferred Stock. For the
purposes of this Section 14(b), the current market value of a share of Preferred
Stock shall be the closing price of a share of Preferred Stock (as determined
pursuant to Section 11(d)(i)) for the Trading Day immediately prior to the date
of such exercise or exchange.
(c) The Company shall not be required to issue fractions of shares
of Common Stock or to distribute certificates which evidence fractional shares
of Common Stock upon the exercise or exchange of Rights. In lieu of such
fractional shares of Common Stock, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional shares of
Common Stock would otherwise be issuable an amount in cash equal to the same
fraction of the current market value of a whole share of Common Stock (as
determined in accordance with Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise or exchange of a Right (except as provided above).
15. Rights of Action. All rights of action in respect of this Agreement,
except the rights of action given to the Rights Agent under Section 18, are
vested in the respective registered holders of the Right Certificates (and,
prior to the Distribution Date, the registered holders of the Common Stock); and
any registered holder of any Right Certificate (or, prior to the Distribution
Date, of the Common Stock), without the consent of the Rights Agent or of the
holder of any other Right Certificate (or, prior to the Distribution Date, of
the Common Stock), on his own behalf and for his own benefit, may enforce, and
may institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate (or, prior to the Distribution Date, such
Common Stock) in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law
-22-
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of, the obligations of any Person subject to this Agreement.
16. Agreement of Right Holders. Every holder of a Right, by accepting
the same, consents and agrees with the Company and the Rights Agent and with
every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or agency of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person
in whose name the Right Certificate (or, prior to the Distribution Date, the
Common Stock certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or writing
on the Right Certificates or the Common Stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary.
17. Right Certificate Holder Not Deemed a Stockholder. No holder, as
such, of any Right Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the Preferred Stock or any other
securities of the Company which may at any time be issuable on the exercise or
exchange of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in this Agreement), or to receive dividends or
subscription rights, or otherwise, until the Rights evidenced by such Right
Certificate shall have been exercised or exchanged in accordance with the
provisions hereof.
18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability arising therefrom, directly or indirectly.
-23-
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Stock or Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20.
19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent is merged or with which it is consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent is a party, or any corporation succeeding to the stock
transfer or corporate trust powers of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21. If
at the time such successor Rights Agent succeeds to the agency created by this
Agreement, any of the Right Certificates have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and if at that time any of the Right Certificates have not been countersigned,
any successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
(b) If at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and if at that time any of the
Right Certificates have not been countersigned, the Rights Agent may countersign
such Right Certificates either in its prior name or in its changed name and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
20. Duties of Rights Agent. The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Right Certificates, by their
acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless
-24-
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by any
one of the President, any Vice President, the Treasurer, the Controller or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own negligence, bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii)) or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Sections 3, 11, 13, 23 and 24, or the ascertaining of
the existence of facts that would require any such change or adjustment (except
with respect to the exercise of Rights evidenced by Right Certificates after
receipt of a certificate furnished pursuant to Section 12, describing such
change or adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Preferred Stock or other securities to be issued pursuant to this Agreement
or any Right Certificate or as to whether any shares of Preferred Stock or other
securities will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the Chief Executive
Officer, the President, the Chief Financial Officer or the Secretary of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and it shall not be liable for any action taken or suffered by
it in good faith in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions. Any application by the
Rights Agent for written instructions from the Company may, at the option of the
Rights Agent, set forth in writing any action proposed to be taken or omitted by
the Rights Agent under this Agreement and the date on and/or after which such
action shall be taken or such omission shall be effective. The Rights Agent
shall not be liable for any action taken by, or omission of, the Rights Agent in
accordance with a proposal
-25-
included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse thereof,
as the case may be, has not been completed to certify the holder is not an
Acquiring Person (or an Affiliate or Associate thereof), the Rights Agent shall
not take any further action with respect to such requested exercise or transfer
without first consulting with the Company.
21. Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon
thirty (30) days' notice in writing mailed to the Company and to each transfer
agent of the Common Stock or Preferred Stock by registered or certified mail,
and, following the Distribution Date, to the holders of the Right Certificates
by first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon thirty (30) days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Common Stock or Preferred Stock by registered or certified mail, and,
following the Distribution Date, to the holders of the Right Certificates by
first-class mail. If the Rights Agent resigns or is removed or otherwise becomes
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company fails to make such appointment within a period of thirty (30)
days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Company), then the
registered holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
any state thereof, which is authorized under such laws to exercise corporate
trust or stock transfer powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50 million. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing
-26-
with the predecessor Rights Agent and each transfer agent of the Common Stock or
Preferred Stock, and, following the Distribution Date, mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such forms as
may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or
sale of Common Stock following the Distribution Date and prior to the Expiration
Date, the Company may with respect to shares of Common Stock so issued or sold
pursuant to (i) the exercise of stock options, (ii) under any employee plan or
arrangement, (iii) upon the exercise, conversion or exchange of securities notes
or debentures issued by the Company or (iv) a contractual obligation of the
Company in each case existing prior to the Distribution Date, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale.
23. Redemption.
(a) The Board of Directors of the Company may, at any time prior to
such time as any Person first becomes an Acquiring Person, redeem all but not
less than all the then outstanding Rights at a redemption price of $.01 per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring in respect of the Common Stock after the date
hereof (the redemption price being hereinafter referred to as the "Redemption
Price"). The redemption of the Rights may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish. The Redemption Price shall be payable, at the option
of the Company, in cash, shares of Common Stock, or such other form or
consideration as the Board of Directors determines.
(b) Immediately upon the action of the Board of Directors ordering
the redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors may establish for the effectiveness of
such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within ten days after such action of the Board of Directors
ordering the redemption of the Rights (or such later time as the Board of
Directors may establish for the effectiveness of such redemption), the Company
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption shall state the method by which the
payment of the Redemption Price will be made.
-27-
24. Exchange.
(a) The Board of Directors of the Company may, at its option, at any
time after any Person first becomes an Acquiring Person, exchange all or part of
the then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 11(a)(ii)) for shares of
Common Stock at an exchange ratio of one share of Common Stock per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring in respect of the Common Stock after the date hereof (such
exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after (1) an Acquiring Person has become the
Beneficial Owner of shares of Common Stock aggregating 50% or more of the shares
of Common Stock then outstanding or (2) the occurrence of an event specified in
Section 13(a). The exchange of the Rights by the Board of Directors may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to Section
24(a) and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of shares of Common Stock equal
to the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company shall promptly mail a
notice of any such exchange to all of the holders of the Rights so exchanged at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the shares of Common Stock for Rights
will be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 11(a)(ii)) held by each holder of Rights.
(c) If there are insufficient shares of Common Stock issued but not
outstanding or authorized but unissued to permit an exchange of Rights as
contemplated in accordance with this Section 24, the Company shall substitute,
to the extent of such insufficiency, for each share of Common Stock that would
otherwise be issuable upon exchange of a Right, a number of shares of Preferred
Stock or fractions thereof (or equivalent preferred shares as such term is
defined in Section 11(b)) having an aggregate current per share market price
(determined pursuant to Section 11(d)) equal to the current per share market
price of one share of Common Stock (determined pursuant to Section 11(d)) as of
the date of issuance of such shares of Preferred Stock or fractions thereof (or
equivalent preferred shares).
25. Notice of Certain Events.
(a) If the Company at any time after the earlier of the Distribution
Date or the Stock Acquisition Date proposes to (i) pay any dividend payable in
stock of any class to the
-28-
holders of its Preferred Stock or to make any other distribution to the holders
of its Preferred Stock (other than a regular quarterly cash dividend), (ii)
offer to the holders of its Preferred Stock rights or warrants to subscribe for
or to purchase any additional shares of Preferred Stock or shares of stock of
any class or any other securities, rights or options, (iii) effect any
reclassification of its Preferred Stock (other than a reclassification involving
only the subdivision or combination of outstanding Preferred Stock), (iv) effect
the liquidation, dissolution or winding up of the Company, or (v) pay any
dividend on the Common Stock payable in Common Stock or to effect a subdivision,
combination or consolidation of the Common Stock (by reclassification or
otherwise than by payment of dividends in Common Stock), then, in each such
case, the Company shall give to each holder of a Right Certificate, in
accordance with Section 26, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, or distribution
of rights or warrants, or the date on which such liquidation, dissolution or
winding up is to take place and the date of participation therein by the holders
of the Common Stock and/or Preferred Stock, if any such date is to be fixed, and
such notice shall be so given in the case of any action covered by clause (i) or
(ii) above at least ten days prior to the record date for determining holders of
the Preferred Stock for purposes of such action, and in the case of any such
other action, at least ten days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of the Common Stock
and/or Preferred Stock, whichever is earlier.
(b) If any event described in Section 11(a)(ii) or Section 13
occurs, then the Company shall, as soon as practicable thereafter, give to each
holder of a Right Certificate (or if occurring prior to the Distribution Date,
the holders of the Common Stock) in accordance with Section 26, a notice of the
occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) and
Section 13.
26. Notices. Notices or demands authorized by this Agreement to be given
or made by the Rights Agent or by the holder of any Right Certificate to or on
the Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Rights Agent) as follows:
ZLand.com, Inc.
27081 Aliso Creek Road
Aliso Viejo, CA 92656
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attention: Corporate Trust Department
-29-
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
27. Supplements and Amendments. Except as provided in the penultimate
sentence of this Section 27, for so long as the Rights are then redeemable, the
Company may in its sole and absolute discretion, and the Rights Agent shall if
the Company so directs, supplement or amend any provision of this Agreement in
any respect without the approval of any holders of the Rights. At any time when
the Rights are no longer redeemable, except as provided in the penultimate
sentence of this Section 27, the Company may, and the Rights Agent shall, if the
Company so directs, supplement or amend this Agreement without the approval of
any holders of Rights Certificates in order to (i) cure any ambiguity, (ii)
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) shorten or lengthen any
time period hereunder, or (iv) change or supplement the provisions hereunder in
any manner which the Company may deem necessary or desirable; provided that no
such supplement or amendment may (a) adversely affect the interests of the
holders of Rights as such (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person), (b) cause the rights again to become
redeemable or (c) cause the Agreement again to become amendable other than in
accordance with this sentence. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment shall be made which
changes the Redemption Price. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the supplement or amendment
is in compliance with the terms of this Section 27, the Rights Agent shall
execute such supplement or amendment; provided that any supplement or amendment
that does not amend Sections 18, 19, 20 or 21 hereof in a manner adverse to the
Rights Agent shall become effective immediately upon execution by the Company,
whether or not also executed by the Rights Agent.
28. Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Stock) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Stock).
30. Severability. If any term, provision, covenant or restriction of
this Agreement or applicable to this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
31. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all
-30-
purposes shall be governed by and construed in accordance with the laws of such
State applicable to contracts to be made and performed entirely within such
State.
32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
33. Descriptive Headings. Descriptive headings of the several Sections
of this Agreement are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
34. Determinations and Actions by the Board of Directors. The Board of
Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise the rights and powers specifically
granted to the Board of Directors of the Company or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including, without limitation, a determination
to redeem or not redeem the Rights or to amend or not amend this Agreement). All
such actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) that
are done or made by the Board of Directors of the Company in good faith, shall
(x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights, as such, and all other parties, and (y) not subject the
Board of Directors to any liability to the holders of the Rights.
-31-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
Attest: ZLAND.COM, INC.
By: By:
----------------------------- ------------------------------
Name: Name:
--------------------------- ----------------------------
Title: Title:
-------------------------- ---------------------------
Attest: AMERICAN STOCK TRANSFER & TRUST COMPANY
By: By:
----------------------------- ------------------------------
Name: Name:
--------------------------- ----------------------------
Title: Title:
-------------------------- ---------------------------
-32-
Exhibit A
Form of Right Certificate
Certificate No. R- ____ ___ Rights
NOT EXERCISABLE AFTER ______________, 2010 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED
TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED
IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL
BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
RIGHT CERTIFICATE
ZLand.com, Inc.
This certifies that ___________ or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of ____________, 2000, as the same may be amended from time
to time (the "Rights Agreement"), between ZLand.com, Inc., a Delaware
corporation (the "Company"), and American Stock Transfer & Trust Company, as
Rights Agent (the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., New York City time, on _______________, 2010, at the
office or agency of the Rights Agent designated for such purpose, or of its
successor as Rights Agent, one one-thousandth (1/1000) of a fully paid
non-assessable share of Series A Junior Participating Preferred Stock, par value
$.01 per share (the "Preferred Stock"), of the Company, at a purchase price of
$200 per one one-thousandth (1/1000) of a share of Preferred Stock (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly executed. The number of Rights
evidenced by this Rights Certificate (and the number of one one-thousandths
(1/1000) of a share of Preferred Stock which may be purchased upon exercise
hereof) set forth above, and the Purchase Price set forth above, are the number
and Purchase Price as of _____________, 2000, based on the Preferred Stock as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price, the number of one one-thousandths (1/1000) of a share of Preferred Stock
(or other securities or property) which may be purchased upon the exercise of
the Rights and the number of Rights evidenced by this Right Certificate are
subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned office or agency of the Rights Agent. The
Company will mail to the holder of this Right Certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Right Certificates surrendered entitled such holder to
purchase. If this Right Certificate is exercised in part, the holder shall be
entitled to receive upon surrender hereof another Right Certificate or Right
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for shares of
Preferred Stock or shares of the Company's Common Stock, par value $.01 per
share.
No fractional shares of Preferred Stock or Common Stock will be issued
upon the exercise or exchange of any Right or Rights evidenced hereby (other
than fractions of Preferred Stock which are integral multiples of one
one-thousandth (1/1000) of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise or exchange hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate have been exercised or exchanged as provided in the Rights
Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
[Signature page follows.]
-2-
WITNESS the signature of the proper officers of the Company and its
corporate seal.
Dated as of ______________________.
Attest: ZLAND.COM, INC.
By: By:
-------------------------------- -------------------------------
Name:
-----------------------------
Title:
----------------------------
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Rights Agent
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
-3-
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfer unto __________________________________________________________________
(Please print name and address of transferee)
Rights represented by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
___________________ Attorney, to transfer said Rights on the books of the
within-named Company, with full power of substitution.
Dated: _____________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
(To be completed)
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, were not acquired by the undersigned
from, and are not being assigned to, an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
Signature
1
Form of Reverse Side of Right Certificate - continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate)
To ZLand.com, Inc.:
The undersigned hereby irrevocably elects to exercise
____________________________ Rights represented by this Right Certificate to
purchase the shares of Preferred Stock (or other securities or property)
issuable upon the exercise of such Rights and requests that certificates for
such shares of Preferred Stock (or such other securities) be issued in the name
of:
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
Dated: ____________________
Signature
(Signature must conform to holder specified on Right Certificate)
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
2
Form of Reverse Side of Right Certificate -- continued
(To be completed)
The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement)
Signature
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase,
as the case may be, must conform to the name as written upon the face of this
Right Certificate in every particular, without alteration or enlargement or any
change whatsoever.
If the certification set forth above in the Form of Assignment or the
Form of Election to Purchase, as the case may be, is not completed, such
Assignment or Election to Purchase will not be honored.
3
Exhibit B
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED
BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS
DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME
NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE
SHARES OF ZLAND.COM, INC.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
On February 14, 2000, the Board of Directors of ZLand.com, Inc. (the
"Company") declared a dividend of one preferred share purchase right (a "Right")
for each outstanding share of common stock, par value $.01 per share, of the
Company (the "Common Stock"). The dividend is payable upon the closing of the
Company's initial public offering of Common Stock (the "Record Date") to the
holders of record of the Company's Common Stock on that date. Each Right
entitles the registered holder to purchase from the Company one one-thousandth
(1/1000) of a share of Series A Junior Participating Preferred Stock, par value
$.01 per share (the "Preferred Stock"), of the Company at a price of $200 per
one one-thousandth (1/1000) of a share of Preferred Stock (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement dated as of ________________, 2000, as the same may
be amended from time to time (the "Rights Agreement"), between the Company and
American Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) ten days following a public
announcement that a person or group of affiliated or associated persons (with
certain exceptions, an "Acquiring Person") has acquired beneficial ownership of
15% or more of the outstanding shares of Common Stock or (ii) ten business days
(or such later date as may be determined by action of the Board of Directors
prior to such time as any person or group of affiliated persons becomes an
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of the
outstanding shares of Common Stock (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificate together with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Stock certificates issued
after the Record Date upon transfer or new issuances of Common Stock will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for shares of Common Stock
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights, will also constitute the transfer of the Rights associated
with the shares of Common Stock represented by such certificate. As soon as
1
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Stock as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on the day that is ten years after the Record Date (the "Final
Expiration Date"), unless the Final Expiration Date is advanced or extended or
unless the Rights are earlier redeemed or exchanged by the Company, in each case
as described below.
The Purchase Price payable, and the number of shares of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) upon a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights
or warrants to subscribe for or purchase Preferred Stock at a price, or
securities convertible into Preferred Stock with a conversion price, less than
the then-current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
The number of outstanding Rights is subject to adjustment in the event
of a stock dividend on the Common Stock payable in shares of Common Stock or
subdivisions, consolidations or combinations of the Common Stock occurring, in
any such case, prior to the Distribution Date.
Shares of Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Each share of Preferred Stock will be entitled, when, as and
if declared, to a minimum preferential quarterly dividend payment of the greater
of (a) $1.00 per share, and (b) an amount equal to 1,000 times the dividend
declared per share of Common Stock. In the event of liquidation, dissolution or
winding up of the Company, the holders of the Preferred Stock will be entitled
to a minimum preferential payment of the greater of (a) $1.00 per share (plus
any accrued but unpaid dividends) and (b) an amount equal to 1,000 times the
payment made per share of Common Stock. Each share of Preferred Stock will have
1,000 votes, voting together with the Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which outstanding shares of Common
Stock are converted or exchanged, each share of Preferred Stock will be entitled
to receive 1,000 times the amount received per share of Common Stock. These
rights are protected by customary anti-dilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the value of the one one-thousandth (1/1000) interest in a share
of Preferred Stock purchasable upon exercise of each Right should approximate
the value of one share of Common Stock.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, each holder of a Right, other than Rights beneficially owned
by the Acquiring Person (which will thereupon become void), will thereafter have
the right to receive upon exercise of a Right at the then current exercise price
of the Right, that number of shares of Common Stock having a market value of two
times the exercise price of the Right in lieu of Shares of Preferred Stock. If,
2
after a person or group has become an Acquiring Person, the Company is acquired
in a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, proper provision will be made so
that each holder of a Right (other than Rights beneficially owned by an
Acquiring Person which will have become void) will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the person with whom the Company
has engaged in the foregoing transaction (or its parent), which number of shares
at the time of such transaction will have a market value of two times the
exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by an Acquiring Person of 50% or more of the
outstanding shares of Common Stock or the occurrence of an event described in
the prior paragraph, the Board of Directors of the Company may exchange the
Rights (other than Rights owned by such Acquiring Person which will have become
void), in whole or in part, for shares of Common Stock or Preferred Stock (or a
series of the Company's preferred stock having equivalent rights, preferences
and privileges), at an exchange ratio of one share of Common Stock, or a
fractional share of Preferred Stock or Common Stock.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock or Common Stock
will be issued (other than fractions of Preferred Stock which are integral
multiples of one one-thousandth (1/1000) of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts) and in
lieu thereof, an adjustment in cash will be made based on the current market
price of the Preferred Stock or Common Stock.
At any time prior to the time an Acquiring Person becomes such, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price") payable, at the
option of the Company, in cash, shares of Common Stock or such other form of
consideration as the Board of Directors of the Company shall determine. The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
For so long as the Rights are then redeemable, the Company may, except
with respect to the Redemption Price, amend the Rights Agreement in any manner.
After the Rights are no longer redeemable, the Company may, except with respect
to the Redemption Price, amend the Rights Agreement in any manner that does not
adversely affect the interests of holders of the Rights.
Until a Right is exercised or exchanged, the holder thereof, as such,
will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.
3
A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, as the
same may be amended from time to time, which is hereby incorporated herein by
reference.
4
Exhibit C
Form of Certificate of Designation of Series A Junior Participating Preferred
Stock
Please refer to attachment.
1
EXHIBIT 10.1
SECOND AMENDED AND RESTATED
ZLAND, INC.
1997 STOCK PLAN
1. Purposes of the Plan; Legal Compliance. The purposes of this Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees,
Directors and Consultants and to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan. It is the intent of the Plan
that it conform in all respects with the requirements of Rule 16b-3 promulgated
by the Securities and Exchange Commission under the Exchange Act. To the extent
that any aspect of the Plan or its administration is at any time viewed as
inconsistent with the requirements of Rule 16b-3 or, in connection with
Incentive Stock Options, the Code, that aspect shall be deemed to be modified,
deleted or otherwise changed as necessary to ensure continued compliance with
Rule 16b-3 and the Code. Any Option shall contain any other terms that the
Administrator deems necessary to comply with Applicable Laws.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means ZLand, Inc., a Delaware corporation.
(h) "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services to such
entity.
(i) "Director" means a member of the Board of Directors of the
Company.
(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety (90)
days, unless reemployment upon expiration of such leave is guaranteed by statute
or contract. If reemployment upon expiration of a leave of absence approved by
the Company is not so guaranteed, on the 181st day of such leave any Incentive
Stock Option held by the Optionee shall cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option. Neither service as a Director nor payment of a director's fee by the
Company shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
-2-
(r) "Option Agreement" means a written or electronic agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(s) "Option Exchange Program" means a program whereby outstanding
Options are exchanged for Options with a lower exercise price.
(t) "Optioned Stock" means the Common Stock subject to an Option
or a Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means the Company's 1997 Stock Plan, as amended to
date.
(x) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(y) "Section 16(b)" means Section 16(b) of the Exchange Act.
(z) "Service Provider" means an Employee, Director or Consultant.
(aa) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(bb) "Stock Purchase Right" means a right to purchase Common Stock
pursuant to Section 11 below.
(cc) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(o) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares of Optioned Stock is
18,000,000 Shares. The Shares may be authorized but unissued, or reacquired
Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the Shares of Optioned Stock which were subject
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated). However, Shares that have actually been issued under
the Plan, upon exercise of either an Option or Stock Purchase Right, shall not
be returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted
-3-
Stock are repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Administrator. The Plan shall be administered by the Board or
a Committee appointed by the Board, which Committee shall be constituted to
comply with Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares of Optioned Stock to
be covered by each such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be
-4-
withheld. The Fair Market Value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is determined. All elections
by Optionees to have Shares withheld for this purpose shall be made in such form
and under such conditions as the Administrator may deem necessary or advisable;
and
(xi) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. All Options
that are not designated as Incentive Stock Options are intended to be
Nonstatutory Stock Options. Notwithstanding designation as Incentive Stock
Options, to the extent that the aggregate Fair Market Value of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by
the Optionee (including as a result of acceleration of exercisability under the
Plan) during any calendar year (under all plans of the Company and any Parent or
Subsidiary) exceeds the $100,000 rule of Code Section 422(d), such Options shall
be treated as Nonstatutory Stock Options. For purposes of this Section 5(b),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
-5-
8. Option Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
exercise price shall be no less than one hundred ten percent (110%) of the Fair
Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option:
(A) granted to a Service Provider who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than one hundred ten percent (110%) of the
Fair Market Value per Share on the date of grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than eighty-five percent (85%) of the Fair
Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price other than as required above pursuant to a
merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
-6-
9. Exercise of Option.
(a) Procedure for Exercise, Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Except in the case of Options granted to Officers,
Directors and Consultants, Options shall become exercisable at a rate of no less
than twenty percent (20%) per year over five (5) years from the date the Options
are granted. Unless the Administrator provides otherwise, vesting of Options
granted hereunder shall be tolled during any unpaid leave of absence. An Option
may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares thereafter available, both for purposes of the Plan and
for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement (of at
least thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan. Notwithstanding the foregoing, if the Company terminates its
relationship with the Optionee for "cause" or such relationship is terminated by
the Optionee in violation of any agreement by the Optionee to remain a Service
Provider, the Option shall terminate immediately upon termination of such
relationship, and the Option shall be deemed to have been forfeited by the
Service Provider. For purposes of the Plan, "cause" may include, without
limitation, any illegal or improper conduct that (1) injures or impairs the
reputation, goodwill or business of the Company, (2) involves the
misappropriation of funds of the Company, or the misuse of data, information or
documents acquired in connection with the Optionee's relationship with the
Company as a Service Provider or (3) violates any other directive or policy
-7-
promulgated by the Company. A termination for "cause" may also include any
resignation in anticipation of discharge for "cause" or resignation accepted by
the Company in lieu of a formal discharge for "cause."
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
(of at least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified time
in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (of at least six (6) months) to the extent that the
Option is vested on the date of death (but in no event later than the expiration
of the term of such Option as set forth in the Option Agreement) by the
Optionee's estate or by a person who acquires the right to exercise the Option
by bequest or inheritance. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, at the time of death, the Optionee is not vested
as to the entire Option, the Shares covered by the unvested portion of the
Option shall immediately revert to the Plan. If the Option is not so exercised
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) Repurchase Option. Unless the Administrator determines
otherwise, the Option Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the Optionee's
service with the Company for any reason (including death or disability). The
purchase price for Shares repurchased pursuant to the Option Agreement shall be
the Fair Market Value of the Shares as of the date of termination.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. Unless,
with respect to Nonstatutory Stock Options only, the Administrator determines
otherwise, the Option Agreements and Restricted Stock purchase agreements shall
provide that the Options and Stock Purchase Rights may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
-8-
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time within
which such person must accept such offer. If applicable, the terms of the offer
shall comply in all respects with Section 260.140.42 of Title 10 of the
California Code of Regulations. The offer shall be accepted by execution of a
Restricted Stock purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be, in the case of Shares held by an
Employee who has not received a satisfactory sign off on their ZLand 90 Day
Review, the Fair Market Value of the vested shares as of the date of termination
of employment. The purchase price may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at such rate as the Administrator may determine. Except with respect to Shares
purchased by Officers, Directors and Consultants, the repurchase option shall in
no case lapse at a rate of less than twenty percent (20%) per year over five (5)
years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a stockholder
and shall be a stockholder when his or her purchase is entered upon the records
of the Company or a duly authorized transfer agent of the Company. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the Stock Purchase Right is exercised, except as provided in Section
12 of the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the
-9-
Company. The conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a consolidation of the
Company with or the merger of the Company into another corporation (or other
business entity), or the sale of substantially all of the assets of the Company,
each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully exercisable for a period of fifteen (15) days from
the date of such notice, and the Option or Stock Purchase Right shall terminate
upon the expiration of such period. For the purposes of this paragraph, the
Option or Stock Purchase Right shall be considered assumed if, following the
merger or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or a Parent or Subsidiary of the successor corporation, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or a
Parent or Subsidiary of the successor corporation equal in fair
-10-
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.
13. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee to whom an Option or Stock
Purchase Right is so granted within a reasonable time after the date of such
grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Board shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise
of an Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-11-
18. Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the degree and manner
required under Applicable Laws.
19. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
-12-
EXHIBIT 10.2
SECOND AMENDED AND RESTATED ZLAND, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name] [Address]
[Address]
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price Per Share $
Total Number of Shares Granted
Total Exercise Price $
--------------------------
Type of Option: X Incentive Stock Option
---
Nonstatutory Stock Option
---
Term/Expiration Date:
--------------------------
Vesting Schedule: This Option shall be exercisable, in whole or in
part, according to the following vesting schedule:
25% of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and 1/48 of the Shares subject to
the Option shall vest each full month thereafter, subject to Optionee's
continuing to be a Service Provider on such dates.
Termination Period. This Option shall be exercisable for ninety days
after Optionee ceases to be a Service Provider. Upon Optionee's death or
disability, this Option may be exercised for one
-1-
year after Optionee ceases to be a Service Provider. In no event may Optionee
exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee (the "Optionee") named in the Notice of Stock Option Grant (the
"Notice of Grant") an option (the "Option") to purchase the number of Shares set
forth in the Notice of Grant, at the exercise price per Share set forth in the
Notice of Grant (the "Exercise Price"), and subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 14(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and this Option Agreement, the terms and conditions of the Plan shall
prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Grant
and with the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by
delivery of an exercise notice in the form attached as Exhibit A (the "Exercise
Notice") which shall state the election to exercise the Option, the number of
Shares with respect to which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company. The Exercise Notice shall be accompanied by payment of the
aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed
to be exercised upon receipt by the Company of such fully executed Exercise
Notice accompanied by the aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an
Option unless such issuance and such exercise complies with Applicable Laws.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
at the time this Option is exercised, the Optionee shall, if required by the
Company, concurrently with the exercise of all or any portion of this Option,
deliver to the Company his or her Investment Representation Statement in the
form attached hereto as Exhibit B.
4. Lockup Period. The Optionee hereby agrees that, if so requested by
the Company or any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Securities Act, the Optionee shall not sell
or otherwise transfer any Shares or other securities of the Company during the
180-day
-2-
period (or such other period as may be requested in writing by the Managing
Underwriter and agreed to in writing by the Company) (the "Market Standoff
Period") following the effective date of a registration statement of the Company
filed under the Securities Act. Such restriction shall apply only to the first
registration statement of the Company to become effective under the Securities
Act that includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal
cashless exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of the Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Tax Consequences. Set forth below is a brief summary of some of the
federal tax consequences of exercise of this Option and disposition of the
Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS
ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of NSO. There may be a regular federal income tax
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If the Optionee is an Employee or a former Employee,
the Company will be required to withhold from the Optionee's compensation or
collect
-3-
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares
are held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal income tax purposes. In
the case of an ISO, if Shares transferred pursuant to the Option are held for at
least one year after exercise and for at least two years after the Date of
Grant, any gain realized on disposition of the Shares will also be treated as
long-term capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within one year after exercise or two years after
the Date of Grant, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (1) the Fair Market
Value of the Shares on the date of exercise, or (2) the sale price of the
Shares. Any additional gain will be taxed as capital gain, short-term or
long-term depending on the period that the ISO Shares were held.
(d) Notice of Disqualifying Disposition of ISO Shares. If the
Option granted to the Optionee herein is an ISO, and if the Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (1) the date two years after the Date of Grant, or (2) the
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition. The Optionee agrees that the
Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee.
9. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
10. No Guarantee of Continued Service. THE OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). THE OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT,
THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT
AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE THE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
-4-
The Optionee acknowledges receipt of a copy of the Plan and represents
that he or she is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof. The
Optionee has reviewed the Plan and this Option in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option and
fully understands all provisions of the Option. The Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. The
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE ZLAND, INC.
---------------------------------- ----------------------------------
Signature
By:
-----------------------------
Its:
---------------------------------- -----------------------------
Print Name
Resident Address: Address:
[Address] 27081 Aliso Creek Road
[Address] Aliso Viejo, CA 92656
-5-
EXHIBIT A
1997 STOCK PLAN EXERCISE NOTICE
ZLand.com, Inc.
27081 Aliso Creek Road
Aliso Viejo, CA 92656
Attention: Legal Department
Exercise of Option. Effective as of today, _____________, _____, the
undersigned ("Optionee") hereby elects to exercise Optionee's option ("Option")
to purchase ___________ shares of the Common Stock (the "Shares") of ZLand.com,
Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and
the Stock Option Agreement dated ___________, ____ (the "Option Agreement").
1. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the issuance of the Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares shall be issued to
the Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
4. Repurchase Option on Termination of Employment. In the event of the
termination of Optionee's employment with the Company for any reason whatsoever
(a "Termination"), the Company shall have the option to repurchase any Shares
issued upon exercise of the Option for a period of ninety (90) days following
such termination of employment (the "Repurchase Option").
The price of the Shares to be purchased upon the exercise of
the Repurchase Option shall be the Fair Market Value of the Shares as of the
date of the Termination as determined by the Administrator in the exercise of
its sole discretion. The Company shall notify the Optionee of the price so
determined at the time it exercises its Repurchase Option. If the Optionee
disputes the price as set by the Administrator, it shall do so by delivery of
written notice to the Company within ten (10) days after being informed of the
price. Within thirty (30) days following receipt of such notice, the
Administrator shall designate an independent third party appraiser to determine
the Fair Market Value of the Shares, which determination shall be made as
promptly as practicable and shall be conclusive and binding upon the parties. If
the Administrator is not notified of any such dispute within such ten (10) day
period, the determination of the Administrator as to the purchase price shall
-6-
be final. Any time required to resolve a dispute shall be added to the ninety
(90) day period in which the Company may exercise its Repurchase Option.
5. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares
together with any other legends that may be required by the Company or by state
or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN
THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE, TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF REPURCHASE
HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE
EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF
REPURCHASE ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) Refusal to Transfer. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
7. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such
-7-
dispute at its next regular meeting. The resolution of such a dispute by the
Administrator shall be final and binding on all parties.
9. Governing Law: Severability. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of California.
10. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by: Accepted by:
OPTIONEE ZLAND.COM, INC.
------------------------------------ ------------------------------------
Signature
By:
-------------------------------
Its:
------------------------------------ -------------------------------
Print Name
Resident Address: Address:
27081 Aliso Creek Road
------------------------------------ Aliso Viejo, CA 92656
------------------------------------ ------------------------------------
Date Received
-8-
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
-----------------------------
COMPANY: ZLAND.COM, INC.
SECURITY: COMMON STOCK
AMOUNT:
-----------------------------
DATE:
-----------------------------
In connection with the purchase of the above-referenced securities (the
"Securities"), the undersigned Optionee makes the following representations to
the Company:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring the Securities for investment for Optionee's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a nonpublic offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of
-9-
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), ninety (90) days thereafter (or such longer period as any
market standoff agreement may require) the Securities exempt under Rule 701 may
be resold, subject to the satisfaction of certain of the conditions specified by
Rule 144, including: (1) the resale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Exchange Act); and, in the case of an
affiliate, (2) the availability of certain public information about the Company,
(3) the amount of Securities being sold during any three-month period not
exceeding the limitations specified in Rule 144(e), and (4) the timely filing of
a Form 144, if applicable.
If the Company does not qualify under Rule 701 at the time of grant of
the Option, then the Securities may be resold in certain limited circumstances
subject to the provisions of Rule 144, which requires the resale to occur not
less than one year after the later of the date the Securities were sold by the
Company or the date the Securities were sold by an affiliate of the Company,
within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a nonaffiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
Sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
Date:
-10-
EXHIBIT 10.3
SECOND AMENDED AND RESTATED ZLAND, INC.
1997 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Amended and
Restated ZLand, Inc. 1997 Stock Plan (the "Plan") shall have the same defined
meanings in this Notice of Grant.
Name of Employee (ADDRESS)
(ADDRESS)
You have been granted the right to purchase Common Stock of the
Company, subject to the Company's repurchase option and your continuing to be a
Service Provider (as described in the Plan and the attached Restricted Stock
Purchase Agreement), as follows:
Grant Number
Date of Grant
Exercise Price Per Share
Total Number of Shares Subject
to This Stock Purchase Right
Total Exercise Price
Expiration Date:
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the Plan and the Restricted Stock
Purchase Agreement attached hereto as Exhibit A-1, each of which is hereby
incorporated herein by reference. You further agree to execute the Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE ZLAND.COM, INC.
----------------------------------- -----------------------------------
Signature
By: Joan Nagelkirk
------------------------------
Its: Chief Financial Officer
----------------------------------- ------------------------------
Print Name
Notice of Grant of
Stock Purchase Right
EXHIBIT A-1
SECOND AMENDED AND RESTATED ZLAND, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
THIS AGREEMENT is made as of _______________, _____, at Aliso Viejo,
California, between ZLand.com, Inc., a Delaware corporation (the "Company"), and
_______________________ (the "Purchaser").
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser")
is a Service Provider of the Company, and the Purchaser's continued
participation is considered by the Company to be important for the Company's
continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser
stock purchase rights subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company of cash or a check at the time of execution of
this Agreement.
3. Option to Repurchase Shares. In the event of a Termination the
Company shall, upon the date of such Termination, have an exclusive, irrevocable
option (the "Repurchase Option") for a period of ninety (90) days from such date
to repurchase from the Purchaser, at a purchase price determined as hereinafter
set forth (the "Share Repurchase Price"), all or any portion of the Shares held
by the Purchaser as of such date. The Repurchase Option shall be exercised by
the Company by written notice to Purchaser or his executor and, at the Company's
option, (i) by delivery to the Purchaser or his executor, with such notice, of a
check in the amount of the Share Repurchase Price, or (ii) in the event the
Purchaser is indebted to the Company, by cancellation by the Company of an
amount of such indebtedness equal to the Share Repurchase Price for the Shares
being repurchased or, (iii) by a combination of (i) and (ii) so that the
combined payment and cancellation of indebtedness equals such Share Repurchase
Price. Upon delivery of such notice and payment of the Share Repurchase Price in
any of the ways described above, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and interests
therein or related thereto, and the Company shall have the right to transfer to
its own name the number of Shares being
Exhibit A-1 2
Restricted Stock Purchase Agreement
repurchased by the Company, without further action by the Purchaser.
The Share Repurchase Price shall be, in the case of Shares held by a
Purchase who is an Employee and who has not received a satisfactory sign off on
their ZLand 90 Day Review, the original price paid by the Purchaser, and in the
case of Shares held by any other Purchaser, the Fair Market Value of the Shares
as of the date of Termination as determined by the Administrator in the exercise
of its sole discretion. The Company shall notify the Purchaser of the price so
determined at the time it exercises its Repurchase Option. If a Purchaser who is
entitled to receive the Fair Market Value disputes the price as set by the
Administrator, he or she shall do so by delivery of written notice to the
Company within ten (10) days after being informed of the price. Within thirty
(30) days following receipt of such notice, the Administrator shall designate an
independent third party appraiser to determine the Fair Market Value of the
Shares, which determination shall be made as promptly as practicable and shall
be conclusive and binding upon the parties. All costs incurred in connection
with the hiring of such appraiser shall be borne equally by the parties. If the
Administrator is not notified of any such dispute within such ten (10) day
period, the determination of the Administrator as to the Post Release Share
Repurchase Price shall be final. Any time required to resolve a dispute shall be
added to the ninety (90) day period in which the Company may exercise its Post
Release Repurchase Option.
4. Termination of Repurchase Options. The Company's Repurchase Options
shall both terminate immediately as to all Shares upon the occurrence of the
first to occur of the following events:
(1) the acquisition of the Company by another entity by means
of the merger or consolidation of the Company with or into another
corporation in which the stockholders of the Company own less than 50%
of the voting securities of the surviving entity,
(2) the sale of all or substantially all of the assets of the
Company, or
(3) the date of the first sale of Common Stock of the Company
to the general public pursuant to an underwritten application or
registration filed with and declared effective by the Securities and
Exchange Commission under the Securities Act of 1933 (the "1933 Act")
or upon a "designated offshore securities market" as defined in Rule
902(b) of Regulation S.
5. Restriction on Transfer. Except for transfer of the Shares to the
Company or its assignees contemplated by this Agreement, none of the Shares or
any beneficial interest therein shall be transferred, encumbered or otherwise
disposed of in any way until the release of such Shares from the Company's
repurchase option in accordance with the provisions of this Agreement, other
than by will or the laws of descent and distribution.
Exhibit A-1 3
Restricted Stock Purchase Agreement
6. Legends.
(1) Purchaser understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of
the Shares, together with any other legends that may be required by the
Company or by applicable state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN
THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A REPURCHASE OPTION HELD
BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE
RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND REPURCHASE OPTION ARE BINDING ON TRANSFEREES
OF THESE SHARES.
(2) Stop-Transfer Notices. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company
may issue appropriate "stop transfer" instructions to its transfer
agent, if any, and that, if the Company transfers its own securities,
it may make appropriate notations to the same effect in its own
records.
(3) Refusal to Transfer. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise
transferred in violation of any of the provisions of this Agreement or
(ii) to treat as owner of such Shares or to accord the right to vote or
pay dividends to any purchaser or other transferee to whom such Shares
shall have been so transferred.
7. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
Exhibit A-1 4
Restricted Stock Purchase Agreement
8. Tax Consequences. The Purchaser has reviewed with the Purchaser's
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that may arise as a result of this investment or the transactions contemplated
by this Agreement. The Purchaser understands that Section 83 of the Internal
Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the
difference between the purchase price for the Shares and the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to buy back the Shares
pursuant to its repurchase option. The Purchaser understands that the Purchaser
may elect to be taxed at the time the Shares are purchased rather than when and
as the Company's repurchase option expires by filing an election under Section
83(b) of the Code with the I.R.S. within thirty (30) days from the date of
purchase. The form for making this election is attached as Exhibit A-5 to the
Agreement.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
9. General Provisions.
(1) This Agreement shall be governed by the laws of the State
of California. This Agreement, subject to the terms and conditions of
the Plan and the Notice of Grant, represents the entire agreement
between the parties with respect to the purchase of Common Stock by the
Purchaser. Subject to Section 14(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan
shall prevail. Unless otherwise defined herein, the terms defined in
the Plan shall have the same defined meanings in this Agreement.
(2) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when
delivered personally or deposited in the United States mail, First
Class with postage prepaid, and addressed to the parties at the
addresses of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party not sending the notice.
(3) The rights and benefits of the Company under this
Agreement shall be transferable to any one or more persons or entities,
and all covenants and agreements hereunder shall inure to the benefit
of, and be enforceable by, the Company's successors and assigns. The
rights and obligations of the Purchaser under this Agreement may only
be assigned with the prior written consent of the Company.
(4) Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a
waiver of any such provision or provisions, nor
Exhibit A-1 5
Restricted Stock Purchase Agreement
prevent that party from thereafter enforcing each and every other
provision of this Agreement. The rights granted both parties herein are
cumulative and shall not constitute a waiver of either party's right to
assert all other legal remedies available to it under the
circumstances.
(5) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the
purposes or intent of this Agreement.
(6) THE PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREUNDER DO NOT CONSTITUTE
AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH THE
PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE THE PURCHASER'S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By the Purchaser's signature below, the Purchaser represents that he or
she is familiar with the terms and provisions of the Plan, and hereby accepts
this Agreement subject to all of the terms and provisions thereof. The Purchaser
has reviewed the Plan and this Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of this Agreement. The Purchaser agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement. The
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
PURCHASER ZLAND.COM, INC.
------------------------------------- -------------------------------------
Signature
By: Joan Nagelkirk
-------------------------------------
Its: Chief Financial Officer
------------------------------------- -------------------------------------
Print Name
Residential Address: Address:
27081 Aliso Creek Road
Aliso Viejo, CA 92656
Exhibit A-1 6
Restricted Stock Purchase Agreement
EXHIBIT A-2
CONSENT OF SPOUSE
I, ________, spouse of ________, have read and approve the foregoing
Agreement. In consideration of the granting of the right to my spouse to
purchase shares of ZLand.com, Inc., as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact with respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _____________________________, ______
Exhibit A-2 7
Consent of Spouse
EXHIBIT A-3
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, to include in taxpayer's gross income for the
current taxable year the amount of any compensation taxable to taxpayer in
connection with his receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
2. The property with respect to which the election is made is described as
follows: _____ shares (the "Shares") of the Common Stock of ZLand, Inc.
(the "Company").
3. The date on which the property was transferred is:
____________________, ____.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, on
certain events. This right lapses with regard to a portion of the
Shares based on the continued performance of services by the taxpayer
over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms
will never lapse, of such property is:
6. The amount (if any) paid for such property is:
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
The undersigned spouse of taxpayer joins in this election.
Dated: ______________, ____ ______________________________
Spouse of Taxpayer
Exhibit A-3 8
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: ______________________________
COMPANY: ZLAND.COM, INC.
SECURITY: COMMON STOCK
AMOUNT: _____________________
DATE: _____________________
In connection with the purchase of the above-referenced securities (the
"Securities"), the undersigned Purchaser makes the following representations to
the Company:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Purchaser is
acquiring the Securities for investment for Purchaser's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Purchaser acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein. In this connection,
Purchaser understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Purchaser further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Purchaser further
acknowledges and understands that the Company is under no obligation to register
the Securities. Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.
(c) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a nonpublic offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the
Exhibit B 9
time of the grant of the Option to the Purchaser, the exercise will be exempt
from registration under the Securities Act. In the event the Company becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), ninety (90) days
thereafter (or such longer period as any market standoff agreement may require)
the Securities exempt under Rule 701 may be resold, subject to the satisfaction
of certain of the conditions specified by Rule 144, including: (1) the resale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Exchange Act); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three-month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.
If the Company does not qualify under Rule 701 at the time of grant of
the Option, then the Securities may be resold in certain limited circumstances
subject to the provisions of Rule 144, which requires the resale to occur not
less than one year after the later of the date the Securities were sold by the
Company or the date the Securities were sold by an affiliate of the Company,
within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a nonaffiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
Sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Purchaser further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Purchaser:
Date:______________________
Exhibit B 10
EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this 1st day
of December, 1999, by and between ZLand, Inc., a Delaware corporation
("Company"), and __________ ("Indemnitee").
RECITALS
A. The Indemnitee has been requested to serve as the _________________
of the Company and in such capacity render valuable services to the Company.
B. The Company has investigated whether additional protective measures
are warranted to adequately protect its directors and officers against various
legal risks and potential liabilities to which such individuals are subject due
to their position with the Company and has concluded that additional protective
measures are warranted.
C. In order to induce and encourage highly experienced and capable
persons such as the Indemnitee to continue to serve in important capacities, the
Board of Directors of the Company has determined, after due consideration, that
this Agreement is not only reasonable and prudent, but necessary to promote and
ensure the best interests of the Company and its stockholders.
D. The Company's execution of this Agreement has been approved by the
Board of Directors of the Company.
E. The Indemnitee has indicated to the Company that but for the
Company's agreement to enter into this Agreement, the Indemnitee would decline
to serve as the ______________________ of the Company.
NOW, THEREFORE, as an inducement to the Indemnitee to serve as the (Job
Title) of the Company, the Company and the Indemnitee does hereby agree as
follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings set forth below:
(1) "PROCEEDING" shall mean any threatened, pending or completed
action, suit or proceeding, whether brought in the name of the Company or
otherwise and whether of a civil, criminal, administrative or investigative
nature, by reason of the fact that Indemnitee is or was an officer and/or a
director of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another enterprise, whether or not he is
serving in such capacity at the time any liability or Expense is incurred for
which indemnification or advancement of Expenses (as defined in subparagraph (b)
below) is to be provided under this Agreement.
(2) "EXPENSES" means, all costs, charges and expenses incurred in
connection with a Proceeding, including, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, expenses of investigations, judicial or administrative proceedings or
appeals, and any expenses of establishing a right to indemnification pursuant to
this Agreement or otherwise, including reasonable compensation for time spent by
the Indemnitee in connection with the investigation, defense or appeal of a
Proceeding or action for indemnification for which he is not otherwise
compensated by the Company or any third party.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve as
________________ of the Company at the will of the Company for so long as the
Indemnitee is duly elected or appointed or until such time as the Indemnitee
tenders a resignation in writing or is terminated as an officer or director by
the Company. Nothing in this Agreement shall be construed to create any right in
the Indemnitee to continued service with the Company or any subsidiary or
affiliate of the Company.
3. INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company shall indemnify
the Indemnitee in accordance with the provisions of this Section 3 if the
Indemnitee is a party to or threatened to be made a party to or is otherwise
involved in any Proceeding (other than a Proceeding by or in the right of the
Company to procure a judgment in its favor), by reason of the fact that either
Indemnitee is or was an officer and/or a director of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, against all Expenses, damages, judgments, amounts paid in
settlement, fines, penalties and ERISA excise taxes actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of such
Proceeding, to the fullest extent permitted by Delaware law, whether or not the
Indemnitee was the successful party in any such Proceeding; provided that any
settlement shall be approved in writing by the Company.
4. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
The Company shall indemnify the Indemnitee in accordance with the provisions of
this Section 4 if the Indemnitee is a party to or threatened to be made a party
to or is otherwise involved in any Proceeding by or in the right of the Company
to procure a judgment in its favor by reason of the fact that the Indemnitee is
or was an officer and/or a director of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
enterprise, against all Expenses actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such Proceeding, to
the fullest extent permitted by Delaware law, whether or not the Indemnitee is
the successful party in any such Proceeding. The Company shall further indemnify
the Indemnitee for any damages, judgments, amounts paid in settlement, fines,
penalties and ERISA excise taxes actually and reasonably incurred by the
Indemnitee in any such Proceeding described in the immediately preceding
sentence, provided either (i) the Proceeding is settled with the approval of a
court of competent jurisdiction, or (ii) indemnification of such amounts is
otherwise ordered by a court of competent jurisdiction in connection with such
Proceeding.
2
5. CONCLUSIVE PRESUMPTION REGARDING STANDARD OF CONDUCT. The Indemnitee
shall be conclusively presumed to have met the relevant standards of conduct
required by Delaware law for indemnification pursuant to this Agreement, unless
a determination is made that the Indemnitee has not met such standards (i) by
the Board of Directors of the Company by a majority vote of a quorum thereof
consisting of directors who were not parties to such Proceeding, (ii) by the
stockholders of the Company by majority vote, or (iii) in a written opinion of
the Company's independent legal counsel. Further, the termination of any
Proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, rebut such presumption that
the Indemnitee met the relevant standards of conduct required for
indemnification pursuant to this Agreement.
6. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith to the fullest extent
permitted by Delaware law. For purposes of this paragraph, the Indemnitee will
be deemed to have been successful on the merits if the Proceeding is terminated
by settlement or is dismissed with prejudice.
7. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee in
connection with any Proceeding shall be paid promptly by the Company in advance
of the final disposition of the Proceeding at the written request of the
Indemnitee to the fullest extent permitted by Delaware law.
8. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, damages, judgments, amounts paid in settlement, fines,
penalties or ERISA excise taxes actually and reasonably incurred by the
Indemnitee in the investigation, defense, appeal or settlement of any Proceeding
but not, however, for the total amount thereof, the Company shall nevertheless
indemnify the Indemnitee for the portion of such Expenses, damages, judgments,
amounts paid in settlement, fines, penalties or ERISA excise taxes to which the
Indemnitee is entitled.
9. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO
INDEMNIFICATION.
(1) Promptly after receipt by the Indemnitee of notice of the
commencement of any Proceeding with respect to which the Indemnitee intends to
claim indemnification or advancement of Expenses pursuant to this Agreement, the
Indemnitee will notify the Company of the commencement thereof. The omission to
so notify the Company will not relieve the Company from any liability which it
may have to the Indemnitee under this Agreement or otherwise.
(2) If a claim for indemnification or advancement of Expenses under
this Agreement is not paid by or on behalf of the Company within 30 days of
receipt of written notice thereof, the Indemnitee may at any time thereafter
bring suit in any court of competent jurisdiction
3
against the Company to enforce the right to indemnification or advancement of
Expenses provided by this Agreement. It shall be a defense to any such action
(other than an action brought to enforce a claim for Expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Company) that the
Indemnitee has failed to meet the standard of conduct that makes it permissible
under Delaware law for the Company to indemnify the Indemnitee for the amount
claimed. The burden of proving by clear and convincing evidence that
indemnification or advancement of Expenses is not appropriate shall be on the
Company. The failure of the directors or stockholders of the Company or
independent legal counsel to have made a determination prior to the commencement
of such Proceeding that indemnification or advancement of Expenses are proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct shall not be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct.
(3) The Indemnitee's Expenses incurred in connection with any action
concerning the Indemnitee's right to indemnification or advancement of Expenses
in whole or in part pursuant to this Agreement shall also be indemnified in
accordance with the terms of this Agreement by the Company regardless of the
outcome of such action, unless a court of competent jurisdiction determines that
each of the material claims made by the Indemnitee in such action was not made
in good faith or was frivolous.
(4) With respect to any Proceeding for which indemnification is
requested by the Indemnitee, the Company will be entitled to participate therein
at its own expense and, except as otherwise provided below, to the extent that
it may wish, the Company may assume the defense thereof, with counsel
satisfactory to the Indemnitee. After notice from the Company to the Indemnitee
of its election to assume the defense of a Proceeding, the Company will not be
liable to the Indemnitee under this Agreement for any Expenses subsequently
incurred by the Indemnitee in connection with the defense thereof, other than
reasonable costs of investigation or as otherwise provided below. The Company
shall not settle any Proceeding in any manner which would impose any penalty or
limitation on the Indemnitee without the Indemnitee's prior written consent. The
Indemnitee shall have the right to employ counsel in any such Proceeding, but
the Expenses of such counsel incurred after notice from the Company of its
assumption of the defense thereof and the Indemnitee's approval of the Company's
counsel shall be at the expense of the Indemnitee, unless (i) the employment of
counsel by the Indemnitee has been authorized by the Company, (ii) the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of the defense of
a Proceeding, or (iii) the Company shall not in fact have employed counsel to
assume the defense of a Proceeding, in each of which cases the Expenses of the
Indemnitee's counsel shall be at the expense of the Company. Notwithstanding the
foregoing, the Company shall not be entitled to assume the defense of any
Proceeding brought by or on behalf of the Company or as to which the Indemnitee
has concluded that there may be a conflict of interest between the Company and
the Indemnitee.
10. RETROACTIVE EFFECT. Notwithstanding anything to the contrary
contained in this Agreement, the Company's obligation to indemnify the
Indemnitee and advance Expenses to the
4
Indemnitee shall be deemed to be in effect since the date that the Indemnitee
first commenced serving in any of the capacities covered by this Agreement.
11. LIMITATIONS ON INDEMNIFICATION. No payments pursuant to this
Agreement shall be made by the Company:
(1) to indemnify or advance Expenses to the Indemnitee with respect
to actions initiated or brought voluntarily by the Indemnitee and not by way of
defense, except with respect to actions brought to establish or enforce a right
to indemnification or advancement of Expenses under this Agreement or any other
statute or law or otherwise as required under Delaware law, but such
indemnification or advancement of Expenses may be provided by the Company in
specific cases if approved by the Board of Directors by a majority vote of a
quorum thereof consisting of directors who are not parties to such action;
(2) to indemnify the Indemnitee for any Expenses, damages,
judgments, amounts paid in settlement, fines, penalties or ERISA excise taxes
for which payment is actually made to the Indemnitee under a valid and
collectible insurance policy, except in respect of any excess beyond the amount
paid under such insurance;
(3) to indemnify the Indemnitee for any Expenses, damages,
judgments, amounts paid in settlement, fines, penalties or ERISA excise taxes
for which the Indemnitee has been or is in fact indemnified by the Company or
any other party otherwise than pursuant to this Agreement;
(4) to indemnify the Indemnitee for any Expenses, damages,
judgments, fines or penalties sustained in any Proceeding for an accounting of
profits made from the purchase or sale by the Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder or
similar provisions of any federal, state or local statutory law; or
(5) if a court of competent jurisdiction shall enter a final order,
decree or judgment to the effect that such indemnification or advancement of
Expenses hereunder is unlawful under the circumstances.
12. MAINTENANCE OF D&O INSURANCE.
(1) The Company hereby agrees to maintain in full force and effect,
at its sole cost and expense, directors' and officers' liability insurance ("D&O
Insurance") by an insurer, in an amount and with a deductible reasonably
acceptable to the Indemnitee, covering the period during which the Indemnitee is
serving in any one or more of the capacities covered by this Agreement and for
so long thereafter as the Indemnitee is subject to any possible claim or
threatened, pending or completed Proceeding by reason of the fact that the
Indemnitee is serving in any of the capacities covered by this Agreement.
5
(2) In all policies of D&O Insurance to be maintained pursuant to
Paragraph 12(a) above, the Indemnitee shall be named as insureds in such a
manner as to provide the Indemnitee with the greatest rights and benefits
available under such policy.
13. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification and
advancement of Expenses provided by this Agreement shall not be deemed to limit
or preclude any other rights to which the Indemnitee may be entitled under the
Company's Certificate of Incorporation, the Company's Bylaws, any agreement, any
vote of stockholders or disinterested directors of the Company, Delaware law, or
otherwise.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
shall inure to the benefit of (i) the Indemnitee and his heirs, devisees,
legatees, personal representatives, executors, administrators and assigns and
(ii) the Company and its successors and assigns, including any transferee of all
or substantially all of the Company's assets and any successor or assign of the
Company by merger or by operation of law.
15. SEVERABILITY. Each provision of this Agreement is a separate and
distinct agreement and independent of the other, so that if any provision hereof
shall be held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceable of the other
provisions hereof. To the extent required, any provision of this Agreement may
be modified by a court of competent jurisdiction to preserve its validity and to
provide the Indemnitee with the broadest possible indemnification and
advancement of Expenses permitted under Delaware law. If this Agreement or any
portion thereof is invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify Indemnitee as to
Expenses, damages, judgments, amounts paid in settlement, fines, penalties and
ERISA excise taxes with respect to any Proceeding to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any applicable provision of Delaware law or the law of any other
applicable jurisdiction.
16. HEADINGS. The headings used herein are for convenience only and
shall not be used in construing or interpreting any provision of the Agreement.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
18. AMENDMENTS AND WAIVERS. No amendment, waiver, modification,
termination or cancellation of this Agreement shall be effective unless in
writing and signed by the party against whom enforcement is sought. The
indemnification rights afforded to the Indemnitee hereby are contract rights and
may not be diminished, eliminated or otherwise affected by amendments to the
Company's Certificate of Incorporation, Bylaws or agreements, including any
directors' and officers' liability insurance policies, whether the alleged
actions or conduct giving rise to indemnification hereunder arose before or
after any such amendment. No waiver of any provision of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof, whether or
not similar, nor shall any waiver constitute a continuing waiver.
6
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other.
20. NOTICES. All notices and communications shall be in writing and
shall be deemed duly given on the date of delivery if personally delivered or
the date of receipt of refusal indicated on the return receipt if sent by first
class mail, postage prepaid, registered or certified, return receipt requested,
to the following addresses, unless notice of a change of address is duly given
by one party to the other, in which case notices shall be sent to such changed
address:
If to the Company:
ZLand, Inc.
27081 Aliso Creek Road
Aliso Viejo, California 92656
Attn: Chairman
If to Indemnitee:
21. SUBROGATION. In the event of any payment under this Agreement to or
on behalf of the Indemnitee, the Company shall be subrogated to the extent of
such payment to all of the rights of recovery of the Indemnitee against any
person, firm, corporation or other entity (other than the Company) and the
Indemnitee shall execute all papers requested by the Company and shall do any
and all things that may be necessary or desirable to secure such rights for the
Company, including the execution of such documents necessary or desirable to
enable the Company to effectively bring suit to enforce such rights.
22. SUBJECT MATTER AND PARTIES. The intended purpose of this Agreement
is to provide for indemnification and advancement of Expenses, and this
Agreement is not intended to affect any other aspect of any relationship between
or among the Indemnitee and the Company and is not intended to and shall not
create any rights in any person as a third party beneficiary hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Indemnitee"
7
"Company" ZLand, Inc., a Delaware corporation
By:
------------------------------------
John W. Veenstra, Chairman and CEO
8
EXHIBIT 10.5
DEFERRED COMPENSATION AGREEMENT
This is a Deferred Compensation Agreement effective December 27, 1999, by
ZLAND INC., a Delaware Corporation, (hereinafter "the Company" or "ZLAND") and
JOHN VEENSTRA (hereinafter "the Employee" or "VEENSTRA"). The Company and
VEENSTRA are sometimes referred to as the Parties.
WITNESSETH:
WHEREAS the Employee is a valued employee of the Company, and
WHEREAS the Parties wish to create a Deferred Compensation Agreement,
NOW, THEREFORE, in consideration of the following mutual agreements, the Parties
agree as follows:
1. In consideration of services to be rendered to the Company by
Employee and subject to the terms and conditions of this Agreement, the Company
shall pay to Employee $120,000 as deferred compensation for calendar year 2000.
Such deferred compensation shall be attributable to the months of July, 2000
through December, 2000 at the rate of $20,000 per month.
2. The Company has established a Trust to receive, hold, administer
and distribute the deferred compensation of Employee, the JOHN VEENSTRA 1999
TRUST dated March 17, 1999 (hereinafter called the "Trust"), and the Company
shall contribute to the Trust the deferred compensation funds that shall be held
by the Trustee, subject to the claims of Company's creditors in the event of
Company's Insolvency, as defined in the Trust, until paid to the Employee in
such manner and at such times as specified in the Trust.
a. It is the intention of the Parties that the Trust shall
constitute an unfunded arrangement in accordance with Rev. Proc. 92-64 and shall
not affect the status of this Agreement as an unfunded plan maintained for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees for purposes of Title I of the Employee Retirement
Income Security Act of 1974.
b. The parties acknowledge that the Trust is currently
revocable by the Company; it shall become irrevocable upon a Change of Status,
as defined in the Trust; the Trust is intended to be a grantor trust, of which
the Company is the Grantor or
Trustor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
3. The Company shall transfer to the Trust the funds required to
satisfy the Company's obligation to pay the deferred compensation to the
Employee as provided below. After the assets have been transferred to the
Trustee, title to such funds shall be fully vested in the Trustee. The Employee
and his designated beneficiary shall not have any proprietary interest
whatsoever in any specific assets of the Company or the Trust. Any such funds so
transferred may be kept in cash or invested and reinvested in mutual funds,
stocks, bonds, securities or any other assets as may be selected by the Trustee
in its discretion. In the exercise of the foregoing discretionary investment
powers, the Trustee may engage investment counsel and, if it so desires, may
delegate to such counsel full or limited authority to select the assets in which
the funds are to be invested.
a. From the date such funds are transferred, the Employee
agrees on behalf of himself and his designated beneficiary to assume all risk in
connection with any decrease in value of the funds which are invested or which
continue to be invested in accordance with the provisions of this Agreement.
b. Upon a Change of Status, as defined in the Trust to include
a change of ownership of the Company, a change of Trustee, or if Employee is no
longer an employee of the Company, the Trust shall become irrevocable; if the
Company has not transferred the funds to the Trust, the Company shall, as soon
as possible, but in no event longer than 10 days following the Change of Status,
make an irrevocable contribution to the Trust in an amount that is sufficient to
pay the Employee the benefits to which the Employee would have been entitled
pursuant to the terms of this Agreement as if the deferred compensation amount
had been contributed on the regular dates of payment following the effective
date of this Agreement, and earned interest at the prime rate published by the
Bank of America from time to time.
4. The deferred compensation to be paid to Employee from the Trust
pursuant to this Agreement shall be paid over five years, commencing June 30,
2002, and otherwise comply with terms of the Trust Payment Schedule. If there is
a Change of Status, the Trust shall commence the payment of the income of the
Trust currently, not less frequently than annually.
5. If the Employee's employment is terminated for any reason,
including death, disability, voluntary termination, involuntary termination, or
retirement, the Trust shall become irrevocable and the payments provided for in
this Agreement shall be made to the Employee, his estate, his designated
beneficiary or to the estate of such designated beneficiary in accordance with
the Trust Payment Schedule.
6. The right of the Employee or any other person to the payment of
deferred
compensation or other benefits under this Agreement shall not be assigned,
transferred, pledged or encumbered except by will or by the laws of descent and
distribution.
7. Nothing contained herein shall be construed as conferring upon the
Employee the right to continue in the employ of the Company as an executive or
in any other capacity.
8. Any deferred compensation payable under this Agreement shall not
be deemed salary or other compensation to the Employee in 2000 for the purpose
of computing benefits to which he may be entitled under any pension plan or
other arrangement of the Company for the benefit of its employees.
9. The Trustee of the Trust shall have full power and authority to
interpret, construe, and administer this Agreement and the Trustee's reasonable
interpretations and construction thereof, and actions thereunder, including any
valuation of the deferred compensation account, or the amount or identity of the
recipient of the payment to be made therefrom, shall be binding and conclusive
on all persons for all purposes. No member of the Company shall be liable to any
person for any action taken or omitted in connection with the interpretation and
administration of this Agreement unless attributable to his/her own willful
misconduct or lack of good faith.
10. This Agreement shall be binding upon and inure to the benefit of
the Company, its successors and assigns, and the Employee and his heirs,
executors, administrators, and legal representatives. This Agreement shall be
construed in accordance with and governed by the law of the State of California.
In WITNESS WHEREOF, the Corporation has caused this Agreement to
be executed by its duly authorized officers and Employee has executed this
Agreement as of the date first above written.
ZLAND CORPORATION,
a Delaware Corporation Attest:
By: /s/ GLENN E. ABOOD /s/ GREGG AMBER
-------------------------------- -------------------------------------
GLENN E. ABOOD, President Gregg Amber, Secretary
/s/ JOHN W. VEENSTRA
-----------------------------------
John W. Veenstra, Employee
EXHIBIT 10.6
***************************************
Lease
PACIFIC CORPORATE PLAZA
27081 ALISO CREEK ROAD
***************************************
Between
ZLAND,INC.
(Tenant)
and
CARRAMERICA REALTY CORPORATION
(Landlord)
LEASE
THIS LEASE (the "Lease") is made as of February 26, 1999 between
CARRAMERICA REALTY CORPORATION, a Maryland corporation (the "Landlord") and the
Tenant as named in the Schedule below. The term "Project" means the buildings)
(collectively, the "Building") known as "Pacific Corporate Plaza" and the land
(the "Land") located at Aliso-Creek Road, Aliso Viejo, California. "Premises"
means that part of the Project leased to Tenant described in the Schedule and
outlined on Appendix A.
The following schedule (the "Schedule") is an integral part of this
Lease. Terms defined in this Schedule shall have the same meaning throughout the
Lease.
SCHEDULE
1. TENANT: Zland, Inc., a California corporation
2. PREMISES: The Phase A Premises, Phase B Premises and Phase C
Premises located in "Building 3" of the Project at 27081 Aliso
Creek Road.
PHASE A PREMISES: Approximately 19,693 gross rentable square
feet located on the second floor of "Building 3" of the Project.
PHASE B PREMISES: Approximately 10,185 gross rentable square
feet located on the first floor of "Building 3" of the Project
and depicted on Appendix A attached hereto.
PHASE C PREMISES: Approximately 10,185 gross rentable square
feet located on the first floor of "Building 3" of the Project
and depicted on Appendix A attached hereto.
3. RENTABLE SQUARE FEET OF THE PREMISES: Approximately 40,063 gross
rentable square feet ("Rentable Area") for the entire Premises.
4. TENANT'S PROPORTIONATE SHARE: From the Commencement Date to the
day immediately preceding the Phase B Commencement Date, 49% of
the Building and 16% of the Project. From the Phase B
Commencement Date to the day immediately preceding the Phase C
Commencement Date, 75% of the Building and 24% of the Project.
From after the Phase C Commencement Date, 100% of the Building
and 32% of the Project (based upon a total of 40,063 gross
rentable square feet in the Building, 126,800 gross rentable
square feet in the Project, 19,693 gross rentable square feet in
the Phase A Premises, 10,185 gross rentable square feet in the
Phase B Premises and 10,185 Gross rentable square feet in the
Phase C Premises).
5. SECURITY DEPOSIT: $149,666 upon the execution and delivery of
this Lease, with such amount adjusted as provided in Section 20.
6. TENANT'S REAL ESTATE BROKER FOR THIS LEASE: Lee & Associates
7. LANDLORD'S REAL ESTATE BROKER FOR THIS LEASE: Lee & Associates
8. TENANT IMPROVEMENTS, IF ANY: See the Tenant Improvement
Agreement attached hereto as Appendix C
9. COMMENCEMENT DATE: For each Phase of the Premises, the later of
the Estimated Commencement Date for such Phase or the Completion
Date (as defined in Appendix C for such Phase (and until the
Commencement Date occurs for each Phase of the Premises, such
Phase shall not constitute a portion of the "Premises" for
the purposes
of this Lease). Landlord and Tenant shall execute a Commencement
Date Confirmation substantially in the form of Appendix E
promptly following the Commencement Date for each Phase. The
Commencement Date for this Lease shall be the Commencement Date
for the Phase A Premises.
10. TERMINATION DATE/TERM: Five (5) years after the Commencement
Date for the Phase C Premises, or if the Commencement Date for
the Phase C Premises is not the first day of a month, then after
the first day of the following month.
11. BASE RENT:
Period Annual Base Rent Monthly Base Rent
---------------------------- ---------------- -----------------
Lease Year 1; before Phase B
Commencement Date $319,026.60 $ 26,585.55
Lease Year 1; after Phase B
Commencement Date and before
Phase C Commencement Date $484,023.60 $ 40,335.30
Lease Year 1; after Phase C
Commencement Date $649,004.40 $ 54,083.70
Lease Year 2 $674,964.58 $ 56,247.05
Lease Year 3 $701,963.16 $ 58,496.93
Lease Year 4 $730,041.69 $ 60,836.81
Lease Year 5 $759,243.36 $ 63,270.28
Remaining Initial Term after
Lease Year 5 $789,613.09 $ 65,801.09
12. SOLE PERMITTED USE: General office purposes; however, in no
event in violation of any Governmental Requirements (as
hereinafter defined) or any provision of the Rules and
Regulations attached as Appendix B hereto.
13. ESTIMATED COMMENCEMENT DATE: For the Phase A Premises, June 1,
1999; for the Phase B Premises, September 1, 1999; and for the
Phase C Premises, December 1, 1999.
2
Lease
Page
----
1 LEASE AGREEMENT................................................................ 3
2. RENT........................................................................... 3
A. Types of Rent........................................................... 3
(1) Base Rent........................................................ 3
(2) Operating Cost Share Rent........................................ 3
(3) Tax Share Rent................................................... 3
(4) [Intentionally Omitted.]......................................... 3
(5) Additional Rent.................................................. 3
(6) Rent............................................................. 4
B. Payment of Operating Cost Share Rent and Tax Share Rent................. 4
(1) Payment of Estimated Operating Cost Share Rent
and Tax Share Rent............................................... 4
(2) Correction of Operating Cost Share Rent.......................... 4
(3) Correction of Tax Share Rent..................................... 5
C. Definitions............................................................. 5
(1) Included Operating Costs......................................... 5
(2) Excluded Operating Costs......................................... 6
(3) Taxes............................................................ 6
(4) Lease Year....................................................... 7
(5) Fiscal Year...................................................... 7
D. Computation of Base Rent and Rent Adjustments........................... 7
(1) Prorations........................................................ 7
(2) Default Interest.................................................. 7
(3) Rent Adjustments.................................................. 8
(4) Books and Records................................................. 8
(5) Miscellaneous..................................................... 8
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND
SURRENDER OF PREMISES.......................................................... 8
A. Condition of Premises................................................... 8
B. Tenant's Possession..................................................... 9
C. Maintenance............................................................. 9
4. PROJECT SERVICES............................................................... 9
A. Heating and Air Conditioning............................................ 9
B. Elevators............................................................... 9
C. Electricity............................................................. 9
D. Water................................................................... 10
E. Janitorial Service ..................................................... 10
F. Interruption of Services................................................ 10
i
Page
----
12. TENANT'S DEFAULT ................................................................ 19
A. Rent Default ............................................................ 19
B. Assignment/Sublease or Hazardous Substances Default...................... 19
C. Other Performance Default................................................ 19
D. Credit Default........................................................... 20
E. Vacation or Abandonment Default.......................................... 20
13. LANDLORD REMEDIES................................................................ 20
A. Termination of Lease or Possession ...................................... 20
B. Lease Termination Damages................................................ 20
C. Continuation of Lease.................................................... 21
D. Possession Termination Damages........................................... 21
E. Landlord's Remedies Cumulative........................................... 21
F. WAIVER OF TRIAL BY JURY.................................................. 22
G. Litigation Costs......................................................... 22
H. Additional Phases........................................................ 22
14. SURRENDER........................................................................ 23
15. HOLDOVER......................................................................... 23
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES..................................... 23
A. Subordination........................................................... 23
B. Termination of Ground Lease or Foreclosure of Mortgage.................. 23
C. Security Deposit........................................................ 23
D. Notice and Right to Cure................................................ 24
E. Definitions............................................................. 24
17. ASSIGNMENT AND SUBLEASE ......................................................... 24
A. In General ............................................................. 24
B. Landlord's Consent ..................................................... 24
C. Procedure .............................................................. 25
D. Change of Management or Ownership ...................................... 25
E. Excess Payments ........................................................ 25
F. Recapture .............................................................. 25
18. CONVEYANCE BY LANDLORD .......................................................... 26
19. ESTOPPEL CERTIFICATE ............................................................ 26
20. SECURITY DEPOSIT ................................................................ 26
iii
Page
----
21. FORCE MAJEURE.................................................................... 29
22. TENANT'S PERSONAL PROPERTY AND FIXTURES.......................................... 29
23 NOTICES.......................................................................... 29
A. Landlord................................................................ 29
B. Tenant.................................................................. 30
24. QUIET POSSESSION................................................................. 30
25. REAL ESTATE BROKER............................................................... 30
26. MISCELLANEOUS.................................................................... 30
A. Successors and Assigns.................................................. 30
B. Date Payments Are Due................................................... 30
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate" .......... 30
D. Time of the Essence.................................................... 31
E. No Option............................................................... 31
F. Severability............................................................ 31
G. Governing Law........................................................... 31
H. Lease Modification...................................................... 31
I. No Oral Modification.................................................... 31
J. Landlord's Right to Cure................................................ 31
K. Captions................................................................ 31
L. Authority............................................................... 31
M. Landlord's Enforcement of Remedies...................................... 31
N. Entire Agreement........................................................ 31
0. Landlord's Title........................................................ 32
P. Light and Air Rights.................................................... 32
Q. Singular and Plural..................................................... 32
R. No Recording by Tenant.................................................. 32
S. Exclusivity............................................................. 32
T. No Construction Against Drafting Party.................................. 32
U. Survival................................................................ 32
V. Rent Not Based on Income................................................ 32
W. Building Manager and Service Providers.................................. 32
X. Late Charge and Interest on Late Payments............................... 32
27. UNRELATED BUSINESS INCOME........................................................ 33
28. HAZARDOUS SUBSTANCES............................................................. 33
29. EXCULPATION...................................................................... 35
iv
Page
----
30. SIGNAGE.......................................................................... 36
31. EXTENSION OPTION................................................................. 36
32. RIGHT OF FIRST REFUSAL........................................................... 38
APPENDIX A - PLAN OF THE PREMISES
APPENDIX B - RULES AND REGULATIONS
APPENDIX C - TENANT IMPROVEMENT AGREEMENT
APPENDIX D - MORTGAGES CURRENTLY AFFECTING THE PROJECT
APPENDIX E - COMMENCEMENT DATE CONFIRMATION
APPENDIX F - JANITORIAL SERVICES
v
1. LEASE AGREEMENT. On the terms stated in this Lease, Landlord leases
the Premises to Tenant, and Tenant leases the Premises from Landlord, for the
Term beginning on the Commencement Date and ending on the Termination Date
unless extended or sooner terminated pursuant to this Lease.
2. RENT.
A. Types of Rent. Tenant shall pay the following Rent in the form of a
check to Landlord at the following address:
CarrAmerica Realty Corporation
t/a Pacific Corporate Plaza
P.O. Box [To be provided by written notice from Landlord]
Atlanta, GA 30384-0566
or by wire transfer as follows:
NationsBank, N.A. (South)
ABA Number 061-000-052
Account Number [To be provided by written notice from Landlord]
or in such other manner as Landlord may notify Tenant:
(1) Base Rent in monthly installments, without deduction or
offset, in advance, the first monthly installment payable concurrently
with the execution of this Lease and thereafter on or before the first
day of each month of the Term in the amount set forth on the Schedule.
(2) Operating Cost Share Rent in an amount equal to the Tenant's
Proportionate Share of the Operating Costs for the applicable fiscal
year of the Lease, paid monthly in advance in an estimated amount.
Definitions of Operating Costs and Tenant's Proportionate Share, and the
method for billing and payment of Operating Cost Share Rent are set
forth in Sections 2B, 2C and 2D.
(3) Tax Share Rent in an amount equal to the Tenant's
Proportionate Share of the Taxes for the applicable fiscal year of this
Lease, paid monthly in advance in an estimated amount. A definition of
Taxes and the method for billing and payment of Tax Share Rent are set
forth in Sections 2B, 2C and 2D.
(4) [Intentionally Omitted.]
(5) Additional Rent in the amount of all costs, expenses,
liabilities, and amounts which Tenant is required to pay under this
Lease, excluding Base Rent,
3
Operating Cost Share Rent and Tax Share Rent, but including any interest for
late payment of any item of Rent.
(6) Rent as used in this Lease means Base Rent, Operating Cost Share
Rent, Tax Share Rent and Additional Rent. Tenant's agreement to pay Rent is an
independent covenant, with no right of setoff, deduction or counterclaim of any
kind. All Rent shall be paid absolutely net to Landlord.
B. Payment of Operating Cost Share Rent and Tax Share Rent.
(1) Payment of Estimated Operating Cost Share Rent and Tax Share Rent.
Landlord shall estimate the Operating Costs and Taxes of the Project by April 1
of each fiscal year, or as soon as reasonably possible thereafter. Landlord may
revise these estimates whenever it obtains more accurate information, such as
the final real estate tax assessment or tax rate for the Project.
Within ten (10) days after receiving the original or revised estimate
from Landlord setting forth an estimate of Operating Costs for a particular
fiscal year, Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's
Proportionate Share of the estimated Operating Costs, multiplied by the number
of months that have elapsed in the applicable fiscal year to the date of such
payment including the current month, minus payments previously made by Tenant
for the months elapsed. On the first day of each month thereafter, Tenant shall
pay Landlord one-twelfth (1/12th) of Tenant's Proportionate Share of this
estimate, until a new estimate becomes applicable.
Within ten (10) days after receiving the original or revised estimate
from Landlord setting forth an estimate of Taxes for a particular fiscal year,
Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's Proportionate Share
of the estimated Taxes, multiplied by the number of months that have elapsed in
the applicable fiscal year to the date of such payment including the current
month, minus payments previously made by Tenant for the months elapsed. On the
first day of each month thereafter, Tenant shall pay Landlord one-twelfth
(1/12th) of Tenant's Proportionate Share of this estimate, until a new estimate
becomes applicable.
(2) Correction of Operating Cost Share Rent. Landlord shall deliver to
Tenant a report for the previous fiscal year (the "Operating Cost Report") by
May 15 of each year, or as soon as reasonably possible thereafter, setting forth
(a) the actual Operating Costs incurred, (b) the amount of Operating Cost Share
Rent due from Tenant, and (c) the amount of Operating Cost Share Rent paid by
Tenant. Within twenty (20) days after such delivery, Tenant shall pay to
Landlord the amount due minus the amount paid. If the amount paid exceeds the
amount due, Landlord shall apply the excess to Tenant's payments of Operating
Cost Share Rent next coming due.
4
(3) Correction of Tax Share Rent. Landlord shall deliver to
Tenant a report for the previous fiscal year (the "Tax Report") by May
15 of each year, or as soon as reasonably possible thereafter, setting
forth (a) the actual Taxes, (b) the amount of Tax Share Rent due from
Tenant, and (c) the amount of Tax Share Rent paid by Tenant. Within
twenty (20) days after such delivery, Tenant shall pay to Landlord the
amount due from Tenant minus the amount paid by Tenant. If the amount
paid exceeds the amount due, Landlord shall apply any excess as a credit
against Tenant's payments of Tax Share Rent next coming due.
C. Definitions.
(1) Included Operating Costs. "Common Areas" means all areas and
facilities outside the Building and within the exterior boundary line of
the Project that are provided and designated by Landlord from time to
time for the general non-exclusive use of Landlord, Tenant and other
tenants of the Project and their respective employees, suppliers,
shippers, customers and invitees, including, without limitation, parking
areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative
walls. "Operating Costs" means any expenses, costs and disbursements of
any kind other than Taxes, paid or incurred by Landlord in connection
with the management, maintenance, operation, insurance, repair and other
related activities in connection with any part of the Project and of the
personal property, fixtures, machinery, equipment, systems and apparatus
used in connection therewith, including the cost of providing those
services required to be furnished by Landlord under this Lease.
Operating Costs shall also include the costs of any capital improvements
which are intended to reduce Operating Costs or improve safety, and
those made to keep the Project in compliance with governmental
requirements applicable from time to time (collectively, "Included
Capital Items"); provided, that the costs of any Included Capital Item
shall be amortized by Landlord, together with an amount equal to
interest at ten percent (10%) per annum, over the estimated useful life
of such item and such amortized costs are only included in Operating
Costs for that portion of the useful life of the Included Capital Item
which falls within the Term.
If the Project is not fully occupied during any portion of any
fiscal year, Landlord may adjust (an "Equitable Adjustment") Operating
Costs for the Common Areas to equal what would have been incurred by
Landlord had the Project been fully occupied. If the Building is not
fully occupied during any portion of any fiscal year, Landlord may make
an Equitable Adjustment to Operating Costs for the Building to what
would have been incurred by Landlord had the Building been fully
occupied. This Equitable Adjustment shall apply only to Operating Costs
which are variable and therefore increase as occupancy of the Project or
Building, as applicable, increases. Landlord may incorporate any such
Equitable Adjustment in its estimates of Operating Costs.
If Landlord does not furnish any particular service whose cost
would have constituted an Operating Cost to a tenant other than Tenant
who has undertaken to
5
perform such service itself, Operating Costs shall be increased by the amount
which Landlord would have incurred if it had furnished the service to such
tenant.
(2) Excluded Operating Costs. Operating Costs shall not include:
(a) costs of alterations of tenant premises;
(b) costs of capital improvements other than Included Capital Items;
(c) interest and principal payments on mortgages or any other debt
costs, or rental payments on any ground lease of the Project;
(d) real estate brokers' leasing commissions;
(e) legal fees, space planner fees and advertising expenses incurred
with regard to leasing the Building or portions thereof;
(f) any cost or expenditure for which Landlord is reimbursed, by
insurance proceeds or otherwise, except by Operating Cost Share
Rent;
(g) the cost of any service furnished to any office tenant of the
Project which Landlord does not make available to Tenant;
(h) depreciation (except on any Included Capital Items);
(i) franchise or income taxes imposed upon Landlord;
(j) costs of correcting defects in construction of the Building (as
opposed to the cost of normal repair, maintenance and
replacement expected with the construction materials and
equipment installed in the Building in light of their
specifications);
(k) legal and auditing fees which are for the benefit of Landlord
such as collecting delinquent rents, preparing tax returns and
other financial statements, and audits other than those incurred
in connection with the preparation of reports required pursuant
to Section 2B above;
(1) the wages of any employee for services not related directly to
the management, maintenance, operation and repair of the
Building; and
(m) fines, penalties and interest.
(3) Taxes. "Taxes" means any and all taxes, assessments and charges of
any kind, general or special, ordinary or extraordinary, levied against the
Project, which
6
Landlord shall pay or become obligated to pay in connection with the ownership,
leasing, renting, management, use, occupancy, control or operation of the
Project or of the personal property, fixtures, machinery, equipment, systems and
apparatus used in connection therewith. Taxes shall include real estate taxes,
personal property taxes, sewer rents, water rents, special or general
assessments, transit taxes, ad valorem taxes, and any tax levied on the rents
hereunder or the interest of Landlord under this Lease (the "Rent Tax"). Taxes
shall also include all fees and other costs and expenses paid by Landlord in
reviewing any tax and in seeking a refund or reduction of any Taxes, whether or
not the Landlord is ultimately successful.
For any year, the amount to be included in Taxes (a) from taxes or
assessments payable in installments, shall be the amount of the installments
(with, any interest) due and payable during such year, and (b) from all other
Taxes, shall at Landlord's election be the amount accrued, assessed, or
otherwise imposed for such year or the amount due and payable in such year. Any
refund or other adjustment to any Taxes by the taxing authority, shall apply
during the year in which the adjustment is made.
Taxes shall not include any net income (except Rent Tax), capital,
stock, succession, transfer, franchise, gift, estate or inheritance tax, except
to the extent that such tax shall be imposed in lieu of any portion of Taxes.
(4) Lease Year. "Lease Year" means each consecutive twelve-month period
beginning with the Commencement Date for the Phase A Premises, except that if
the Commencement Date for the Phase A Premises is not the first day of a
calendar month, then the first Lease Year shall be the period from the
Commencement Date for the Phase A Premises through the final day of the twelve
months after the first day of the following month, and each subsequent Lease
Year shall be the twelve months following the prior Lease Year.
(5) Fiscal Year. "Fiscal Year" means the calendar year, except that the
first fiscal year and the last fiscal year of the Term may be a partial calendar
year.
D. Computation of Base Rent and Rent Adjustments.
(1) Prorations. If this Lease begins on a day other than the first day
of a month, the Base Rent, Operating Cost Share Rent and Tax Share Rent shall be
prorated for such partial month based on the actual number of days in such
month. If this Lease begins on a day other than the first day, or ends on a day
other than the last day, of the fiscal year, Operating Cost Share Rent and Tax
Share Rent shall be prorated for the applicable fiscal year.
(2) Default Interest. Any sum due from Tenant to Landlord not paid when
due shall bear interest from the date due until paid at the lesser of eighteen
percent (18%) per annum or the maximum rate permitted by law.
7
(3) Rent Adjustments. The square footage of the Premises and the
Building set forth in the Schedule are conclusively deemed to be the
actual square footage thereof, without regard to any subsequent
remeasurement of the Premises or the Building. If any Operating Cost
paid in one fiscal year relates to more than one fiscal year, Landlord
may proportionately allocate such Operating Cost among the related
fiscal years.
(4) Books and Records. Landlord shall maintain books and records
reflecting the Operating Costs and Taxes in accordance with sound
accounting and management practices. Tenant and its certified public
accountant shall have the right to inspect Landlord's records at
Landlord's office upon at least seventy-two (72) hours' prior notice
during normal business hours during the ninety (90) days following the
respective delivery of the Operating Cost Report or the Tax Report. The
results of any such inspection shall be kept strictly confidential by
Tenant and its agents, and Tenant and its certified public accountant
must agree, in their contract for such services, to such confidentiality
restrictions and shall specifically agree that the results shall not be
made available to any other tenant of the Building. Unless Tenant sends
to Landlord any written exception to either such report within said
ninety (90) day period, such report shall be deemed final and accepted
by Tenant. Tenant shall pay the amount shown on both reports in the
manner prescribed in this Lease, whether or not Tenant takes any such
written exception, without any prejudice to such exception. If Tenant
makes a timely exception, Landlord shall cause its independent certified
public accountant to issue a final and conclusive resolution of Tenant's
exception. Tenant shall pay the cost of such certification unless
Landlord's original determination of annual Operating Costs or Taxes
overstated the amounts thereof by more than three percent (3%).
(5) Miscellaneous. So long as Tenant is in default of any
obligation under this Lease, Tenant shall not be entitled to any refund
of any amount from Landlord. If this Lease is terminated for any reason
prior to the annual determination of Operating Cost Share Rent or Tax
Share Rent, either party shall pay the full amount due to the other
within fifteen (15) days after Landlord's notice to Tenant of the amount
when it is determined. Landlord may commingle any payments made with
respect to Operating Cost Share Rent or Tax Share Rent, without payment
of interest.
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER OF PREMISES.
A. Condition of Premises. Except to the extent of the Tenant
Improvements item on the Schedule, Landlord is leasing the Premises to Tenant
absolutely "as is", without any obligation to alter, remodel, improve, repair or
decorate any part of the Premises. Landlord shall cause the Premises to be
completed in accordance with the Tenant Improvement Agreement attached as
Appendix C. Landlord expressly disclaims any warranty or representation, express
or implied, with respect to the Project or any portion thereof, including,
without limitation, any warranty or representation as to fitness, condition, the
existence of any defect, patent or latent, merchantability, quality or
durability; provided that Landlord shall assign to Tenant (or
8
otherwise enforce at Landlord's election in its sole discretion upon Tenant's
written request) any warranties received from any contractors and subcontractors
relating to the Initial Improvements (as defined in Appendix c) and/or the
Premises.
B. Tenant's Possession. Tenant's taking possession of any portion of the
Premises shall be conclusive evidence that the portion of the Premises as to
which Tenant so took possession was in good order, repair and condition. If
Landlord authorizes Tenant to take possession of any part of the Premises prior
to the Commencement Date for purposes of doing business, all terms of this Lease
shall apply to such pre-Term possession, including Base Rent at the rate set
forth for the First Lease Year in the Schedule prorated for any partial month.
C. Maintenance. Throughout the Term, Tenant shall maintain the Premises
in good order, repair and condition, loss or damage caused by the elements,
ordinary wear, and fire and other casualty excepted, and at the termination of
this Lease, or Tenant's right to possession, Tenant shall return the Premises to
Landlord in broom-clean, safe, neat and sanitary condition. To the extent Tenant
fails to perform either obligation, Landlord may, but need not, restore the
Premises to such condition and Tenant shall pay the cost thereof.
4. PROJECT SERVICES.
Landlord shall furnish services as follows:
A. Heating and Air Conditioning. During the normal business hours of
8:00 a.m. to 6:00 p.m., Monday through Friday (excluding holidays), and 8:00
a.m. to 12:00 noon on Saturday, Landlord shall furnish heating and air
conditioning to provide a comfortable temperature, in Landlord's judgment, for
normal business operations for buildings comparable to the Building, except to
the extent Tenant installs equipment which adversely affects the temperature
maintained by the air conditioning system. If Tenant installs such equipment,
Landlord may install supplementary air conditioning units in the Premises, and
Tenant shall pay to Landlord upon demand as Additional Rent the cost of
installation, operation and maintenance thereof.
Landlord shall furnish heating and air conditioning after business hours
if Tenant provides Landlord reasonable prior notice, and pays Landlord all then
current charges for such additional heating or air conditioning.
B. Elevators. Landlord shall provide passenger elevator service during
normal business hours to Tenant in common with Landlord and all other tenants.
Landlord shall provide limited passenger service at other times, except in case
of an emergency.
C. Electricity. Landlord shall provide sufficient electricity to operate
normal office lighting and equipment. Tenant shall not install or operate in
the Premises any electrically operated equipment or other machinery, other than
business machines and equipment normally employed for general office use which
do not require high electricity consumption for operation,
9
without obtaining the prior written consent of Landlord. If any or all of
Tenant's equipment requires electricity consumption in excess of that which is
necessary to operate normal office equipment, such consumption (including
consumption for computer or telephone rooms and special HVAC equipment) shall be
submetered by Landlord at Tenant's expense, and Tenant shall reimburse Landlord
as Additional Rent for the cost of its submetered consumption based upon
Landlord's average cost of electricity. Such additional rent shall be in
addition to Tenant's obligations pursuant to Section 2A(2) to pay its
Proportionate Share of Operating Costs.
D. Water. Landlord shall furnish hot and cold tap water for drinking and
toilet purposes. Tenant shall pay Landlord for water furnished for any other
purpose as Additional Rent at rates fixed by Landlord. Tenant shall not permit
water to be wasted.
E. Janitorial Service. Landlord shall furnish janitorial services as
generally provided to other tenants in the Project, but not fewer janitorial
services than provided on Appendix F.
F. Interruption of Services. If any of the Building equipment or
machinery ceases to function properly for any cause Landlord shall use
reasonable diligence to repair the same promptly. Landlord's inability to
furnish, to any extent, the Project services set forth in this Section 4, or any
cessation thereof resulting from any causes, including, without limitation, any
entry for repairs pursuant to this Lease, and any renovation, redecoration or
rehabilitation of any area of the Building shall not render Landlord liable for
damages to either person or property or for interruption or loss to Tenant's
business, nor be construed as an eviction of Tenant, nor work an abatement of
any portion of rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. However, in the event that an interruption of the Project
services set forth in this Section 4 is within Landlord's reasonable control and
such interruption causes the Premises to be untenantable for a period of at
least six (6) consecutive business days, monthly Rent shall be abated
proportionately.
G. Parking. During the Term, Tenant and its employees shall be entitled
to use within the Project's parking area (excluding, however, those areas
thereof designated by Landlord from time to time for the exclusive use of
certain occupants of the Project or for no parking) an aggregate of 4 parking
stalls per 1,000 gross square feet of space in the Premises then occupied by
Tenant. During the initial Term, Tenant shall be entitled to use such parking
stalls at no additional rental, and during the Renewal Term (as defined in
Section 31) Tenant shall pay Landlord the parking rent determined by Landlord as
provided in Section 31 for the use of such parking stalls. Landlord reserves the
right to designate reserved parking stalls for other occupants of the Project
over any part of the Project's parking area; provided that any such reserved
parking stalls shall not be the stalls closest to the Premises.
H. Tenant's Computer Room. Notwithstanding anything to the contrary set
forth in this Lease (including, without limitation, this Section 4), Landlord
shall have no obligation to provide janitorial service, or any other service for
which Landlord requires access, to Tenant's computer room, nor shall Landlord
have any obligations under this Lease (including, without limitation,
maintenance or repair obligations) with respect to Tenant's computer room unless
and
10
until Tenant provides Landlord with the access thereto required by Landlord to
perform such services or satisfy such obligations. Without limiting the
foregoing, if Landlord determines in its sole discretion that a suspected fire
or flood or other emergency in the Building requires Landlord to gain access to
Tenant's computer room, Landlord may forcibly enter. Landlord shall make a
reasonable effort to contact Tenant to secure access, but Landlord shall have no
obligation to contact Tenant. In such event, Landlord shall have no liability
whatsoever to Tenant, and Tenant shall pay all expenses in repairing any damage
to such computer room.
5. ALTERATIONS AND REPAIRS.
A. Landlord's Consent and Conditions.
Tenant shall not make any improvements or alterations to the Premises
(the "Work") without in each instance submitting plans and specifications for
the Work to Landlord and obtaining Landlord's prior written consent unless (a)
the cost thereof is less than $500, (b) such Work does not impact the base
structural components or systems of the Building, (c) such Work will not impact
any other tenant's premises, and (d) such Work is not visible from outside the
Premises. Tenant shall pay Landlord's standard charge for review of the plans
and all other items submitted by Tenant. Landlord will be deemed to be acting
reasonably in withholding its consent for any Work which (a) impacts the base
structural components or systems of the Building, (b) impacts any other tenant's
premises, or (c) is visible from outside the Premises.
Tenant shall reimburse Landlord for actual costs incurred for review of
the plans and all other items submitted by Tenant. Tenant shall pay for the cost
of all Work. All Work shall become the property of Landlord upon its
installation, except for Tenant's trade fixtures and for items which Landlord
requires Tenant to remove at Tenant's cost at the termination of the Lease
pursuant to Section 3E.
The following requirements shall apply to all Work:
(1) Prior to commencement, Tenant shall furnish to Landlord
building permits, certificates of insurance satisfactory to Landlord
(including, without limitation, certificates evidencing the insurance
Tenant, its contractors and subcontractors are required to maintain
under Section 8(C)), and, at Landlord's request, security for payment of
all costs.
(2) Tenant shall perform all Work so as to maintain peace and
harmony among other contractors serving the Project and shall avoid
interference with other work to be performed or services to be rendered
in the Project.
(3) The Work shall be performed in a good and workmanlike
manner, meeting the standard for construction and quality of materials
in the Building, and shall comply with all insurance requirements and
all applicable governmental laws, ordinances and regulations
("Governmental Requirements").
11
(4) Tenant shall perform all Work so as to minimize or prevent
disruption to other tenants, and Tenant shall comply with all reasonable
requests of Landlord in response to complaints from other tenants.
(5) Tenant shall perform all Work in compliance with Landlord's
"Policies, Rules and Procedures for Construction Projects" in effect at
the time the Work is performed.
(6) Tenant shall permit Landlord to supervise all Work. If an
only if Landlord's employees or contractors perform the Work, Landlord
may charge a supervisory fee not to exceed five percent (5%) of labor,
material, and all other costs of the Work.
(7) Upon completion, Tenant shall furnish Landlord with as-built
plans and specifications, and receipted bills covering all labor and
materials, and all other close-out documentation required in Landlord's
"Policies, Rules and Procedures for Construction Projects" and, if
Tenant or Tenant's employees or contractors perform the Work,
contractor's affidavits and full and final statutory waivers of liens.
B. Damage to Systems. If any part of the mechanical, electrical or other
systems in the Premises or Common Areas shall be damaged, Tenant shall promptly
notify Landlord, and Landlord shall repair such damage. Landlord may also at any
reasonable time make any repairs or alterations which Landlord deems necessary
for the safety or protection of the Project, or which Landlord is required to
make by any court or pursuant to any Governmental Requirement. Tenant shall at
its expense make all other repairs necessary to keep the Premises, and Tenant's
fixtures and personal property, in good order, condition and repair; to the
extent Tenant fails to do so, Landlord may make such repairs itself. The cost of
any repairs made by Landlord on account of Tenant's default, or on account of
the mis-use or neglect by Tenant or its invitees, contractors or agents anywhere
in the Project, shall become Additional Rent payable by Tenant on demand.
C. No Liens. Tenant has no authority to cause or permit any lien or
encumbrance of any kind to affect Landlord's interest in the Project; any such
lien or encumbrance shall attach to Tenant's interest only. If any mechanic's
lien shall be filed or claim of lien made for work or materials furnished to
Tenant, then Tenant shall at its expense within ten (10) days thereafter either
discharge or contest the lien or claim. If Tenant contests the lien or claim,
then Tenant shall (i) within such ten (10) day period, provide Landlord adequate
security for the lien or claim, (ii) contest the lien or claim in good faith by
appropriate proceedings that operate to stay its enforcement, and (iii) pay
promptly any final adverse judgment entered in any such proceeding. If Tenant
does not comply with these requirements, Landlord may discharge the lien or
claim, and the amount paid, as well as attorney's fees and other expenses
incurred by Landlord, shall become Additional Rent payable by Tenant on demand.
Nothing contained in this Lease shall constitute any consent by Landlord to
subject Landlord's estate to liability under any mechanics' or other lien law.
Tenant shall give Landlord adequate opportunity, and
12
Landlord shall have the right at all times, to post such notices of
nonresponsibility as may be allowed under California law.
D. Ownership of Improvements. All Work as defined in this Section 5,
partitions, hardware, equipment, machinery and all other improvements and all
fixtures except trade fixtures, constructed in the Premises by either Landlord
or Tenant, (i) shall become Landlord's property upon installation without
compensation to Tenant, unless Landlord consents otherwise in writing, and (ii)
shall at Landlord's option either (a) be surrendered to Landlord with the
Premises at the termination of the Lease or of Tenant's right to possession, or
(b) removed in accordance with Subsection 5E below (unless Landlord at the time
it gives its consent to the performance of such construction expressly waives in
writing the right to require such removal.)
E. Removal at Termination. Upon the termination of this Lease or
Tenant's right of possession Tenant shall remove from the Project its trade
fixtures, furniture, moveable equipment and other personal property, any
improvements which Landlord elects shall be removed by Tenant pursuant to
Section 5D, and any improvements to any portion of the Project other than the
Premises. If Tenant does not timely remove such property, then Tenant shall be
conclusively presumed to have, at Landlord's election (i) conveyed such property
to Landlord without compensation or (ii) abandoned such property, and Landlord
may dispose of or store any part thereof in any manner at Tenant's sole cost,
without waiving Landlord's right to claim from Tenant all expenses arising out
of Tenant's failure to remove the property, and without liability to Tenant or
any other person. Landlord shall have no duty to be a bailee of any such
personal property. If Landlord elects abandonment, Tenant shall pay to Landlord,
upon demand, any expenses incurred for disposition. Tenant expressly releases
Landlord of and from any and all claims and liability for damage to or
destruction or loss of property left by Tenant upon the Premises at the
expiration or other termination of this Lease and, to the extent permitted by
then applicable law, Tenant shall protect, indemnify, defend and hold Landlord
harmless from and against any and all claims and liability with respect thereto.
F. Landlord's Work. Landlord shall have the right at any time to
change the arrangement and location of all entrances, passageways, doors,
doorways, corridors, stairs, toilets and other public parts of the Project and,
upon giving Tenant not less than ninety (90) days prior notice (except in the
event such change is required by Governmental Requirements or court order, in
which event Landlord shall provide Tenant with reasonable notice under such
circumstances) to change any name, number or designation by which the Premises
or the Project is commonly known.
6. USE OF PREMISES. Tenant shall use the Premises only for general
office purposes. Tenant shall not allow any use of the Premises which will
negatively affect the cost of coverage of Landlord's insurance on the Project.
Tenant shall not allow any inflammable or explosive liquids or materials to be
kept on the Premises. Tenant shall not allow any use of the Premises which would
cause the value or utility of any part of the Premises to diminish or would
interfere with any other Tenant or with the operation of the Project by
Landlord. Tenant shall not cause or permit any nuisance or waste upon the
Premises, or allow any offensive noise or
13
odor in or around the Premises or in any way obstruct or interfere with the
rights of other tenants or occupants of the Project.
Tenant acknowledges that the Americans With Disabilities Act of 1990
(as amended and as supplemented by further laws from time to time, the "ADA")
imposes certain requirements upon the owners, lessees and operators of
commercial facilities and places of public accommodation, including, without
limitation, prohibitions on discrimination against any individual on the basis
of disability. Landlord shall be responsible as of the Commencement Date for the
compliance of the Premises and Common Area with the ADA in effect as of the
Commencement Date, assuming the use of the Premises for general office purposes
and not as a place of public accommodation. Except for Landlord's obligations
pursuant to this paragraph, and notwithstanding any other provision of this
Lease, Tenant agrees, at Tenant's expense, to take all proper and necessary
action to cause the Premises, any repairs, replacements, alterations and
improvements thereto to be maintained, used and occupied in compliance with the
ADA requirements, whether or not those requirements are based upon the Tenant's
use of the Premises and, further, to otherwise assume all responsibility to
ensure the Premises' continued compliance with all provisions of the ADA
throughout the Term. Except for Landlord's obligations pursuant to this
paragraph, Tenant shall, at its expense, make any alterations or modifications,
with or without the Premises, to bring Tenant's use and occupancy of the
Premises into compliance with the ADA. Except for Landlord's obligations
pursuant to this paragraph, Tenant shall pay, as additional rent, its
proportional share of expenses incurred by Landlord in bringing common areas of
the Project into compliance with provisions of the ADA. The Premises shall not
be used as a "place of public accommodation" under the ADA or similar laws,
regulations, statutes and/or ordinances; provided, that if any governmental
authority shall deem the Premises to be a "place of public accommodation" as a
result of Tenant's use, Tenant shall either modify its use to cause such
authority to rescind its designation or be responsible for any alterations,
structural or otherwise, required to be made to the Project or the Premises
under such laws.
7. GOVERNMENTAL REQUIREMENTS AND PROJECT RULES. Tenant shall comply
with all Governmental Requirements applying to its use of the Premises. Tenant
shall also comply with all reasonable rules established for the Project,
including, without limitation, the parking area, from time to time by Landlord.
The present rules and regulations are contained in Appendix B. Failure by
another tenant to comply with the rules or failure by Landlord to enforce them
shall not relieve Tenant of its obligation to comply with the rules or make
Landlord responsible to Tenant in any way. Landlord shall use reasonable efforts
to apply the rules and regulations uniformly with respect to Tenant and tenants
in the Building under leases containing rules and regulations similar to this
Lease. In the event of alterations and repairs performed by Tenant, Tenant shall
comply with the provisions of Section 5 of this Lease and also Landlord's
"Policies, Rules and Regulations for Construction Projects".
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
A. Waiver of Claims. To the extent permitted by law, Tenant waives any
claims it may have against Landlord or its officers, directors, employees or
agents for business
14
interruption or damage to property sustained by Tenant as the result of any act
or omission of Landlord.
To the extent permitted by law, Landlord waives any claims it may have
against Tenant or its officers, directors, employees or agents for loss of rents
or damage to property sustained by Landlord as the result of any act or omission
of Tenant.
B. Indemnification. Tenant shall indemnify, defend and hold harmless
Landlord and its officers, directors, employees and agents against any claim by
any third party for injury to any person or damage to or loss of any property
occurring in the Project and arising from any act or omission or negligence of
Tenant or any of Tenant's employees or agents. Tenant's obligations under this
section shall survive the termination of this Lease.
Landlord shall indemnify, defend and hold harmless Tenant and its
officers, directors, employees and agents against any claim by any third party
for injury to any person or damage to or loss of any property occurring in the
Project and arising from any act or omission or negligence of Landlord or any of
Landlord's employees or agents. Landlord's obligations under this section shall
survive the termination of this Lease.
C. Tenant's Insurance. Tenant shall maintain insurance as follows, with
such other terms, coverages and insurers, as Landlord shall reasonably require
from time to time:
(1) Commercial General Liability Insurance, with (a) Contractual
Liability including the indemnification provisions contained in this
Lease, (b) a severability of interest endorsement, (c) limits of not
less than Two Million Dollars ($2,000,000) combined single limit per
occurrence and not less than Two Million Dollars ($2,000,000) in the
aggregate for bodily injury, sickness or death, and property damage, and
umbrella coverage of not less than Five Million Dollars ($5,000,000).
(2) Property Insurance against "All Risks" of physical loss
covering the replacement cost of all improvements, fixtures and personal
property. Tenant waives all rights of subrogation, and Tenant's property
insurance shall include a waiver of subrogation in favor of Landlord.
(3) Workers' compensation or similar insurance in form and
amounts required by law, and Employer's Liability with not less than the
following limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision
in favor of Landlord and its agents.
15
Tenant's insurance shall be primary and not contributory to that carried
by Landlord, its agents, or mortgagee. Landlord, and if any, Landlord's building
manager or agent and ground lessor shall be named as additional insureds as
respects to insurance required of the Tenant in Section 8C(l). The company or
companies writing any insurance which Tenant is required to maintain under this
Lease, as well as the form of such insurance, shall at all times be subject to
Landlord's approval, which shall not be unreasonably withheld, and any such
company shall be licensed to do business in the state in which the Project is
located. Such insurance companies shall have a A.M. Best rating of A VI or
better.
Tenant shall cause any contractor of Tenant performing work on the
Premises to maintain insurance as follows, with such other terms, coverages and
insurers, as Landlord shall reasonably require from time to time:
(1) Commercial General Liability Insurance. including
contractor's liability coverage, contractual liability coverage,
completed operations coverage, broad form property damage endorsement,
and contractor's protective liability coverage, to afford protection
with limits, for each occurrence, of not less than One Million Dollars
($1,000,000) with respect to personal injury, death or property damage.
(2) Workers' compensation or similar insurance in form and
amounts required by law, and Employer's Liability with not less than the
following limits:
Such insurance shall contain a waiver of subrogation provision
in favor of Landlord and its agents.
Tenant's contractor's insurance shall be primary and not contributory to
that carried by Tenant, Landlord, their agents or mortgagees. Tenant and
Landlord, and if any, Landlord's building manager or agent, mortgagee or ground
lessor shall be named as additional insured on Tenant's contractor's insurance
policies.
D. Insurance Certificates. Tenant shall deliver to Landlord certificates
evidencing all required insurance no later than five (5) days prior to the
Commencement Date and each renewal date. Each certificate will provide for
thirty (30) days prior written notice of cancellation to Landlord and Tenant.
E. Landlord's Insurance. Landlord shall maintain "All-Risk" property
insurance at replacement cost, including loss of rents, on the Building, and
Commercial General Liability insurance policies covering the common areas of the
Project, each with such terms, coverages and conditions as are normally carried
by reasonably prudent owners of properties similar to the Project. With respect
to property insurance, Landlord and Tenant mutually waive all rights of
16
subrogation, and the respective "All-Risk" coverage property insurance policies
carried by Landlord and Tenant shall contain enforceable waiver of subrogation
endorsements.
9. FIRE AND OTHER CASUALTY.
A. Termination. If a fire or other casualty causes substantial damage to
the Building or the Premises, Landlord shall engage a registered architect to
certify within one (1) month of the casualty to both Landlord and Tenant the
amount of time needed to restore the Building and the Premises to tenantability,
using standard working methods. If the time needed exceeds twelve (12) months
from the beginning of the restoration, or two (2) months therefrom if the
restoration would begin during the last twelve (12) months of the Lease, then in
the case of the Premises, either Landlord or Tenant may terminate this lease,
and in the case of the Building, Landlord may terminate this Lease, by notice to
the other party within ten (10) days after the notifying party's receipt of the
architect's certificate. The termination shall be effective thirty (30) days
from the date of the notice and Rent shall be paid by Tenant to that date, with
an abatement for any portion of the space which has been untenantable after the
casualty.
B. Restoration. If a casualty causes damage to the Building or the
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the applicable
insurance proceeds and diligently restore the Building and the Premises subject
to current Governmental Requirements. Tenant shall replace its damaged
improvements, personal property and fixtures. Rent shall be abated on a per diem
basis during the restoration for any portion of the Premises which is
untenantable, except to the extent that Tenant's negligence caused the casualty.
10. EMINENT DOMAIN. If a part of the Project is taken by eminent domain
or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business, then either
party may terminate this Lease effective as of the date of the taking. If any
substantial portion of the Project is taken without affecting the Premises, then
Landlord may terminate this Lease as of the date of such taking. Rent shall
abate from the date of the taking in proportion to any part of the Premises
taken. The entire award for a taking of any kind shall be paid to Landlord, and
Tenant shall have no right to share in the award. All obligations accrued to the
date of the taking shall be performed by each party.
11. RIGHTS RESERVED TO LANDLORD.
Landlord may exercise at any time any of the following rights respecting
the operation of the Project without liability to the Tenant of any kind:
A. Name. To change the name or street address of the Building or the
suite number(s) of the Premises upon not less than ninety (90) days prior notice
to Tenant (except in the event such change is required by Governmental
Requirements or court order, in which event Landlord shall provide Tenant with
reasonable notice under such circumstances)
17
B. Signs. To install, remove and maintain any signs on the exterior and
in the interior of the Building, and to approve at its sole discretion, prior to
installation, any of Tenant's signs in the Premises visible from the Common
Areas or the exterior of the Building.
C. Window Treatments. To approve, at its discretion, prior to
installation, any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building or any interior Common Areas.
D. Keys. To retain and use at any time passkeys to enter the Premises or
any door within the Premises. Tenant shall not alter or add any lock or bolt.
E. Access. To have access to inspect the Premises, and to perform its
obligations, or make repairs, alterations, additions or improvements, as
permitted by this Lease.
F. Preparation for Reoccupancy. To decorate, remodel, repair, alter or
otherwise prepare the Premises for reoccupancy at any time after Tenant abandons
the Premises, without relieving Tenant of any obligation to pay Rent.
G. Heavy Articles. To approve the weight, size, placement and time and
manner of movement within the Building of any safe, central filing system or
other heavy article of Tenant's property. Tenant shall move its property
entirely at its own risk.
H. Show Premises. To show the Premises to prospective purchasers,
tenants, brokers, lenders, investors, rating agencies or others at any
reasonable time, provided that Landlord gives prior notice to Tenant and does
not materially interfere with Tenant's use of the Premises.
I. Relocation of Tenant. If at any time Tenant does not occupy the
entire building in which the Premises are located, to relocate the Tenant, upon
thirty days' prior written notice, from all or part of the Premises (the "Old
Premises") to another area in the Project (the "new premises"), provided that:
(1) the size of the new premises is at least equal to the size
of the Old Premises;
(2) Landlord pays the cost of moving the Tenant and improving
the new premises to the standard of the Old Premises. Tenant shall
cooperate with Landlord in all reasonable ways to facilitate the move,
including supervising the movement of files or fragile equipment,
designating new locations for furniture, equipment and new telephone and
electrical outlets, and determining the color of paint in the new
premises.
J. Use of Lockbox. To designate a lockbox collection agent for
collections of amounts due Landlord. In that case, the date of payment of Rent
or other sums shall be the date of the agent's receipt of such payment or the
date of actual collection if payment is made in the
18
form of a negotiable instrument thereafter dishonored upon presentment. However,
Landlord may reject any payment for all purposes as of the date of receipt or
actual collection by mailing to Tenant within 21 days after such receipt or
collection a check equal to the amount sent by Tenant.
K. Repairs and Alterations. To make repairs or alterations to the
Project and in doing so transport any required material through the Premises, to
close entrances, doors, corridors, elevators and other facilities in the
Project, to open any ceiling in the Premises, or to temporarily suspend
services or use of Common Areas in the Project; provided that Landlord shall not
unreasonably interfere with Tenant's use of the Premises, except to the extent
such interference is necessary for Landlord's compliance with its obligations
under this Lease or any Governmental Requirements. Landlord may perform any such
repairs or alterations during ordinary business hours, except that Tenant may
require any Work in the Premises to be done after business hours if Tenant pays
Landlord for overtime and any other expenses incurred. Landlord may do or permit
any work on any nearby building, land, street, alley or way.
L. Landlord's Agents. If Tenant is in default under this Lease,
possession of Tenant's funds or negotiation of Tenant's negotiable instrument by
any of Landlord's agents shall not waive any breach by Tenant or any remedies of
Landlord under this Lease.
M. Building Services. To install, use and maintain through the Premises,
pipes, conduits, wires and ducts serving the Building, provided that such
installation, use and maintenance does not unreasonably interfere with Tenant's
use of the Premises.
N. Other Actions. To take any other action which Landlord deems
reasonable in connection with the operation, maintenance or preservation of the
Project.
12. TENANT'S DEFAULT.
Any of the following shall constitute a default by Tenant:
A. Rent Default. Tenant fails to pay any Rent when due or Tenant fails
to deliver any increase in the Security Deposit as required by the provisions of
Section 20;
B. Assignment/Sublease or Hazardous Substances Default. Tenant defaults
in its obligations under Section 17 Assignment and Sublease or Section 28
Hazardous Substances;
C. Other Performance Default. Tenant fails to perform any other
obligation to Landlord under this Lease, and, in the case of only the first two
(2) such failures during the Term of this Lease, this failure continues for ten
(10) days after written notice from Landlord (provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
Section 1161 et seq. of the California Code of Civil Procedure), except that if
Tenant begins to cure its failure within the ten (10) day period but cannot
19
reasonably complete its cure within such period, then, so long as Tenant
continues to diligently attempt to cure its failure, the ten (10) day period
shall be extended to sixty (60) days, or such lesser period as is reasonably
necessary to complete the cure;
D. Credit Default. One of the following credit defaults occurs:
(1) Tenant commences any proceeding under any law relating to
bankruptcy, insolvency, reorganization or relief of debts, or seeks
appointment of a receiver, trustee, custodian or other similar official
for the Tenant or for any substantial part of its property, or any such
proceeding is commenced against Tenant and either remains undismissed
for a period of thirty days or results in the entry of an order for
relief against Tenant which is not fully stayed within seven days after
entry;
(2) Tenant (i) becomes insolvent or bankrupt, (ii) does not
generally pay its debts as they become due and fails to cure the same
within thirty (30) days, or (iii) admits in writing its inability to pay
its debts and fails to cure or rescind the same within thirty (30) days,
or (iv) makes a general assignment for the benefit of creditors;
(3) Any third party obtains a levy or attachment under process
of law against Tenant's leasehold interest.
E. Vacation or Abandonment Default. Tenant vacates or abandons the
Premises.
13. LANDLORD REMEDIES.
A. Termination of Lease or Possession. If Tenant defaults, Landlord may
elect by notice to Tenant either to terminate this Lease or to terminate
Tenant's possession of the Premises without terminating this Lease. In either
case, Tenant shall immediately vacate the Premises and deliver possession to
Landlord, and Landlord may repossess the Premises and may, at Tenant's sole
cost, remove any of Tenant's signs and any of its other property, without
relinquishing its right to receive Rent or any other right against Tenant.
Without limiting the generality of the foregoing, upon the termination of this
Lease or the termination of Tenant's right of possession, it shall be lawful for
the Landlord, without formal demand or notice of any kind, to re-enter the
Premises by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom.
B. Lease Termination Damages. Except as otherwise provided in Section
13C, if Tenant abandons the Premises prior to the end of the term hereof, or if
Tenant's right to possession is terminated by Landlord because of a default by
Tenant under this Lease, this Lease shall terminate. Upon such termination,
Landlord may recover from Tenant the following, as provided in Section 1951.2 of
the California Civil Code: (i) the worth at the time of award of the unpaid Rent
and other charges under this Lease that had been earned at
20
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid Rent and other charges under this Lease which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided; (iii) the
worth at the time of award of the amount by which the unpaid Rent and other
charges under this Lease for the balance of the term of this Lease after the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; and (iv) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or that in the ordinary course of things would
be likely to result therefrom. As used herein, the following terms are defined:
(a) The "worth at the time of award" 'of the amounts referred to in Sections (i)
and (ii) is computed by allowing interest at the lesser of 15% per annum or the
maximum lawful rate. The "worth at the time of award" of the amount referred to
in Section (iii) is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus 1 %.
C. Continuation of Lease. Even if Tenant has abandoned the Premises,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession, and Landlord may enforce all its rights and
remedies under this Lease, including the right to recover rent as it becomes
due. This remedy is intended to be the remedy described in California Civil Code
Section 1951.4, and the following provision from such Civil Code Section is
hereby repeated: "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)." Any such payments due Landlord
shall be made upon demand therefor from time to time and Tenant agrees that
Landlord may file suit to recover any sums falling due from time to time.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect in writing to terminate this Lease for such previous breach.
D. Possession Termination Damages. If Landlord terminates Tenant's right
to possession without terminating the Lease and Landlord takes possession of the
Premises itself, Landlord may relet any part of the Premises for such Rent, for
such time, and upon such terms as Landlord in its sole discretion shall
determine, without any obligation to do so prior to renting other vacant areas
in the Building. Any proceeds from reletting the Premises shall first be applied
to the expenses of reletting, including redecoration, repair, alteration,
advertising, brokerage, legal, and other reasonably necessary expenses. If the
reletting proceeds after payment of expenses are insufficient to pay the full
amount of Rent under this Lease, Tenant shall pay such deficiency to Landlord
monthly upon demand as it becomes due. Any excess proceeds shall be retained by
Landlord.
E. Landlord's Remedies Cumulative. All of Landlord's remedies under this
Lease shall be in addition to all other remedies Landlord may have at law or in
equity. Waiver by Landlord of any breach of any obligation by Tenant shall be
effective only if it is in writing and shall not be deemed a waiver of any other
breach, or any subsequent breach
21
of the same obligation. Landlord's acceptance of payment by Tenant shall not
constitute a waiver of any breach by Tenant, and if the acceptance occurs after
Landlord's notice to Tenant, or termination of the Lease or of Tenant's right to
possession, the acceptance shall not affect such notice or termination.
Acceptance of payment by Landlord after commencement of a legal proceeding or
final judgment shall not affect such proceeding or judgment. Landlord may
advance such monies and take such other actions for Tenant's account as
reasonably may be required to cure or mitigate any default by Tenant. Tenant
shall immediately reimburse Landlord for any such advance, and such sums shall
bear interest at the default interest rate until paid.
F. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY IN THE EVENT
OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS LEASE. EACH
PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH THIS LEASE IN
A FEDERAL OR STATE COURT LOCATED IN CALIFORNIA, CONSENTS TO THE JURISDICTION OF
SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING TRANSFERRED FROM SUCH
COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT FORUM.
G. Litigation Costs. Tenant shall pay Landlord's reasonable attorneys'
fees and other costs in enforcing this Lease. Notwithstanding the foregoing, if
Landlord or Tenant brings an action to enforce the terms of this Lease or
declare rights hereunder, the prevailing party in such action shall be entitled
to the payment of its attorneys' fees and costs from the other party.
H. Additional Phases. In addition to all of Landlord's other rights and
remedies under this Lease, in the event of a default by Tenant under this Lease
prior to the Phase B Commencement Date and/or Phase C Commencement Date, then at
Landlord's election in its sole and absolute discretion, Tenant shall not be
entitled to occupy, and this Lease shall not cover, any Phase(s) of the Premises
as to which Tenant has not taken occupancy. Any such election by Landlord shall
be evidenced only in a written notice from Landlord to Tenant and shall be
effective only from and after the date of such notice, and unless and until
Landlord delivers any such notice, this Lease shall continue in full force and
effect as to the entire Premises. No such election by Landlord shall limit or
affect Tenant's obligations or liability (a) with respect to any portion of the
Premises other than the Phase(s) as to which Landlord has elected to terminate
this Lease, as provided in this Section, or (b) with respect to the Phase(s) as
to which Landlord has elected to terminate this Lease and occurring prior to the
effective date of Landlord's election (including, without limitation, any
obligation under Appendix C to pay for any "Initial Improvements" and/or "Change
Orders" (each as defined in Appendix C) constructed or commenced prior to such
effective date). On any such election by Landlord (i) any of Tenant's rights
under Sections 31 and 32 of this Lease shall be concurrently terminated, and
(ii) Landlord shall prepare and deliver to Tenant, and Tenant shall within five
(5) business days execute and deliver to Landlord, an amendment to this Lease
reflecting the Phase(s) as to which this Lease has been terminated and
proportionately
22
adjusting the Base Rent, number of parking spaces allocated to Tenant and
Tenant's Proportionate Share to reflect such termination and amending any other
provision of this Lease as reasonably necessary, as determined by Landlord, to
address such termination.
14. SURRENDER. Upon termination of this Lease or Tenant's right to
possession, Tenant shall return the Premises to Landlord in good order and
condition, ordinary wear and casualty damage excepted. If Landlord requires
Tenant to remove any alterations, then Tenant shall remove the alterations in a
good and workmanlike manner and restore the Premises to its condition prior to
their installation.
15. HOLDOVER. If Tenant retains possession of any part of the Premises
after the Term, Tenant shall become a month-to-month tenant for the entire
Premises upon all of the terms of this Lease as might be applicable to such
month-to-month tenancy, except that Tenant shall pay all of Base Rent, Operating
Cost Share Rent and Tax Share Rent at 150% of the rate in effect immediately
prior to such holdover, computed on a monthly basis for each full or partial
month Tenant remains in possession. Tenant shall also pay Landlord all of
Landlord's direct and consequential damages. No acceptance of Rent or other
payments by Landlord under these holdover provisions shall operate as a waiver
of Landlord's right to regain possession or any other of Landlord's remedies.
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
A. Subordination. This Lease shall be subordinate to any present or
future ground lease or mortgage respecting the Project, and any amendments to
such ground lease or mortgage, at the election of the ground lessor or mortgagee
as the case may be, effected by notice to Tenant in the manner provided in this
Lease. The subordination shall be effective upon such notice, but at the request
of Landlord or ground lessor or mortgagee, Tenant shall within ten (10) days of
the request, execute and deliver to the requesting party any reasonable
documents provided to evidence the subordination.
B. Termination of Ground Lease or Foreclosure of Mortgage. If any ground
lease is terminated or mortgage foreclosed or deed in lieu of foreclosure given
and the around lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Project, Tenant shall attorn to such ground
lessor or mortgagee or purchaser without any deduction or setoff by Tenant, and
this Lease shall continue in effect as a direct lease between Tenant and such
ground lessor, mortgagee or purchaser. The ground lessor or mortgagee or
purchaser shall be liable as Landlord only during the time such ground lessor or
mortgagee or purchaser is the owner of the Project. At the request of Landlord,
ground lessor or mortgagee, Tenant shall execute and deliver within ten (10)
days of the request any document furnished by the requesting party to evidence
Tenant's agreement to attorn.
C. Security Deposit. Any ground lessor or mortgagee shall be responsible
for the return of any security deposit by Tenant only to the extent the
security deposit is received by such ground lessor or Mortgagee.
23
D. Notice and Right to Cure. The Project is subject to any ground lease
and mortgage identified with name and address of ground lessor or mortgagee in
Appendix D to this Lease (as the same may be amended from time to time by
written notice to Tenant). Tenant agrees to send by registered or certified mail
to any ground lessor or mortgagee identified either in such Appendix or in any
later notice from Landlord to Tenant a copy of any notice of default sent by
Tenant to Landlord. If Landlord fails to cure such-default within the required
time period under this Lease, but ground lessor or mortgagee begins to cure
within ten (10) days after such period and proceeds diligently to complete such
cure, then ground lessor or mortgagee shall have such additional time as is
necessary to complete such cure, including any time necessary to obtain
possession if possession is necessary to cure, and Tenant shall not begin to
enforce its remedies so long as the cure is being diligently pursued.
E. Definitions. As used in this Section 16, "mortgage" shall include
"trust deed" and "mortgagee" shall include "trustee", "mortgagee" shall include
the mortgagee of any ground lessee, and "ground lessor", "mortgagee", and
"purchaser at a foreclosure sale" shall include, in each case, all of its
successors and assigns, however remote.
17. ASSIGNMENT AND SUBLEASE.
A. In General. Tenant shall not, without the prior consent of Landlord
in each case, (i) make or allow any assignment or transfer, by operation of law
or otherwise, of any part of Tenant's interest in this Lease, (ii) grant or
allow any lien or encumbrance, by operation of law or otherwise, upon any part
of Tenant's interest in this Lease, (iii) sublet any part of the Premises, or
(iv) permit anyone other than Tenant and its employees to occupy any part of the
Premises. Tenant shall remain primarily liable for all of its obligations under
this Lease, notwithstanding any assignment or transfer. No consent granted by
Landlord shall be deemed to be a consent to any subsequent assignment or
transfer, lien or encumbrance, sublease or occupancy. Tenant shall pay all of
Landlord's attorneys' fees and other expenses incurred in connection with any
consent requested by Tenant or in reviewing any proposed assignment or
subletting. Any assignment or transfer, grant of lien or encumbrance, or
sublease or occupancy without Landlord's prior written consent shall be void. If
Tenant shall assign this Lease or sublet the Premises in its entirety any rights
of Tenant to renew this Lease, extend the Term to lease additional space in the
Project shall be extinguished thereby and will not be transferred to the
assignee or subtenant, all such rights being personal to the Tenant named
herein.
B. Landlord's Consent. Landlord will not unreasonably withhold its
consent to any proposed assignment or subletting. It shall be reasonable for
Landlord to withhold its consent to any assignment or sublease if (i) Tenant is
in default under this Lease, (ii) the proposed assignee or sublessee is a tenant
in the Project or an affiliate of such a tenant or a party that Landlord has
identified as a prospective tenant in the Project, (iii) the financial
responsibility, nature of business, and character of the proposed assignee or
subtenant are not all reasonably satisfactory to Landlord, (iv) in the
reasonable judgment of Landlord the
24
purpose for which the assignee or subtenant intends to use the Premises (or a
portion thereof) is not in keeping with Landlord's standards for the Building or
are in violation of the terms of this Lease or any other leases in the Project,
(v) the proposed assignee or subtenant is a government entity, or (vi) the
proposed assignment is for less than the entire Premises or for less than the
remaining Term of the Lease. The foregoing shall not exclude any other
reasonable basis for Landlord to withhold its consent.
C. Procedure. Tenant shall notify Landlord of any proposed assignment or
sublease at least thirty (30) days prior to its proposed effective date. The
notice shall include the name and address of the proposed assignee or subtenant,
its corporate affiliates in the case of a corporation and its partners in a case
of a partnership, an execution copy of the proposed assignment or sublease, and
sufficient information to permit Landlord to determine the financial
responsibility and character of the proposed assignee or subtenant. As a
condition to any effective assignment of this Lease, the assignee shall execute
and deliver in form satisfactory to Landlord at least fifteen (15) days prior to
the effective date of the assignment, an assumption of all of the obligations of
Tenant under this Lease. As a condition to any effective sublease, subtenant
shall execute and deliver in form satisfactory to Landlord at least fifteen (15)
days prior to the effective date of the sublease, an agreement to comply with
all of Tenant's obligations under this Lease, and at Landlord's option, an
agreement (except for the economic obligations which subtenant will undertake
directly to Tenant) to attorn to Landlord under the terms of the sublease in the
event this Lease terminates before the sublease expires.
D. Change of Management or Ownership. Any transfer of the direct or
indirect power to affect the management or policies of Tenant or direct or
indirect change in 25% or more in the aggregate of the ownership interest in
Tenant shall constitute an assignment of this Lease.
E. Excess Payments. If Tenant shall assign this Lease or sublet any part
of the Premises for consideration in excess of the pro-rata portion of Rent
applicable to the space subject to the assignment or sublet, then Tenant shall
pay to Landlord as Additional Rent 50% of any such excess immediately upon
receipt.
F. Recapture. Except in the event of assignment or subletting to an
affiliate (as hereinafter defined) of Tenant, Landlord may, by giving written
notice to Tenant within thirty (30) days after receipt of Tenant's notice of
assignment or subletting, terminate this Lease with respect to the space
described in Tenant's notice, as of the effective date of the proposed
assignment or sublease and all obligations under this Lease as to such space
shall expire except as to any obligations that expressly survive any termination
of this Lease. Tenant's notice of assignment or subletting for the purposes of
this Section 17(F) may be given when Tenant notifies Landlord of Tenant's good
faith intent to assign this Lease or sublet a specific portion of Premises and
may be given before Tenant has identified a specific proposed assignee or
sublessee.
25
18. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer its
interest in the Project or this Lease, Landlord shall be released of any
obligations occurring after such transfer, except the obligation to return to
Tenant any security deposit not delivered to its transferee, and Tenant shall
look solely to Landlord's successors for performance of such obligations.
Subject to the provisions of Section 16, this Lease shall not be affected by any
such transfer.
19. ESTOPPEL CERTIFICATE. Each party shall, within ten (10) days of
receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate stating,
subject to a specific statement of any applicable exceptions, that the Lease as
amended to date is in full force and effect, that the Tenant is paying Rent and
other charges on a current basis, and that to the best of the knowledge of the
certifying party, the other party has committed no uncured defaults and has no
offsets or claims. The certifying party may also be required to state the date
of commencement of payment of Rent, the Commencement Date, the Termination Date,
the Base Rent, the current Operating Cost Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by Landlord,
the amount of any security deposit, and such other matters as may be reasonable
requested. Failure to deliver such statement within the time required shall be
conclusive evidence against the non-certifying party that this Lease, with any
amendments identified by the requesting party, is in full force and effect, that
there are no uncured defaults by the requesting party, that not more than one
month's Rent has been paid in advance, that the non-certifying party has not
paid any security deposit, and that the non-certifying, party has no claims or
offsets against the requesting party.
20. SECURITY DEPOSIT. Tenant shall deposit with Landlord on the date of
this Lease, security for the performance of all of its obligations in the amount
set forth on the Schedule (the "Initial Security Deposit"). The Initial Security
Deposit has been calculated by multiplying the number of gross rentable square
feet in the Phase A Premises times four times the Security Deposit Multiplier.
As used herein, "Security Deposit Multiplier" means from time to time the
aggregate of the monthly Base Rent per gross rentable square foot then in effect
under this Lease plus the month Operating Cost Share Rent and Tax Share Rent due
under this Lease on a gross rentable square foot basis; with such Security
Deposit Multiplier changing as and when such amounts change. For the purposes of
determining the Initial Security Deposit, the Security Deposit Multiplier has
been estimated to be $1.90 ($1.35 plus an estimated $0.55 for such Operating
Cost Share Rent and Tax Share Rent). Tenant acknowledges and agrees that the
foregoing estimate of Operating Cost Share Rent and Tax Share Rent has been made
solely for the parties' ease in calculating the Initial Security Deposit and
such estimate shall not limit or affect any of the provisions of this Lease,
including, without limitation, the provisions of this Lease regarding the
payment of Operating Cost Share Rent and Tax Share Rent and the provisions of
this Section 20.
The Security Deposit shall be increased upon the Phase B Commencement
Date, the Phase C Commencement Date, and any increase from time to time in the
Security Deposit
26
Multiplier, and concurrently therewith Tenant shall deliver to Landlord, in
immediately available funds, the amount necessary to increase the Security
Deposit then held by Landlord to an amount equal to the number of gross rentable
square feet then in the Premises multiplied by four multiplied by the then
applicable Security Deposit Multiplier, as the same may be reduced as provided
in the next paragraph.
So long as no default by Tenant and no event which with the giving of
notice or the passage of time would constitute a default by Tenant, exists at
the time of the applicable reduction, the amount of the Security Deposit then
held by Landlord may be reduced as follows: (a) at the end of the first Lease
Year, the Security Deposit may be reduced by an amount equal to the gross
rentable square feet then in the Premises multiplied by the Security Deposit
Multiplier; provided that the reduction otherwise applicable at the end of the
first Lease Year may instead occur at the end of Tenant's 1999 fiscal year (and
there shall be no reduction under this clause (a) at the end of the first Lease
Year) if Tenant's audited financial statements show Tenant's revenues for the
1999 fiscal year to be not less than $25,000,000, Tenant's net income for the
1999 fiscal year to be not less than $1,000,000 and Tenant's shareholder's
equity at the end of the 1999 fiscal year to be not less than $1,000,000; (b) at
the end of the second Lease Year, the Security Deposit may be reduced by an
amount equal to the gross rentable square feet then in the Premises multiplied
by the Security Deposit Multiplier; provided that the reduction otherwise
applicable at the end of the second Lease Year may instead occur at the end of
Tenant's 2000 fiscal year (and there shall be no reduction under this clause (b)
at the end of the second Lease Year) if Tenant's audited financial statements
show Tenant's revenues for the 2000 fiscal year to be not less than $30,000,000,
Tenant's net income for the 2000 fiscal year to be not less than $1,200,000 and
Tenant's shareholder's equity at the end of the 2000 fiscal year to be not less
than $1,200,000; (c) at the end of the third Lease Year, the Security Deposit
may be reduced by an amount equal to the gross rentable square feet then in the
Premises multiplied by the Security Deposit Multiplier; provided that the
reduction otherwise applicable at the end of the third Lease Year may instead
occur at the end of Tenant's 2001 fiscal year (and there shall be no reduction
under this clause (c) at the end of the third Lease Year) if Tenant's audited
financial statements show Tenant's revenues for the 2001 fiscal year to be not
less than $36,000,000, Tenant's net income for the 2001 fiscal year to be not
less than $1,440,000, and Tenant's shareholder's equity at the end of the 2001
fiscal year to be not less than $1,440,000; and (d) at any time that Tenant's
stock is publicly traded on a nationally recognized stock exchange, the Security
Deposit may be reduced to an amount equal to the gross rentable square feet then
in the Premises multiplied by the Security Deposit Multiplier (and if at any
time thereafter, Tenant's stock ceases to be so publicly traded, the Security
Deposit shall be increased by Tenant to the amount that would otherwise be
required by this Section 20). Any reduction in the Security Deposit shall be
held by Landlord and applied to the next payment(s) of Rent due under this
Lease. Notwithstanding anything to the contrary set forth herein, the Security
Deposit held by Landlord shall not be reduced below an amount equal to the gross
rentable square feet then in the Premises multiplied by the Security Deposit
Multiplier and if any reduction contemplated by this paragraph would reduce the
Security Deposit below such amount, such reduction shall be of no force and
effect. If
27
Tenant desires a reduction in the Security Deposit based on Tenant's revenues,
shareholder's equity and net income as provided herein, before such reduction
in the Security Deposit Tenant shall deliver to Landlord Tenant's financial
statements for the applicable fiscal year, prepared in accordance with
generally accepted accounting principles consistently applied, and audited by
an independent certified public accountant. The provisions of this paragraph
allowing for the reduction of the Security Deposit are applicable only if and
when Zland, Inc. is the Tenant hereunder (and if at any time Zland, Inc. is not
the Tenant hereunder there shall be no such reduction of the Security Deposit).
If Tenant defaults under this Lease, Landlord may use any part of the
Security Deposit to make any defaulted payment, to pay for Landlord's cure of
any defaulted obligation, or to compensate Landlord for any loss or damage
resulting from any default. To the extent any portion of the deposit is used,
Tenant shall within five (5) days after demand from Landlord restore the
deposit to its full amount. Landlord may keep the Security Deposit in its
general funds and shall not be required to pay interest to Tenant on the
deposit amount. If Tenant shall perform all of its obligations under this Lease
and return the Premises to Landlord at the end of the Term, Landlord shall
return all of the remaining Security Deposit to Tenant not later than thirty
(30) days after the delivery of possession of the Premises to Landlord. The
Security Deposit shall not serve as an advance payment of Rent or a measure of
Landlord's damages for any default under this Lease. If the Basic Rent shall,
from time to time, increase during the term of this Lease (as extended from
time to time), Tenant shall, upon Landlord's election, deposit with Landlord
additional money as a Security Deposit so that the total amount of Security
Deposit held by Landlord shall at all times bear the same proportion to the
then current Basic Rent as the initial Security Deposit bears to the initial
Basic Rent set forth in the Schedule.
Tenant waives the provisions of California Civil Code Section 1950.7,
and all other provisions of law now in force or that become in force after the
date of execution of this Lease, that provide that Landlord may claim from a
security deposit only those sums reasonably necessary to remedy any defaults in
the payment of Rent, to repair damage caused by Tenant, or to clean the
Premises. Landlord and Tenant agree that Landlord may, in addition, claim those
sums reasonably necessary to compensate Landlord for any other foreseeable or
unforseeable loss or damage caused by the act or omission of Tenant or Tenant's
officers, agents, employees, independent contractors, or invitees.
If Landlord transfers its interest in the Project or this Lease,
Landlord shall either (a) transfer the portion of the Security Deposit then
held by Landlord to its transferee or (b) return to Tenant the portion of the
Security Deposit then held by Landlord and remaining after the deductions
permitted herein. Upon such transfer to such transferee or the return of the
Security Deposit to Tenant, Landlord shall have no further obligation with
respect to the Security Deposit, and Tenant's right to the return of the
Security Deposit shall apply solely against Landlord's transferee.
28
21. FORCE MAJEURE. Landlord shall not be in default under this Lease
to the extent Landlord is unable to perform any of its obligations on account
of any strike or labor problem, energy shortage, governmental pre-emption or
prescription, flood, earthquake, national emergency, or any other cause of any
kind beyond the reasonable control of Landlord ("Force Majeure"). Force Majeure
shall include, without limitation, any failure of, or delay by, the
appropriate governmental authorities to issue any permits or grant any
approvals. Without limiting the foregoing, any failure of any of the applicable
governmental authorities to issue all necessary building permits for the
Initial Improvements within thirty (30) days after the initial application shall
constitute Force Majeure. In the event of Force Majeure resulting from strike
or labor problem, Landlord shall use reasonable efforts to find alternate
providers at a comparable cost, subject to any Governmental Requirements and/or
labor agreements.
22. TENANT'S PERSONAL PROPERTY AND FIXTURES. Tenant hereby grants to
Landlord all of its personal property and fixtures now or hereafter located
within the Premises as security for performance of all of Tenant's obligations
under this Lease. Tenant may replace such personal property and fixtures with
items of equal or better quality, but shall not otherwise remove them from the
Premises without the consent of Landlord until all of the obligations of Tenant
under this Lease have been performed. This Lease constitutes a security
agreement creating a security interest in such property in favor of Landlord,
subject only to the liens of existing creditors, and Landlord may at any time
file this Lease as a financing statement under the Uniform Commercial Code of
the state in which the Project is located. Landlord shall only exercise its
rights with respect to the security interest granted by this Section 22 if
Tenant's personal property or fixtures remain in the Premises or Project after
the expiration or earlier termination of this Lease.
23. NOTICES. All notices, consents, approvals and similar
communications to be given by one party to the other under this Lease
(including, without limitation, any notice required by law to be given by
Landlord to Tenant as a condition to the filing of an action alleging an
unlawful detainer of the Premises and any three (3) day notice under Section
1161(2) or (3) of the California Code of Civil Procedure), shall be given in
writing, mailed or personally delivered as follows:
A. Landlord. To Landlord as follows:
CarrAmerica Realty Corporation
3611 South Harbor Boulevard, Suite 230
Santa Ana, California 92704
Attn: Market Officer
29
with a copy to:
CarrAmerica Realty Corporation
1850 K Street, N.W., Suite 500
Washington, D.C. 20006
Attn: Lease Administration
or to such other person at such other address as Landlord may designate by
notice to Tenant.
B. Tenant. To Tenant as follows:
Zland, Inc.
or to such other person at such other address as Tenant may designate by notice
to Landlord.
Mailed notices shall be sent by United States certified or registered
mail, or by a reputable national overnight courier service, postage prepaid.
Mailed notices shall be deemed to have been given on the earlier of actual
delivery or three (3) business days after posting in the United States mail in
the case of registered certified mail, and one business day in the case of
overnight courier.
24. QUIET POSSESSION. Subject to the provisions of Section 16, so long
as Tenant shall perform all of its obligations under this Lease, Tenant shall
enjoy peaceful and quiet possession of the Premises against any party claiming
through the Landlord.
25. REAL ESTATE BROKER. Tenant represents to Landlord that Tenant has
not dealt with any real estate broker with respect to this Lease except for any
broker(s) listed in the Schedule, and no other broker is in any way entitled to
any broker's fee or other payment in connection with this Lease. Tenant shall
indemnify and defend Landlord against any claims by any other broker or third
party for any payment of any kind in connection with this Lease.
26. MISCELLANEOUS.
A. Successors and Assigns. Subject to the limits on Tenant's
assignment contained in Section 17, the provisions of this Lease shall be
binding upon and inure to the benefit of all successors and assigns of Landlord
and Tenant.
B. Date Payments Are Due. Except for payments to be made by Tenant
under this Lease which are due upon demand, Tenant shall pay to Landlord any
amount for which
30
Landlord renders a statement of account within ten days of Tenant's receipt of
Landlord's statement.
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate". The
term "Landlord" means only the owner of the Project and the lessor's interest in
this Lease from time to time. The words "re-entry" and "re-enter" are not
restricted to their technical legal meaning. The words "including" and similar
words shall mean "without limitation." The word "affiliate" shall mean a person
or entity controlling, controlled by or under common control with the applicable
entity. "Control" shall mean the power directly or indirectly, by contract or
otherwise, to direct the management and policies of the applicable entity.
D. Time of the Essence. Time is of the essence of each provision of this
Lease.
E. No Option. This document shall not be effective for any purpose until
it has been executed and delivered by both parties; execution and delivery by
one party shall not create any option or other right in the other party.
F. Severability. The unenforceability of any provision of this Lease
shall not affect any other provision.
G. Governing Law. This Lease shall be governed in all respects by the
laws of the state in which the Project is located, without regard to the
principles of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in any way
requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interests under this Lease.
I. No Oral Modification. No modification of this Lease shall be
effective unless it is a written modification signed by both parties.
J. Landlord's Right to Cure. If Landlord breaches any of its obligations
under this Lease, Tenant shall notify Landlord in writing and shall take no
action respecting such breach so long as Landlord immediately begins to cure the
breach and diligently pursues such cure to its completion. Landlord may cure any
default by Tenant; any expenses incurred shall become Additional Rent due from
Tenant on demand by Landlord.
K. Captions. The captions used in this Lease shall have no effect on the
construction of this Lease.
L. Authority. Landlord and Tenant each represents to the other that it
has full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce any of its
remedies under this Lease either in its own name or through an agent.
31
N. Entire Agreement. This Lease, together with all Appendices,
constitutes the entire agreement between the parties. All Appendices and
Exhibits to this Lease are incorporated herein by this reference. No
representations or agreements of any kind have been made by either party which
are not contained in this Lease.
O. Landlord's Title. Landlord's title shall always be paramount to the
interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this Lease any
rights to light and air in connection with Project. Landlord reserves to itself,
the Land, the Building below the improved floor of each floor of the Premises,
the Building above the ceiling of each floor of the Premises, the exterior of
the Premises and the areas on the same floor outside the Premises, along with
the areas within the Premises required for the installation and repair of
utility lines and other items required to serve other tenants of the Building.
Q. Singular and Plural. Wherever appropriate in this Lease, a singular
term shall be construed to mean the plural where necessary, and a plural term
the singular. For example, if at any time two parties shall constitute Landlord
or Tenant, then the relevant term shall refer to both parties together.
R. No Recording by Tenant. Tenant shall not record in any public records
any memorandum or any portion of this Lease. Without limiting the foregoing, the
provisions of this Section 26(R) shall not prohibit the disclosure by Tenant of
the terms of this Lease to the extent required by law (including, without
limitation, in connection with any initial public offering of Tenant's stock).
S. Exclusivity. Landlord does not grant to Tenant in this Lease any
exclusive right except the right to occupy its Premises.
T. No Construction Against Drafting Party. The rule of construction that
ambiguities are resolved against the drafting party shall not apply to this
Lease.
U. Survival. All obligations of Landlord and Tenant under this Lease
shall survive the termination of this Lease.
V. Rent Not Based on Income. No rent or other payment in respect of the
Premises shall be based in any way upon net income or profits from the Premises.
Tenant may not enter into or permit any sublease or license or other agreement
in connection with the Premises which provides for a rental or other payment
based on net income or profit.
W. Building Manager and Service Providers. Landlord may perform any of
its obligations under this Lease through its employees or third parties hired by
the Landlord.
32
X. Late Charge and Interest on Late Payments. Without limiting the
provisions of Section 12A, if Tenant fails to pay any installment of Rent or
other charge to be paid by Tenant pursuant to this Lease within five (5)
business days after the same becomes due and payable, then Tenant shall pay a
late charge equal to the greater of five percent (5%) of the amount of such
payment or $250. In addition, interest shall be paid by Tenant to Landlord on
any late payments of Rent from the date due until paid at the rate provided in
Section 2D (2). Such late charge and interest shall constitute additional Rent
due and payable by Tenant to Landlord upon the date of payment of the delinquent
payment referenced above.
27. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel at
any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to make more payments or accept fewer services from
Landlord, than this Lease provides.
28. HAZARDOUS SUBSTANCES.
A. Tenant shall not cause or permit any Hazardous Substances to be
brought upon, produced, stored, used, discharged or disposed of in or near the
Project unless Landlord has consented to such storage or use in its sole
discretion. If any lender or governmental agency shall require testing for
Hazardous Substances in the Premises, Tenant shall pay for such testing.
B. "Hazardous Substances" means (a) any chemical, compound, material,
mixture or substance that is now or hereafter defined or listed in, or otherwise
classified pursuant to, any Environmental Laws as a "hazardous substance",
"hazardous material", "hazardous waste", "extremely hazardous waste", "acutely
hazardous waste", "radioactive waste", "infectious waste", "biohazardous waste",
"toxic substance", "pollutant", "toxic pollutant", contaminant" as well as any
formulation not mentioned herein intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "EP
toxicity", or "TCLP toxicity"; (b) petroleum, natural gas, natural gas liquids,
liquefied natural gas, synthetic gas usable for fuel (or mixtures of natural gas
and such synthetic gas) and ash produced by a resource recovery facility
utilizing a municipal solid waste stream, and drilling fluids, produced waters
and other wastes associated with the exploration, development or production of
crude oil, natural gas, or geothermal resources; (c) "hazardous substance" as
defined in Section 25281(f) of the California Health and Safety Code; (d)
"waste" as defined in Section 13050(d) of the California Water Code; (e)
asbestos in any form; (f) urea formaldehyde foam insulation; (g) polychlorinated
biphenyls (PCBs); (h) radon; and (i) any other chemical, material, or substance
exposure to which is limited or regulated by any Governmental Agency because of
its quantity, concentration, or physical or chemical characteristics, or which
poses a significant present or potential hazard to human health or safety or to
the environment if released into the workplace or the environment. "Hazardous
Substances"
33
shall not include ordinary office supplies and repair, maintenance and cleaning
supplies maintained in reasonable and necessary quantities and used in
accordance with all Environmental Laws. "Environmental Laws" means any and all
present and future federal, state and local laws, ordinances, regulations,
policies and any other requirements of any Governmental Agency relating to
health, safety, the environment or to any Hazardous Substances, including
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (CERCLA), the Resource Conservation Recovery Act (RCRA),
the Hazardous Materials Transportation Act, the Toxic Substance Control Act, the
Endangered Species Act, the Clean Water Act, the Occupational Safety and Health
Act, the California Environmental Quality Act and the applicable provisions of
the California Health and Safety Code, California Labor Code and the California
Water Code, each as hereafter amended from time to time, and the present and
future rules, regulations and guidance documents promulgated under any of the
foregoing.
C. Without limiting Tenant's liability and obligations under Sections
28(D), (E), (F) and (G), the foregoing covenant set forth in Section 28(A) shall
not extend to insignificant amounts of substances typically found or used in
general office applications so long as (i) such substances are maintained only
in such quantities as are reasonably necessary for Tenant's operations in the
Premises, (ii) such substances are used strictly in accordance with the
manufacturers' instructions therefor and all applicable Environmental Laws,
(iii) such substances are not disposed of in or about the Project in a manner
which would constitute a release or discharge thereof, and (iv) all such
substances are removed from the Project by Tenant upon the expiration or earlier
termination of this Lease. Tenant shall, within thirty (30) days after demand
therefor, provide to Landlord a written list identifying any Hazardous Materials
then maintained by Tenant in the Building, the use of each such Hazardous
Material so maintained by Tenant together with written certification by Tenant
stating, in substance, that neither Tenant nor any person for whom Tenant is
responsible has released or discharged any Hazardous Materials in or about the
Project.
D. In order to obtain Landlord's consent under this Section 28 with
respect to any Hazardous Material other than as specified in Section 28(C)
above, Tenant shall first submit a detailed hazardous material management plan
describing all relevant aspects of the same to Landlord for approval, which
approval may be withheld by Landlord in its sole and absolute discretion. No
approval by Landlord shall relieve Tenant of any obligation of Tenant pursuant
to this Section 28, including all removal, clean-up and indemnification
obligations. Tenant shall, within five (5) days after receipt thereof, furnish
to Landlord copies of all notices or other communications received by Tenant
with respect to any actual or alleged release or discharge of any Hazardous
Material in or about the Premises or the Project and shall, whether or not
Tenant receives any such notice or communication, notify Landlord in writing of
any discharge or release of Hazardous Material by Tenant or anyone for whom
Tenant is responsible in or about the Premises or the Project. In the event
Tenant is required to maintain any hazardous materials license or permit in
connection with any use conducted by Tenant or any equipment operated by Tenant
in the Premises, copies of each such license or permit, each renewal thereof,
and any communication relating to suspension, renewal or
34
revocation thereof shall be furnished to Landlord within five (5) days after
receipt thereof by Tenant. Compliance by Tenant with this Section 28(C) shall
not relieve Tenant of any other obligation of Tenant pursuant to this Section
28.
E. Upon any violation of the foregoing covenants and in all events upon
any expiration of the Term, Tenant shall be obligated, at Tenant's sole cost, to
clean up and remove from the Project all Hazardous Materials introduced into the
Project by Tenant or any third party for whom Tenant is responsible. Such
clean-up and removal shall include all testing and investigation required by any
governmental authorities having jurisdiction and preparation and implementation
of any remedial action plan required by any governmental authorities having
jurisdiction. All such clean-up and removal activities of Tenant shall, in each
instance, be conducted to the satisfaction of Landlord and all governmental
authorities having jurisdiction. Landlord's right of entry pursuant to Section
11 of this Lease shall include the right (but not the obligation) to enter and
inspect the Premises for violations of Tenant's covenant herein and to supervise
any of Tenant's clean-up and removal activities.
F. To the extent permitted by then applicable law, Tenant shall protect,
indemnify, defend and hold harmless Landlord, the partners of any entity
constituting Landlord and Landlord's partners, officers, employees, agents,
lenders and attorneys from and against any and all claims, liabilities, losses,
actions, costs and expenses (including attorneys' fees and costs of defense)
incurred by such indemnified persons, or any of them, as the result of (i) the
introduction into the Project by Tenant, its employees, agents, licensees,
invitees, contractors or any other person or entity for whom Tenant is
responsible of any Hazardous Material, (ii) the usage by Tenant or anyone for
whom Tenant is responsible of Hazardous Materials in or about the Project, (iii)
the discharge or release in or about the Project by Tenant or anyone for whom
Tenant is responsible of any Hazardous Material, (iv) any injury to or death of
persons or damage to or destruction of property resulting from the use by Tenant
or anyone for whom Tenant is responsible of Hazardous Materials in or about the
Project, and (v) any failure of Tenant or anyone for whom Tenant is responsible
to observe the foregoing covenants. Payment shall not be a condition precedent
to enforcement of the foregoing indemnification provision.
G. Upon any violation of any of the foregoing covenants, Landlord shall
be entitled to exercise all remedies available to a landlord against the
defaulting tenant, including but not limited to those set forth in Section 13 of
this Lease. Without limiting the generality of the foregoing, Tenant expressly
agrees that upon any such violation Landlord may, at its option (i) immediately
terminate this Lease, or (ii) continue this Lease in effect until compliance by
Tenant with its clean-up and removal covenant (notwithstanding the expiration of
the term of this Lease). No action by Landlord hereunder shall impair the
obligations of Tenant pursuant to this Section 28.
29. EXCULPATION. Landlord shall have no personal liability under this
Lease; its liability shall be limited to its interest in the Project, and shall
not extend to any other property or assets of the Landlord. In no event shall
any officer, director, employee, agent,
35
shareholder, partner, member or beneficiary of Landlord be personally liable for
any of Landlord's obligations hereunder. Without limiting Landlord's recourse
against Tenant, in no event shall any officer, director, employee, agent or
shareholder of Tenant be personally liable for any of Tenant's obligations
hereunder.
30. SIGNAGE. Subject to Landlord's reasonable prior written approval of
the location, design, size, color, material, composition and plans and
specifications therefor, Tenant may, at its sole cost and expense, construct and
maintain a top sign on the Building (the "Building Sign") to the extent
permitted by all Governmental Requirements. If Landlord grants its approval,
Tenant shall erect the Building Sign in accordance with the approved plans and
specifications, in a good and workmanlike manner, in accordance with all
applicable Governmental Requirements, now in force or hereafter enacted, of any
governmental entity or agency having jurisdiction over the Premises, and after
Tenant has received all requisite approvals thereunder (all of which being
referred to herein collectively as the "Sign Requirements"), and in a manner so
as not to unreasonably interfere with the construction or use of the Building,
Common Areas or other portions of the Project while such construction is taking
place, and thereafter, Tenant shall maintain the Building Sign in a good, clean
and safe condition and in accordance with the Sign Requirements, including all
repairs and replacements thereto. Upon the expiration or earlier termination of
the Lease Tenant shall, at its sole cost and expense, remove the Building Sign
and repair all damage caused thereby and restore the applicable portion of the
Building to its condition prior to the installation and removal of the Building
Sign.
31. EXTENSION OPTION. Subject to Subsections B and C below, Tenant may
at its option extend the Term of this Lease for the entire Premises for one
period of five (5) years (the "Renewal Term") upon the same terms contained in
this Lease, excluding the provisions of Section 32 and Appendix C of this Lease
and except for the amount of Base Rent payable during the Renewal Term. Tenant
shall have no additional extension option.
A. The Base Rent during the Renewal Term shall be the then prevailing
market rate for a comparable term commencing on the first day of the Renewal
Term for tenants of comparable size and creditworthiness for comparable space in
the Building and other first class office buildings in the South Orange County
area as reasonably determined by Landlord, including, without limitation, the
then prevailing market rate as reasonably determined by Landlord for the parking
stalls allocated to Tenant under the terms of this Lease.
B. To exercise its option, Tenant must deliver a binding (except as
provided in Section 31(C)(ii) below) notice to Landlord not less than nine (9)
months prior to the proposed commencement of the applicable Renewal Term.
Thereafter, the Market Rate for the Renewal Term shall be calculated pursuant to
Subsection C below and Landlord shall inform Tenant of the Market Rate. Such
calculations shall be final and shall not be recalculated at the actual
commencement of the Renewal Term. If Tenant fails to timely give its notice of
exercise, Tenant will be deemed to have waived its option to extend.
36
C. Market Rate shall be determined as follows:
(i) If Tenant provides Landlord with its binding notice of
exercise pursuant to Subsection B above, then at some point between ten
(10) and eight (8) months prior to the commencement of the applicable
Renewal Term (or, at Landlord's election, at an earlier point), Landlord
shall calculate and inform Tenant of the Market Rate. If Tenant rejects
the Market Rate as calculated by Landlord, Tenant shall inform Landlord
of its rejection within ten (10) days after Tenant's receipt of
Landlord's calculation, and Landlord and Tenant shall commence
negotiations to agree upon the Market Rate. If Tenant fails to timely
reject Landlord's calculation of the Market Rate it will be deemed to
have accepted such calculation. If Landlord and Tenant are unable to
reach agreement within twenty-one (21) days after Landlord's receipt of
Tenant's notice of rejection, then the Market Rate shall be determined
in accordance with (ii) below.
(ii) If Landlord and Tenant are unable to reach agreement on the
Market Rate within said twenty-one (21) day period, then within seven
(7) days, Landlord and Tenant shall each simultaneously submit to the
other in a sealed envelope its good faith estimate of the Market Rate.
If the higher of such estimates is not more than one hundred five
percent (105%) of the lower, then the Market Rate shall be the average
of the two. Otherwise, the dispute shall be resolved by arbitration in
accordance with (iii) and (iv) below; provided that Tenant may instead,
by written notice to Landlord given within seven (7) days after the
exchange of estimates, rescind its exercise of the extension option, in
which event this Lease shall expire at the end of the initial Term set
forth in the Schedule (and if Tenant fails to deliver such written
recision notice with such seven (7) day period, Tenant's notice of the
extension of the Term shall be binding and the Base Rent for the Renewal
Term shall be determined by arbitration as provided below).
(iii) Within seven (7) days after the exchange of estimates, the
parties shall select as an arbitrator an independent MAI appraiser with
at least five (5) years of experience in appraising office space in the
metropolitan area in which the Project is located (a "Qualified
Appraiser"). If the parties cannot agree on a Qualified Appraiser, then
within a second period of seven (7) days, each shall select a Qualified
Appraiser and within ten (10) days thereafter the two appointed
Qualified Appraisers shall select a third Qualified Appraiser and the
third Qualified Appraiser shall be the sole arbitrator. If one party
shall fail to select a Qualified Appraiser within the second seven (7)
day period, then the Qualified Appraiser chosen by the other party shall
be the sole arbitrator.
(iv) Within twenty-one (21) days after submission of the matter
to the arbitrator, the arbitrator shall determine the Market Rate by
choosing whichever of the estimates submitted by Landlord and Tenant the
arbitrator judges to be more accurate. The arbitrator shall notify
Landlord and Tenant of its decision, which shall
37
be final and binding. If the arbitrator believes that expert advice
would materially assist him, the arbitrator may retain one or more
qualified persons to provide expert advice. The fees of the arbitrator
and the expenses of the arbitration proceeding, including the fees of
any expert witnesses retained by the arbitrator, shall be paid by the
party whose estimate is not selected. Each party shall pay the fees of
its respective counsel and the fees of any witness called by that party.
D. Tenant's option to extend this Lease is subject to the conditions
that: (i) on the date that Tenant delivers its final binding notice exercising
its option to extend, Tenant is not in default under this Lease after the
expiration of any applicable notice and cure periods, and (ii) Tenant shall not
have assigned this Lease, or sublet any portion of the Premises under a sublease
which is in effect at any time during the final 12 months prior to the
applicable Renewal Term.
32. RIGHT OF FIRST REFUSAL. Subject to Subsection B below, Landlord
hereby grants to Tenant for the term set forth in this Section a right of first
refusal for space in Building 2 (27071 Aliso Creek Road) of the Project
(collectively, the "ROFR Space"), to be exercised in accordance with Subsection
A below. Tenant's right of first refusal with respect to the ROFR Space shall be
applicable only to Landlord's initial leasing of the ROFR Space; once any
portion of the ROFR Space has been leased (whether to Tenant or any other
party), Tenant shall have no further rights under this Section 32 with respect
to such portion of the ROFR Space.
A. If Landlord desires to accept a bona fide offer to initially lease
any of the ROFR Space during the term of the Tenant's rights under this Section,
Landlord shall so notify Tenant ("Landlord's ROFR Notice") identifying the
applicable ROFR Space (the "Subject ROFR Space") and the basic economic terms as
elected by Landlord for such ROFR Space. Tenant shall notify Landlord within
three (3) business days of receipt of Landlord's ROFR Notice whether it desires
to lease the Subject ROFR Space on the terms set forth in Landlord's ROFR
Notice. If Tenant does not notify Landlord within said 3 business day period
that it will lease the Subject ROFR Space, Tenant shall be deemed to have
refused the Subject ROFR Space. After any refusal, Landlord shall be free to
lease such space to any party upon basic economic terms not materially less
favorable to Landlord for a period of six (6) months (and if Landlord leases
such space to any party upon basic economic terms not materially less favorable
to Landlord within such six (6) month period, Tenant shall have no further right
of first refusal for such Subject ROFR Space). If Landlord fails to so lease
such Subject ROFR Space within such six (6) month period, or if Landlord desires
to accept a bona fide offer for such Subject ROFR Space during such six (6)
month period on basic economic terms materially less favorable to Landlord,
Tenant shall again have a right of first refusal with respect to such Subject
ROFR Space on the terms and conditions set forth in this Section 32. If Tenant
exercises its right of first refusal with respect to the Subject ROFR Space,
such space shall be added to the Premises for all purposes of this lease for the
remaining Term of this Lease on (a) the terms specified in Landlord's ROFR
Notice, and (b) the terms of this Lease to the extent that they do not conflict
with the terms specified in
38
Landlord's ROFR Notice, except that the terms of Landlord's ROFR Notice shall
not apply during any Renewal Term, and instead, the terms of this Lease applying
to the remainder of the Premises during the Renewal Term shall also apply to the
Subject ROFR Space.
B. Tenant's right of first refusal is subject to the conditions that:
(i) on the date that Tenant delivers its notice exercising its right of first
refusal, Tenant is not in default under this Lease after the expiration of any
applicable notice and cure periods, and (ii) Tenant shall not have assigned the
Lease, or sublet any portion of the Premises under a sublease which is in effect
at any time during the period commencing with Tenant's delivery of its notice
and ending on the date the ROFR Space is added to the Premises.
C. Promptly after Tenant's exercise of its right of first refusal,
Landlord shall execute and deliver to Tenant an amendment to the Lease to
reflect changes in the Premises, Base Rent, Tenant's Proportionate Share and any
other appropriate terms changed by the addition of the ROFR Space. Within 15
days thereafter, Tenant shall execute and return the amendment.
39
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
LANDLORD:
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By: /s/ THOMAS A. CARR
-------------------------------------
Print Name: Thomas A. Carr
-----------------------------
Print Title: President & CEO
----------------------------
TENANT:
ZLAND, INC.,
a California corporation
By: JOHN W. VEENSTRA
Print Name: John W. Veenstra
Print Title: CEO
By:
Print Name:
Print Title:
40
APPENDIX A
PLAN OF THE PREMISES
Attached.
APPENDIX A
Page 1 of 1
[DIAGRAM]
[DIAGRAM]
APPENDIX B
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door, partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Project.
2. The Project directory shall be available to Tenant solely to display
names and their location in the Project, which display shall be as directed by
Landlord.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises. Tenant shall lend its
full cooperation to keep such areas free from all obstruction and in a clean and
sightly condition and shall move all supplies, furniture and equipment as soon
as received directly to the Premises and move all such items and waste being
taken from the Premises (other than waste customarily removed by employees of
the Building) directly to the shipping platform at or about the time arranged
for removal therefrom. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Landlord shall, in all cases, retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord, reasonably
exercised, shall be prejudicial to the safety, character, reputation and
interests of the Project. Neither Tenant nor any employee or invitee of Tenant
shall go upon the roof of the Project.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall not
be used for any purposes other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and to the
extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not cause any unnecessary janitorial labor or services
by reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
6. Tenant shall not install or operate any refrigerating, heating or air
conditioning apparatus, or carry on any mechanical business without the prior
written consent of Landlord; use the Premises for housing, lodging or sleeping
purposes; or permit preparation or warming of food in the Premises (warming of
coffee and individual meals with employees and guests excepted). Tenant shall
not occupy or use the Premises or permit the Premises to be occupied or used for
any purpose, act or thing which is in violation of any Governmental Requirement
or which may be dangerous to persons or property.
APPENDIX B
Page 1 of 5
7. Tenant shall not bring upon, use or keep in the Premises or the
Project any kerosene, gasoline or inflammable or combustible fluid or material,
or any other articles deemed hazardous to persons or property, or use any method
of heating or air conditioning other than that supplied by Landlord.
8. Landlord shall have sole power to direct electricians as to where and
how telephone and other wires are to be introduced. No boring or cutting for
wires is to be allowed without the consent of Landlord. The location of
telephones, call boxes and other office equipment affixed to the Premises shall
be subject to the approval of Landlord.
9. No additional locks shall be placed upon any doors, windows or
transoms in or to the Premises. Tenant shall not change existing locks or the
mechanism thereof. Upon termination of the lease, Tenant shall deliver to
Landlord all keys and passes for offices, rooms, parking lot and toilet rooms
which shall have been furnished Tenant.
In the event of the loss of keys so furnished, Tenant shall pay
Landlord therefor. Tenant shall not make, or cause to be made, any such keys and
shall order all such keys solely from Landlord and shall pay Landlord for any
keys in addition to the two sets of keys originally furnished by Landlord for
each lock.
10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
11. No furniture, packages, supplies, equipment or merchandise will be
received in the Project or carried up or down in the freight elevator, except
between such hours and in such freight elevator as shall be designated by
Landlord. Tenant shall not take or permit to be taken in or out of other
entrances of the Building, or take or permit on other elevators, any item
normally taken in or out through the trucking concourse or service doors or in
or on freight elevators.
12. Tenant shall cause all doors to the Premises to be closed and
securely locked and shall turn off all utilities, lights and machines before
leaving the Project at the end of the day.
13. Without the prior written consent of Landlord, Tenant shall not use
the name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of, Tenant, except Tenant may use the
address of the Project as the address of its business.
14. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises' or the Project's heating and air
conditioning, and shall refrain
APPENDIX B
Page 2 of 5
from attempting to adjust any controls, other than room thermostats installed
for Tenant's use. Tenant shall keep corridor doors closed.
15. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which may arise from a cause other than
Landlord's negligence, which includes keeping doors locked and other means of
entry to the Premises closed and secured.
16. Peddlers, solicitors and beggars shall be reported to the office of
the Project or as Landlord otherwise requests.
17. Tenant shall not advertise the business, profession or activities
of Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.
18. No bicycle or other vehicle and no animals or pets shall be allowed
in the Premises, halls, freight docks, or any other parts of the Building
except that blind persons may be accompanied by "seeing eye" dogs. Tenant shall
not make or permit any noise, vibration or odor to emanate from the Premises,
or do anything therein tending to create, or maintain, a nuisance, or do any
act tending to injure the reputation of the Building.
19. Tenant acknowledges that Building security problems may occur which
may require the employment of extreme security measures in the day-to-day
operation of the Project.
Accordingly:
(a) Landlord may, at any time, or from time to time, or for
regularly scheduled time periods, as deemed advisable by Landlord and/or its
agents, in their sole discretion, require that persons entering or leaving the
Project or the Property identify themselves to watchmen or other employees
designated by Landlord, by registration, identification or otherwise.
(b) Tenant agrees that it and its employees will cooperate fully
with Project employees in the implementation of any and all security procedures.
(c) Such security measures shall be the sole responsibility of
Landlord, and Tenant shall have no liability for any action taken by Landlord
in connection therewith, it being understood that Landlord is not required to
provide any security procedures and shall have no liability for such security
procedures or the lack thereof.
APPENDIX B
Page 3 of 5
20. Tenant shall not do or permit the manufacture, sale, purchase, use
or gift of any fermented, intoxicating or alcoholic beverages without obtaining
written consent of Landlord.
21. Tenant shall not disturb the quiet enjoyment of any other tenant.
22. Tenant shall not provide any janitorial services or cleaning
without Landlord's written consent and then only subject to supervision of
Landlord and at Tenant's sole responsibility and by janitor or cleaning
contractor or employees at all times satisfactory to Landlord.
23. Landlord may retain a pass key to the Premises and be allowed
admittance thereto at all times to enable its representatives to examine the
Premises from time to time and to exhibit the same and Landlord may place and
keep at any time signs advertising the Premises for Rent.
24. No equipment, mechanical ventilators, awnings, special shades or
other forms of window covering shall be permitted either inside or outside the
windows of the Premises without the prior written consent of Landlord, and then
only at the expense and risk of Tenant, and they shall be of such shape, color,
material, quality, design and make as may be approved by Landlord.
25. Tenant shall not during the term of this Lease canvas or solicit
other tenants of the Building for any purpose.
26. Tenant shall not install or operate any phonograph, musical or
sound-producing instrument or device, radio receiver or transmitter, TV
receiver or transmitter, or similar device in the Building, nor install or
operate any antenna, aerial, wires or other equipment inside or outside the
Building, nor operate any electrical device from which may emanate electrical
waves which may interfere with or impair radio or television broadcasting or
reception from or in the Building or elsewhere, without in each instance the
prior written approval of Landlord. The use thereof, if permitted, shall be
subject to control by Landlord to the end that others shall not be disturbed.
27. Tenant shall promptly remove all rubbish and waste from the
Premises.
28. Tenant shall not exhibit, sell or offer for sale, Rent or exchange
in the Premises or at the Project any article, thing or service, except those
ordinarily embraced within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord.
29. Tenant shall list all furniture, equipment and similar articles
Tenant desires to remove from the Premises or the Building and deliver a copy
of such list to Landlord and
APPENDIX B
Page 4 of 5
procure a removal permit from the Office of the Building authorizing Building
employees to permit such articles to be removed.
30. Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building.
31. Tenant shall not do any painting in the Premises, or mark, paint,
cut or drill into, drive nails or screws into, or in any way deface any part of
the Premises or the Building, outside or inside, without the prior written
consent of Landlord.
32. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's sole discretion, and Landlord's satisfaction
shall be determined in its sole judgment.
33. Tenant and its employees shall cooperate in all fire drills
conducted by Landlord in the Building.
APPENDIX B
Page 5 of 5
APPENDIX C
TENANT IMPROVEMENT AGREEMENT
1. INITIAL IMPROVEMENTS. Landlord shall cause to be performed the
improvements (the "Initial Improvements") in the Premises in accordance with
plans and specifications approved by Tenant and Landlord (the "Plans"), which
approvals shall not be unreasonably withheld. The Initial Improvements shall be
performed at the Tenant's cost, subject to the Landlord's Contribution
(hereinafter defined). The Initial Improvements shall include the installation
of a separate meter for Tenant's computer room (the "Meter").
Landlord shall cause the Plans to be prepared, at Tenant's cost, by a
registered professional architect and mechanical and electrical engineer(s),
approved by the Landlord. Tenant shall within two (2) weeks after receipt of the
Plans either provide reasonable and detailed written comments to such Plans or
approve the same. Tenant shall be deemed to have approved such Plans if it does
not timely provide comments on such Plans. If Landlord provides Tenant with
revised Plans, Tenant shall within one week after receipt then either provide
reasonable and detailed written comments to such revised Plans or approve such
Plans. Tenant shall be deemed to have approved such revised Plans if Tenant does
not timely provide comments on such Plans. Tenant hereby acknowledges and agrees
that the Plans for the Initial Improvements must comply with all applicable
Governmental Requirements, but that Landlord's preparation of any of the Plans
(or any modifications or changes thereto) shall not impose upon Landlord or its
agents or representatives any obligation with respect to the design of the
Initial Improvements or the compliance of such Initial Improvements or the Plans
with applicable Governmental Requirements.
Landlord, with consultation of Tenant, shall select a contractor to
perform the construction of the Initial Improvements. Landlord shall use
commercially reasonable efforts to cause the Initial improvements for each Phase
of the Premises to be substantially completed, except for minor "Punch List"
items, on or before the Estimated Commencement Date for such Phase of the
Premises specified in the Schedule to the Lease, subject to Tenant Delay (as
defined in Section 4 hereof) and Force Majeure.
Landlord, or an agent of Landlord, shall provide project management
services in connection with the construction of the Initial Improvements and the
Change Orders (hereinafter defined). Such project management services shall be
performed, at Tenant's cost, for a fee of five percent (5%) of all costs related
to the preparation of the Plans and the construction of the Initial Improvements
and the Change Orders.
2. CHANGE ORDERS. If, prior to the Commencement Date, Tenant shall
require improvements or changes (individually or collectively, "Change Orders")
to any of the Premises in addition to, revision of or substitution for the
Initial Improvements, Tenant shall deliver to Landlord for its approval plans
and specifications for such Change Orders. If Landlord does not approve of the
plans for Change Orders, Landlord shall advise Tenant of the revisions required.
Tenant shall revise and redeliver the plans and specifications to Landlord
within five (5) business days of Landlord's advice or Tenant shall be deemed to
have abandoned its request for such Change Orders. Tenant shall pay for all
preparations and revisions of plans and specifications, and the construction of
all Change Orders, subject to Landlord's Contribution.
APPENDIX C
Page 1 of 4
3. LANDLORD'S CONTRIBUTION. Landlord shall contribute toward the costs
incurred for the Initial Improvements and Change Orders for each Phase an amount
up to the following amount for each Phase of the Premises ("Landlord's
Contribution"):
Landlord's Contribution
Phase A $393,860
Phase B $203,700
Phase C $203,700
The costs of the Meter, up to a maximum of $500, shall be applied against
Landlord's Contribution. Landlord has no obligation to pay for costs of the
Initial Improvements or Change Orders for any Phase in excess of Landlord's
Contribution for such Phase. If the cost of the Initial Improvements and/or
Change Orders for any Phase exceeds the Landlord's Contribution for such Phase,
Tenant shall pay such overage to Landlord prior to commencement of construction
of the Initial Improvements and/or Change Orders for such Phase (and any unused
Landlord's Contribution for any Phase cannot be used to offset the cost of the
Initial Improvements and/or Change Orders for any other Phase).
4. COMMENCEMENT DATE DELAY. The Commencement Date for each Phase of the
Premises shall be delayed beyond the Estimated Commencement Date for such Phase
of the Premises until the Initial Improvements for such Phase of the Premises
have been substantially completed (the "Completion Date"), except to the extent
that the delay shall be caused by any one or more of the following (a "Tenant
Delay"):
(a) Tenant's request for Change Orders whether or not any such
Change Orders are actually performed; or
(b) Contractor's performance of any Change Orders; or
(c) Tenant's request for materials, finishes or installations
requiring unusually long lead times; or
(d) Tenant's delay in reviewing, revising or approving plans and
specifications beyond the periods set forth herein; or
(e) Tenant's delay in providing information critical to the
normal progression of the project. Tenant shall provide such information as soon
as reasonably possible, but in no event longer than one week after receipt of
such request for information from the Landlord; or
(f) Tenant's delay in making payments to Landlord for costs of
the Initial Improvements and/or Change Orders in excess of the Landlord's
Contribution; or
APPENDIX C
Page 2 of 4
(g) Any other act or omission by Tenant, its agents, contractors or
persons employed by any of such persons.
If the Commencement Date for any Phase of the Premises is delayed for any
reason, then Landlord shall cause Landlord's Architect to certify the date on
which the Initial Improvements would have been completed but for such Tenant
Delay, or were in fact completed without any Tenant Delay.
Without limiting the foregoing regarding Tenant Delay, if Landlord has
not substantially completed construction of the Initial Improvements for any
Phase of the Premises on or before the date which is fifteen (15) days after
Estimated Commencement Date for such Phase of the Premises (the "Outside Date")
as a result of a Landlord Delay, then as Tenant's sole remedy for the delay,
Tenant's obligation to pay Base Rent for the Phase of the Premises affected by
such Landlord Delay (but not any other portion of the Premises) shall be abated
after the Commencement Date for the Phase of the Premises so affected, for each
day of Landlord Delay beyond the applicable Outside Date by an amount equal to
$1.50 multiplied by the Rentable Area of the Phase of the Premises to which such
Landlord Delay applies, divided by the number of days in the calendar month to
which such abatement applies. Further, without limiting the foregoing regarding
Tenant Delay, if Landlord has not substantially completed construction of the
Initial Improvements for Phase A of the Premises on or before November 15, 1999
as a result of a Landlord Delay, than as Tenants' sole remedy for the delay,
Tenant may, on or before November 30, 1999, elect to terminate this Lease as to
the entire Premises by written notice to Landlord (in which event if Tenant
timely delivers such notice, this Lease shall thereafter terminate, excluding
any obligations which survive any termination and excluding any obligations to
pay for work performed prior to the date of such termination). If Tenant fails
to deliver notice of such termination on or before November 30, 1999, Tenant
shall be deemed to have elected not to terminate this Lease and the provisions
of the immediately preceding sentence shall be of no further force or effect. As
used herein "Landlord Delay" means any action or omission by Landlord that
actually delays the substantial completion of the Initial Improvements for the
Phase A Premises, and shall not include Tenant Delay or any delay resulting from
Force Majeure.
5. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. Landlord at its
discretion may permit Tenant and its agents to enter any portion of the Premises
prior to the Commencement Date for such portion of the Premises to prepare the
Premises for Tenant's use and occupancy. Any such permission shall constitute a
license only, conditioned upon Tenant's:
(a) working in harmony with Landlord and Landlord's agents,
contractors, workmen, mechanics and suppliers and with other tenants and
occupants of the Building;
(b) obtaining in advance Landlord's approval of the contractors
proposed to be used by Tenant and depositing with Landlord in advance of any
work (i) security satisfactory to Landlord for the completion thereof, and (ii)
the contractor's affidavit for the proposed work and the waivers of lien from
the contractor and all subcontractors and suppliers of material; and
(c) furnishing Landlord with such insurance as Landlord may require
against liabilities which may arise out of such entry.
APPENDIX C
Page 3 of 4
Landlord shall have the right to withdraw such license for any reason
upon twenty-four (24) hours' written notice to Tenant. Landlord shall not be
liable in any way for any injury, loss or damage which may occur to any of
Tenant's property or installations in the Premises prior to the Commencement
Date. Tenant shall protect, defend, indemnify and save harmless Landlord from
all liabilities, costs, damages, fees and expenses arising out of the
activities of Tenant or its agents, contractors, suppliers or workmen in the
Premises or the Building. Any entry and occupation permitted under this Section
shall be governed by Section 5 and all other terms of the Lease.
6. MISCELLANEOUS.
Tenant acknowledges and agrees that the construction of the Initial
Improvements in the Phase B Premises and Phase C Premises shall continue after
Tenant has taken occupancy of a portion of the Premises, and Tenant agrees that
such construction shall not affect Tenant's obligations under this Lease or
constitute an eviction of Tenant from the Premises. Terms used in this Appendix
C shall have the meanings assigned to them in this Lease. The terms of this
Appendix C are subject to the terms of this Lease.
APPENDIX C
Page 4 of 4
APPENDIX D
MORTGAGES CURRENTLY AFFECTING THE PROJECT
NONE
APPENDIX D
Page 1 of 1
APPENDIX E
COMMENCEMENT DATE CONFIRMATION
Landlord: CarrAmerica Realty Corporation, a Maryland corporation
Tenant: Zland, Inc., a California corporation
This Commencement Date Confirmation is made by Landlord and Tenant
pursuant to that certain Lease dated as of __________ , 1999 (the "Lease") for
certain premises known as ___________ in the building commonly known as Building
3 of the Pacific Corporate Plaza (the "Premises"). This Confirmation is made
pursuant to Item 9 of the Schedule to the Lease.
1. Lease Commencement Date, Termination Date. Landlord and Tenant hereby
agree that the Commencement Date for the Phase __ Premises is _______ , 1999.
The Termination Date of the Lease is ________________ , ______ .
2. Acceptance of Premises. Tenant has inspected the Phase __ Premises and
affirms that the Phase __ Premises is acceptable in all respects in its current
"as is" condition.
3. Incorporation. This Confirmation is incorporated into the Lease, and
forms an integral part thereof. This Confirmation shall be construed and
interpreted in accordance with the terms of the Lease for all purposes.
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By:
Name:
Title:
APPENDIX E
Page 2 of 2
APPENDIX F
JANITORIAL SERVICES
Attached.
APPENDIX F
CURRENT JANITORIAL SPECIFICATIONS
A. ELEVATORS, LOBBIES AND CORRIDORS
1. NIGHTLY
a. Thoroughly wash all glass including low partitions and
the corridor side of all windows and glass doors.
b. Spot clean all chrome bright work including door
hardware, kick plates, hose cabinets, and visible
hardware on the corridor side of tenant entry door.
c. Spot clean, sweep, and vacuum all lobby carpeting.
d. Empty and clean waste paper baskets and refuse
receptacles.
e. Spot clean and dust directory board glass.
f. Stairwells will be walked nightly and policed as needed.
2. WEEKLY
a. Sweep all stairwells and landings.
3. MONTHLY
a. All carpeted floors will be spot cleaned as necessary.
Each crew is equipped with a carpet brush and "Folex"
the spotting agent. Any spots not removable by normal
shampooing will be reported to you.
b. Dust all horizontal surfaces and ledges not attended to
in nightly service. This includes corners and edges.
C. Sweep entryway.
B. OFFICE AREAS
1. NIGHTLY
a. Empty trash cans, clean thoroughly inside and out.
Replace liners as needed.
b. Feather dust all desks, file cabinets, windowsills,
chairs, tables, pictures, and telephones thoroughly.
Glass top desks, tables are to be cleaned nightly with
towels and glass cleaner and dried thoroughly.
c. Water fountains are to be cleaned, polished, sanitized
and dried thoroughly.
d. Spot clean entrance and exit doors, including door
frames and around switch plates and corner guards to
remove fingerprints, soil, etc. This process applied to
both sides of the doors.
e. All chairs and trash cans will be arranged in an orderly
manner each night.
f. Dust mop and spot damp mop tile floors.
g. Vacuum all traffic areas.
2. WEEKLY
a. Spot clean glass partitions with glass cleaner and paper
towels to eliminate fingermarks and smudges.
b. Spot clean all furniture, files, telephones and
accessories, to remove streaks, stains, spills, and
fingermarks.
3. MONTHLY
a. All carpeted floors will be edged with a small broom or
other edging tool, paying particular attention to
corners, behind doors, and around furniture.
b. Wipe with dust cloth all chair legs and rungs, and
furniture legs and other areas of furniture and
accessories not dusted during the regular dusting.
c. All hard-surfaced floors will be spray buffed with a
electric rotary buffing machine as necessary. All wax
marks will be removed from baseboards, doors, and
frames.
d. All horizontal surfaces and ledges, such as picture
frames that are beyond reach of normal dusting will be
dusted using a dust cloth.
Next Section
Previous Section