-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lfzngn+rJMW3ewrG7g0eHJnFon0XiOkjUfXvE6PO4Zv39YR5BKxwMRjer2rPPLFY ZTUwlnAhWoomtbDJqvpGWw== 0001047469-98-036786.txt : 19981012 0001047469-98-036786.hdr.sgml : 19981012 ACCESSION NUMBER: 0001047469-98-036786 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 30 FILED AS OF DATE: 19981008 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSUMER NET MARKETPLACE INC CENTRAL INDEX KEY: 0001050277 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954580601 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-65489 FILM NUMBER: 98722937 BUSINESS ADDRESS: STREET 1: 1900 LOS ANGELES ST STREET 2: 2ND FLOOR CITY: SIMI VALLEY STATE: CA ZIP: 93065 BUSINESS PHONE: 8055207170 MAIL ADDRESS: STREET 1: 1900 LOS ANGELES ST STREET 2: 2ND FLOOR CITY: SIMI VALLEY STATE: CA ZIP: 93065 S-1 1 S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1998 REGISTRATION NO. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- CONSUMER NET MARKETPLACE, INC. (Exact Name of Issuer as specified in its Charter) CALIFORNIA 4825 95-4580601 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification Incorporation or Organization) Number)
1900 LOS ANGELES AVE., SECOND FLOOR SIMI VALLEY, CALIFORNIA 93065 (805) 520-7170 (Address and Telephone Number of Principal Executive Offices) FREDRICK RICE, CHAIRMAN OF THE BOARD OF DIRECTORS CONSUMER NET MARKETPLACE, INC. 1900 LOS ANGELES AVE., SECOND FLOOR SIMI VALLEY, CALIFORNIA 93065 (805) 520-7170 (Name, address and telephone number of agent for service) -------------------------- COPIES TO: RICHARDSON & ASSOCIATES MARK J. RICHARDSON, ESQ. LAURA D. MURTAGH, ESQ. 1299 OCEAN AVENUE, SUITE 900 SANTA MONICA, CALIFORNIA 90401 (310) 393-9992 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act of 1933 registration statement number of the earlier registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION FEE Common Stock......................... 3,596,577 $14.00 $50,352,078 $14,853.86 Outstanding Common Stock............. 403,423 $14.00 $5,647,922 $1,666.14 Total................................ 4,000,000 $56,000,000 $16,520.00
------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED OCTOBER 8, 1998 PROSPECTUS [LOGO] CONSUMER NET MARKETPLACE, INC. 4,000,000 SHARES OF COMMON STOCK ------------------ Consumer Net Marketplace, Inc., a California Corporation ("CNM" or the "Company") is a full service Internet Service Provider ("ISP") and Internet Presence Provider ("IPP"). As an ISP, the Company offers dial-up access to the Internet as well as ISDN, frame relay, IDSL, and many other DSL products and services. As an IPP, the Company provides Web hosting and creation, virtual domain hosting, co-location services, technical support, and training. The Company is focused on providing complete individual and business products and services over the Internet. Additionally, the Company is currently implementing the equipment and software necessary to provide Voice over Internet Protocol ("VoIP"). See "BUSINESS." The shares covered by this Prospectus are comprised of (i) 3,596,577 shares of the Common Stock (the "Shares") of CNM and (ii) an aggregate of 403,423 outstanding shares of Common Stock (the "Outstanding Shares") which were issued to several investors in a private placement and to an officer and director of the Company (collectively, the "Shareholders"). See "SELLING SECURITY HOLDERS." This is the Company's initial public offering. No public market currently exists for the Company's shares. The offering price may not reflect the market price of the Company's shares after the offering. The Company will not receive any proceeds from the sale of the Outstanding Shares. The Company will apply to have its Common Stock approved for quotation on the Nasdaq Small Cap Market under the trading symbol "CNMN" if the Company raises sufficient net proceeds from this offering to satisfy the listing requirements of the Nasdaq Small Cap Market. See "RISK FACTORS--No Public Market for Common Stock."
UNDERWRITING DISCOUNTS AND PROCEEDS TO PRICE TO PUBLIC COMMISSIONS(1) COMPANY Per Share.......................................... $14.00 $0 $50,352,078 Per Outstanding Share.............................. $14.00 $0 $0 Total.............................................. -- $0 $50,352,078
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS." --------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - ------------------------ (1) No Underwriters are involved in the offer or sale of the Shares or the Outstanding Shares at this time. The Shares and Outstanding Shares of Common Stock are offered by the officers, directors and employees of the Company on a best efforts basis. No selling commissions will be paid to the officers, directors or employees of the Company for Shares or Outstanding Shares sold by them. The Shares and Outstanding Shares may also be offered and sold on a best efforts basis by registered broker-dealers selected by the Company who are members of the National Association of Securities Dealers, Inc. ("NASD"). The Company may pay selling commissions to firms that are members of the NASD for Shares or Outstanding Shares sold by them. As of the date of this Prospectus, no selling agreements have been entered into by the Company with broker-dealer firms. See "PLAN OF DISTRIBUTION." PROSPECTUS SUMMARY THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. THE COMPANY Consumer Net Marketplace, Inc., a California corporation (the "Company" or "CNM"), commenced operations in January 1996 and was incorporated in May 1996. The Company is currently in the process of implementing a major expansion of its technical capability and infrastructure. Since March 1998, CNM has recruited several high level computer engineers and systems analysts who have established the Company as a full service Internet Service Provider ("ISP") and Internet Presence Provider ("IPP"). See "MANAGEMENT." In June 1998, the Company relocated to over 7,200 square feet of space enabling CNM to install and operate a highly secure data and telecommunications facility and to accommodate the new CNM headquarters. See "BUSINESS--Facilities." As an Internet Service Provider, the Company offers reliable, fast, and inexpensive dial-up access to the Internet for businesses and individuals as well as ISDN, frame relay, Digital Subscriber Lines ("DSL") and many other DSL products and services. The Company also provides Web hosting and creation, virtual domain hosting, co-location services, technical support, and training. The Company operates a high capacity OC12x3 ATM SONET that is linked directly to the Internet backbone. The Company is currently implementing the equipment and software necessary to provide Voice over Internet Protocol ("VoIP"). This equipment, along with Ascend GRF 1600 routers, Ascend Max TNTs, Ascend Max 6000s, Ascend GRF 400 routers, and CBX 500 ATM switches enables CNM to provide data communications and quality of service ("QOS") voice telecommunications. Through access arrangements with competitive local exchange carriers ("CLECs"), the Company is installing its switching equipment in several "Points of Presence" ("POPs") to expand its telecommunications network, initially in California and subsequently on a national basis. The Company plans to implement additional POPs in other countries that would enable the Company to provide Internet services and VoIP to customers on a global basis. CNM provides two levels of service. These services are classified as "Personal" and "Business." Personal Services are defined as services designed and implemented for the individual user. Business Services are defined as services designed and implemented for business owners, executives, and employees. Through relationships established by CNM with Ascend Communications, ICG Telecom Group, Inc., Pacific Bell Internet, PacNet, Covad, and other telecommunications companies, the Company will implement both levels of service in Southern California up through Northern California, including San Francisco and Sacramento. The Company's short term plan is to expand coverage of both levels of service on a national basis. The Company's long term plan is to implement these same services on a global basis. Although the Company provides high quality service at low prices for individuals, the Company's primary focus is providing complete business solutions worldwide. The Company also developed, owns, and operates the Consumer Net Marketplace shopping mall on the Internet, which has been on-line since September 1996. Consumer Net Marketplace provides information and sources for the purchase of consumer products and services over the Internet in a convenient shopping mall presentation. Since the introduction of the Company's shopping mall, the Company maintains over 1,200 businesses averaging 1,000,000 hits per month by Internet users. 3 The Company has developed proprietary software to enable secure commercial transactions (i.e., purchases and sales) to be conducted within the CNM Network-TM- and on other Web sites. The Company has also recently developed a proprietary provisioning system allowing users complete and simplified automation of all the Company's services. The Company has recently entered into extensive advertising agreements with Eller Media Company, Advo, Visa Card, Cable Networks and several major Southern California radio stations as well as multiple reseller agreements to conduct the Company's retail marketing program for prospective dial-up and business solution customers. See "BUSINESS--Commerce on the Internet," "BUSINESS--Internet Presence Provider--Web Services" and "BUSINESS--Marketing and Revenues." The Company's executive offices are located at 1900 Los Angeles Avenue, Second Floor, Simi Valley, California 93065, (805) 520-7170. The Company's Internet addresses are: WWW.CNMNETWORK.COM, WWW.CONSUMERMARKET.COM, and WWW.CNMINC.COM. The Company's email address is: INFO@CNMNETWORK.COM. Information contained on the Company's World Wide Web site shall not be deemed to be a part of this Prospectus. THE OFFERING Type of Security Registered.......................... Common Stock, no par value. Number of Outstanding Shares of Series 1 Class A Common Stock....................................... 6,534,250(2) Number of Outstanding Shares of Series 1 Class B Common Stock....................................... 75,000 Common Stock Offered................................. 3,596,577 shares Outstanding Common Stock Offered(1).................. 403,423 shares Common Stock Outstanding after this Offering......... 10,130,827 Shares(2) Use of Proceeds...................................... To finance enhancements to the Company's network infrastructure, to fund new service and product introductions, to finance protential acquistions, and for working capital and other general corporate purposes. Proposed Nasdaq Symbol............................... CNMN Risk Factors......................................... The Common Stock offered hereby involves a high degree of risk. See "RISK FACTORS."
- ------------------------ (1) The investors in a prior private placement are offering 10%, and the Chairman and President of the Company is offering 5%, of the shares of the Company's Common Stock owned by them for sale in this offering, which equals a total of 403,423 Outstanding Shares. See "SELLING SECURITY HOLDERS." (2) Based on shares of Common Stock outstanding as of October 5, 1998. This amount excludes (i) 250,000 shares of Series 1 Class B Common Stock reserved for issuance upon the exercise of options outstanding at an exercise price of $0.50 per share, (ii) 1,970,000 shares of Common Stock reserved for issuance upon the exercise of stock options outstanding under the Company's 1997 Stock Option Plan at an exercise price of $2.00 per share, (iii) 127,500 shares of Common Stock reserved for issuance upon the exercise of stock options outstanding which were granted outside of the Company's 1997 Stock Option Plan, and (iv) 30,000 shares of Common Stock and 100,000 shares of Series 1 4 Class B Common Stock reserved for issuance upon the exercise of stock options which may be granted in the future under the Company's 1997 Stock Option Plan. See "CAPITALIZATION," "MANAGEMENT--Stock Option Plan" and "DESCRIPTION OF CAPITAL STOCK." The number of shares of Common Stock outstanding also do not include any shares which may be acquired by Eller Media Company pursuant to its proposed subscription agreement with the Company. See "BUSINESS-- Proposed Agreement with Eller Media Company." SUMMARY FINANCIAL DATA CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY)
PERIOD FROM SIX MONTHS ENDED SIX MONTHS ENDED INCEPTION ON JUNE 30, 1998 JUNE 30, 1997 YEAR ENDED 5/9/96 TO (UNAUDITED) (UNAUDITED) DECEMBER 31, 1997 12/31/96 ----------------- ----------------- ----------------- ---------------- STATEMENT OF OPERATIONS: Revenues.............................. $ 11,713 $ 6,916 $ 30,697 $ 20,828 Loss before income taxes.............. (602,436) (9,374) (1,101,605) (101,699) Net Loss.............................. (603,236) (10,174) (1,102,405) (102,499) PER COMMON SHARE DATA: Net Loss.............................. (.11) (.00) (.22) (.02) Cash Dividends........................ 0 0 0 0 Book Value............................ (.07) (.02) (.11) (.02) Number of Shares, weighted average(1).......................... 5,273,290 5,003,619 5,037,857 5,000,000 BALANCE SHEET DATA: Total Assets.......................... 856,970 45,550 81,973 25,795 Long-Term Debt(2)..................... 0 0 0 0 Shareholders' Equity.................. (385,040) (112,173) (542,404) (101,999)
- ------------------------ (1) Includes 75,000 shares of Series 1 Class B Common Stock. See "DESCRIPTION OF CAPITAL STOCK." (2) Does not include a noninterest-bearing promissory note in the principal amount of $500,000 payable on demand by the Company to Consumer Net Partners, an affiliated California general partnership. See "BUSINESS--Previous Financing and Development Arrangement." 5 RISK FACTORS Investing in CNM's Shares is risky. You should be able to bear a complete loss of your investment. You should carefully consider the following factors, among others. CAUTIONARY STATEMENTS This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the risk factors below and elsewhere in this Prospectus. Important factors that may cause actual results to differ from projections include, for example: - adverse economic conditions - intense competition, including entry of new competitors and products - adverse federal, state and local government regulation - inadequate capital to operate its business - unexpected costs and operating deficits - lower sales and revenues than forecast - inability to develop marketable products and services - technological obsolescence and other problems relating to the Company's products and services - loss of customers or inability to attract new business or individual customers - inability to establish consumer confidence in conducting transactions on the Internet - price competition forcing the Company's prices down - inability to upgrade and develop its systems and attract or retain qualified personnel - lack of traffic on the Company's Web site - systems downtime or Internet brownouts - the risk associated with the Year 2000 in connection with computer programs with which the Company may interact that read only the last two digits of an annual date - the risk of credit card fraud and other types of fraud and theft which may be perpetrated by computer hackers and on-line thieves - increased costs for supplies, components and personnel, or loss of suppliers and contracts - the risk of litigation and administrative proceedings involving the Company and its employees - the possible acquisition of new businesses that result in operating losses or that do not perform as anticipated, resulting in unanticipated losses - the possible fluctuation and volatility of the Company's operating results and financial condition - adverse publicity and news coverage - loss of key executives - changes in interest rates - inflationary factors 6 - and other specific risks that may be alluded to in this Prospectus or in other reports issued by the Company. The Company does not promise to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. LIMITED OPERATING HISTORY--NEW BUSINESS The Company commenced operations in January 1996, incorporated on May 9, 1996, and initiated its Web site in September 1996. Accordingly, the Company has a limited operating history on which to base an evaluation of its business and prospects. The Company's prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their development stage, particularly companies in new and rapidly evolving markets. Such risks for the Company include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks, the Company must, among other things, obtain a customer base, implement and successfully execute its business and marketing strategy, continue to develop and upgrade its technology, improve its Web sites, provide superior customer service, respond to competitive developments, and attract, retain, and motivate qualified personnel. There can be no assurance that the Company will be successful in addressing such risks, and the failure to do so could have a material adverse effect on the Company's business, prospects, financial condition, and results of operations. Since inception, the Company has incurred operating losses. As of June 30, 1998, the Company had an accumulated deficit of $1,808,140. For the year ended December 31, 1997, the Company had a net loss of $1,102,405, and for the six months ended June 30, 1998, the Company had a net loss of $603,236. As a development stage company, the Company has only recently begun to earn revenues. The Company believes that its success will depend in large part on its ability to (i) obtain brand name recognition, (ii) provide its customers with outstanding service, (iii) achieve sufficient sales volume to realize economies of scale, and (iv) successfully establish its technological infrastructures. Accordingly, the Company intends to invest heavily in marketing and promotion, site development, technology and operating infrastructure. As a result, the Company expects to incur operating losses in the foreseeable future. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected shortfall of revenues. Any significant shortfall of demand for the Company's products and services in relation to the Company's expectations would have an immediate adverse impact on the Company's business, operating results, and financial condition. SPECULATIVE NATURE OF BUSINESS The market for the Company's Internet services has only recently begun to develop, is rapidly evolving, and is characterized by an increasing number of market entrants who have introduced or developed products and services for communication and commerce over the Internet and private networks. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty. The industry is young and has few proven products or services. Moreover, critical issues concerning the commercial use of the Internet (including security, reliability, cost, ease of use and access, and quality of service) remain unresolved and may impact the growth of Internet use. While the Company believes that its on-line services will offer significant advantages for commerce and communication over the Internet and private networks, there can be no assurance that such activities will become widespread, or that the Company's services will become widely adopted for these purposes. The adoption of the Internet for commerce and communications, particularly by those individuals and enterprises which have historically relied upon alternative means of commerce and communication, generally requires the acceptance of a new way of conducting business and exchanging information. In particular, enterprises that have already invested substantial resources in other means of conducting commerce and exchanging information may be particularly reluctant to adopt a new strategy that may make their existing personnel and infrastructure obsolete. In addition, there can be no assurance that individual personal computer users in business or at home will adopt the Internet for on-line commerce or communication. Because the market for the Company's Internet services is new and evolving, it is difficult to predict the future growth rate, if any, and size of this market. There can be no 7 assurance that the market for the Company's products and services will develop, that the Company's product or services will be adopted, or that individual personal computer users in business or at home will use the Internet or private networks for commerce and communication. If the market fails to develop, develops more slowly than expected, or becomes saturated with competitors, or if the Company's services do not achieve market acceptance, the Company's business, operating results, and financial condition will be materially adversely affected. DEVELOPMENT RISKS Key elements of the Company's strategy are to provide reliable co-location, virtual domain hosting, dial-up access, voice and data communication, and e-commerce service on the Internet, to provide QOS VoIP over its own network, and to generate a high volume of traffic on and use of its Web sites. Accordingly, the satisfactory performance, reliability and availability of the Company's transaction-processing systems, network infrastructure, and Web sites are critical to the Company's reputation and its ability to attract and retain customers, as well as maintain adequate customer service. The Company's revenues are expected to depend in part on the volume of business it will receive as an Internet Service Provider (I.S.P.), Internet Presence Provider (I.P.P.), planned provider of VoIP service, and the number of visitors who access its Web sites. Any system interruptions that result in the unavailability of the Company's Web site or Internet services would reduce the volume of the Company's business, and the attractiveness of the Company's product and service offerings. The Company may experience periodic system interruptions from time to time. There can be no assurance that the Company will be able to accurately project the rate or timing of increases, if any, in the use of its services, or timely expand and upgrade its systems and infrastructure to accommodate such increase. Any substantial disruptions or delays in any of the Company's systems would have a material adverse effect on the Company's business, prospects, financial condition and results of operations. There is no assurance that the Company will be able to successfully complete the development, implementation, sale, and service of its Internet Service Provider services, co-location and virtual domain hosting services, proprietary provisioning system, shopping cart, e-commerce software, and VoIP services. See "BUSINESS." RISK OF SYSTEM FAILURE The operations of the Company are dependent upon, among other things, its ability to deliver high quality uninterrupted access to the Internet and other services provided or intended to be provided by the Company. Any system failure that causes excessive interruptions in the Company's operations could have a material adverse effect on the Company. As the Company expands its network, there will be increased stress placed upon network hardware and traffic management systems. Any of a number of potential hardware failures at the Company's operations center or at any of its POPs, as well as failure caused by power losses, telecommunications failures, or natural causes such as fire, floods or other natural causes, could result in significant interruptions of the Company's services. Although the Company is currently in the process of constructing its own high-speed fault-tolerant backbone to prevent service interruptions even in the face of massive failures of sections of the network, there is no assurance that the Company's backbone will eliminate all interruptions of the Company's services in the event of a massive system failure. See "BUSINESS." Although the Company maintains in effect casualty insurance that would fund most of the cost of replacing equipment loss due to fires, floods, or similar natural causes, such insurance would not protect the Company from loss of customers and business reputation that could result from such an event. In addition, some potential losses may not be adequately covered by such policies. The occurrence of any of the foregoing risks could have a material adverse effect on the business, financial condition, results of operations, and cash flow of the Company. 8 COMPETITION IN TELEPHONE SERVICE INDUSTRY The Company's VoIP long distance telephone service will place it in direct competition with interexchange carriers ("IXCs") which provide long-distance access, and other long-distance resellers and providers. The Company's prospective competitors include large carriers such as AT&T, MCI, Sprint, and WorldCom, and new entrants to the long distance market such as the Regional Bell Operating Carriers ("RBOCs") who have entered or have announced plans to enter the United States intrastate and interstate long-distance market pursuant to recent legislation authorizing such entry. Most of the Company's competitors are significantly larger and have substantially greater market presence as well as financial, technical, operational, marketing, and other resources and experience than the Company. DEPENDENCE ON TELECOMMUNICATION CARRIERS AND OTHER SUPPLIERS The Company relies on local telephone companies and other companies to provide data communications capacity via local telecommunication lines and leased long distance lines. The Company is subject to potential disruptions in these telecommunication services and may have no means of replacing these services on a timely basis or at all in the event of disruptions. In addition, the Company is dependent on certain third-party suppliers of hardware components. Certain components used by the Company in providing its network services are currently acquired from limited sources. The Company also depends on third-party software vendors to provide the Company with much of its Internet software, including the Netscape Navigator software ("Netscape Navigator"), which is the World Wide Web client software that the Company licenses from Netscape Communications Corporation ("Netscape"). The ongoing development of the Company's provisioning systems software by an independent software development company currently under contract is important to the Company's Web hosting business. See "BUSINESS--CNM Network Services" and "BUSINESS--Company Research and Development." Failure of the Company's suppliers to provide components and products in the quantities, at the quality levels or at the times required by the Company, or an inability by the Company to develop alternative sources of supply, if required, could result in delays and increased costs of expansion of the Company's network infrastructure. The Company's suppliers and telecommunication carriers also sell or lease services and products to the Company's competitors and may be, or in the future may become, competitors of the Company. There can be no assurance that the Company's suppliers and telecommunication carriers will not enter into exclusive arrangements with the Company's competitors, or cease selling or leasing their services or products to the Company. See "BUSINESS--Competition," and "BUSINESS--Marketing and Revenues." DEPENDENCE ON TELECOMMUNICATIONS ACCESS All Internet and most telecommunications service providers, including the Company, depend on other companies to provide communications capacity via leased facilities. If one or more of these companies is unable or unwilling to provide or expand its current levels of service to the Company in the future, the Company's operations could be materially and adversely affected. Although leased facilities are available from several alternative suppliers, including AT&T, MCI, Sprint, and WorldCom, there can be no assurance that the Company could obtain substitute services from other providers at reasonable or comparable prices or in a timely fashion. In addition, the Company is dependent on local telephone companies to provide local dial-up and leased, high speed dedicated access telephone lines for access to each of the Company's POPs. The Company is presently dependent on Pacific Bell, ICG Telecom Group, Inc., and Covad to install and maintain communication lines. Although the Company has not yet experienced delays in the installation of communication lines, such delays could adversely affect the rate of growth of the Company. GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES A number of new laws and regulations may be adopted with respect to the Internet covering issues such as the provision of telephone service, user privacy, pricing, and the quality of products and services. 9 The adoption of any such laws or regulations may decrease the growth of the Internet, which could in turn decrease the demand for the Company's services and increase the Company's cost of doing business, or otherwise have an adverse affect on the Company's business, operating results and financial condition. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, libel and personal privacy is uncertain. The Company's products may become subject to United States export controls in the future. There can be no assurance that such export controls, either in their current form or as may be subsequently enacted, will not limit the Company's ability to distribute products outside of the United States or electronically. In addition, federal or state legislation or regulation may further limit levels of encryption or authentication technology. Any such export restrictions, new legislation or regulation, or unlawful exportation could have a material adverse impact on the Company's business, operating results and financial condition. See "RISK FACTORS--Government Regulatory Policy Risks." GOVERNMENT REGULATORY POLICY RISKS The long distance telephone service that the Company intends to provide is subject to federal and state regulation. The provision of long distance telephone service is subject to the provisions of the Communications Act of 1934, as amended, including amendments effected by the Telecommunications Act of 1996 (the "1996 Telecommunications Act"), and the regulations of the Federal Communications Commission (the "FCC"). At the state level, the long distance telephone industry is subject to the applicable laws and regulations of the various state Public Utility Commissions ("PUCs") and other state agencies. Federal laws and FCC regulations apply to interstate telecommunications (including international telecommunications that originate or terminate in the United States), while state regulatory authorities have jurisdiction over telecommunications both originating and terminating within a state. Regulation of the telecommunications industry is changing rapidly, and the regulatory environment varies substantially from state to state. Moreover, as deregulation at the federal level occurs, some states are reassessing the level and scope of regulation that may be applicable to the Company. There can be no assurance that future regulatory, judicial, or legislative activities will not have a material adverse effect on the Company, or that domestic or international regulators or third parties will not raise material issues with regard to the Company's compliance or noncompliance with applicable regulations. The FCC has considered the issue of whether ISPs should be subject to access charges, Universal Service Fund support fees, and regulation, and has determined that it would not adopt such regulations. The FCC has announced that it will be issuing a Notice of Proposed Rule Making ("NPRM") to explore proposals to create incentives for companies to make the most efficient use of the telephone network for Internet and other information services. While the FCC has announced that it does not intend for this NPRM to consider the imposition of access charges or regulations on ISPs, it could result in the creation of more competition for the Company. In addition, the FCC could reopen and reconsider these issues at any time. A recent federal legislative change, the 1996 Telecommunications Act, may have potentially significant effects on the operations of the Company. The 1996 Telecommunications Act, among other things, allows the RBOCs and other companies to enter the long distance business and enables other entities, including entities affiliated with power utilities, CLECs, and cable television companies, to provide an expanded range of telecommunications services. Entry of such companies into the long distance business would result in substantial additional competition in one of the markets into which the Company intends to expand, and may have a material adverse effect on the Company and its efforts to expand in this market. On April 10, 1998, the FCC submitted a report to Congress regarding the Universal Service Fund support payments. One of the principal issues considered in this report is whether Internet VoIP should still be classified as non-telecommunications services, so as to be exempt from regulation, access charges, and Universal Service Fund support payments. While the FCC determined that it would continue the exemption, primarily as part of a continuing policy to permit continued expansion of the Internet, it also indicated that Congress directed the universal service support mechanism to be competitively neutral. The 10 FCC also noted the novel status of Internet telephony, and noted that it may continue investigation of the regulatory status of Internet telephony. While Internet services, including Internet telephony, remain unregulated and exempt from access charges and Universal Service Fund support payments, the FCC could change its policy at any time. In fact, the FCC has indicated that it will take a case-by-case evaluation approach to determine whether individual Internet telephony service offerings more closely resemble enhanced services, which should remain exempt from regulation, or telecommunications services which are subject to regulation. POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH NETWORK The law relating to the liability of ISPs and online service companies for information carried on or disseminated through their networks has not yet been definitively established. Internet access and content providers face potential liability of uncertain scope for the actions of subscribers and others using their systems, including liability for infringement of intellectual property rights, rights of publicity, defamation, libel, and criminal activity under the laws of the U.S. and foreign jurisdictions. The Company does not maintain errors and omissions insurance. Any imposition of liability on the Company for alleged negligence, intentional torts, or other liability could have a material adverse effect on the Company. In addition, recent legislative enactments and pending legislative proposals aimed at limiting the use of the Internet to transmit indecent or pornographic materials could, depending upon their interpretation and application, result in significant potential liability to Internet access and service providers including the Company, as well as additional costs and technological challenges in complying with any statutory or regulatory requirements imposed by such legislation. For example, the Communications Decency Act of 1996 (amending 47 U.S.C. Section 223), which is part of the 1996 Telecommunications Act, became effective on February 8, 1996. The 1996 Telecommunications Act would impose criminal liability on persons sending or displaying in a manner available to minors indecent material on an interactive computer service such as the Internet, and on an entity knowingly permitting facilities under its control to be used for such activities. While the constitutionality of these provisions has been successfully challenged in federal appellate court, the U.S. Department of Justice has appealed to the U.S. Supreme Court. There can be no assurance as to the final result regarding the constitutionality of the 1996 Telecommunications Act, or as to the scope and content of any substitute legislation or other legislation in the U.S. or foreign jurisdictions restricting the type of content being provided over the Internet. If these provisions or related legislation are upheld, the effect on the Internet industry could have a material adverse effect on the Company's business, financial condition, results of operation, and cash flow. In addition, CompuServe faced action by German authorities in response to which CompuServe temporarily restricted the scope of the Internet access it provides to all subscribers, both in the U.S. and internationally. A number of countries are considering content restrictions based on such factors as political or religious views expressed, and pornography or indecency. DEPENDENCE ON THE INTERNET Despite growing interest in the many commercial uses of the Internet, many businesses have been deterred from purchasing Internet access services for a number of reasons, including, among others, inconsistent quality of service, lack of availability of cost-effective, high-speed options, a limited number of local access points for corporate users, inability to integrate business applications on the Internet, the need to deal with multiple and frequently incompatible vendors, inadequate protection of the confidentiality of stored data and information moving across the Internet, and a lack of tools to simplify Internet access and use. Published reports have indicated that a perceived lack of security of commercial data, such as credit card numbers, has significantly impeded commercial exploitation of the Internet to date, and there can be no assurance that encryption or other technologies will be developed that satisfactorily address these security concerns. Published reports have also indicated that capacity constraints caused by growth in the use of the Internet may, unless resolved, impede further development of the Internet to the extent that users experience delays, transmission errors and other difficulties. Further, the adoption of the Internet for commerce and communications, particularly by those individuals and enterprises that have historically 11 relied upon alternative means of commerce and communication, generally requires the understanding and acceptance of a new way of conducting business and exchanging information. In particular, enterprises that have already invested substantial resources in other means of conducting commerce and exchanging information may be particularly reluctant or slow to adopt a new strategy that may make their existing personnel and infrastructure obsolete. The Company is also at risk as a result of fundamental technological changes in the way Internet solutions may be marketed and delivered. Integrating technological advances may require substantial time and expense, and there can be no assurance that the Company will succeed in adapting its network infrastructure. While the Company believes that its plan of combining the scale and scope of a national operation with the local presence of its ISP operations offers significant advantages for commerce and communication over the Internet, there can be no assurance that commerce and communication over the Internet will become widespread, or that the Company's offered Internet access and communications services will become widely adopted for these purposes. The failure of the market for business-related Internet solutions to continue to develop would adversely impact the Company's business, financial condition, results of operations, and cash flow. In addition, new technologies or industry standards have the potential to replace or provide lower cost alternatives to the Company's existing products and services. The adoption of such new technologies or industry standards could render the Company's existing products and services obsolete and unmarketable. NO ASSURANCE OF PROFITABILITY The Company's business is speculative and dependent upon the acceptance of the Company's services and the effectiveness of its marketing program. The Company has reported net losses since inception. There is no assurance that the Company will earn significant revenues, that the Company will not continue to incur losses, or that investors will not lose their entire investment. IMMEDIATE DILUTION Assuming an initial public offering price of $14.00 per share, investors purchasing shares of Common Stock in this offering will incur immediate and substantial dilution in net tangible book value of the Common Stock of $9.67 per share. To the extent that currently outstanding options to purchase shares of Common Stock are exercised, there will be further dilution. See "DILUTION." RAPID TECHNOLOGICAL CHANGE To remain competitive, the Company must continue to enhance and improve the responsiveness, functionality, and features of its Internet services and related Internet hardware and software. The on-line commerce industry is characterized by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies, and the emergence of new industry standards and practices that could render the Company's existing Web site and proprietary technology obsolete. The Company's future success will depend, in part, on its ability to license leading technologies, enhance its existing services, develop new services and technologies that address the increasingly sophisticated and varied needs of its prospective customers, and respond to technological advances and emerging industry standards on a cost-effective and timely basis. In particular, successful ISPs must provide customers with the appropriate products, services, and guidance to best take advantage of the rapidly evolving Internet. The development of Web sites and other proprietary technology entails significant technical and business risks. There can be no assurance that the Company will successfully use new technologies effectively or adapt its Web site and proprietary technology to customer requirements or emerging industry standards. If the Company is unable to meet such requirements, its business prospects, financial condition and results of operations would be materially adversely affected. 12 YEAR 2000 The Company may utilize certain third-party supplied computer programs, interact with computer programs utilized by financial institutions in connection with credit card transactions, and interact with computer programs used by the Company's vendors and suppliers. These programs may refer to annual dates only by the last two digits, e.g., "98" for "1998." Problems are anticipated to arise for many of these programs in the year 2000. While the Company has taken this problem into account with respect to its own internal programs, other programs with which the Company may interact may not have corrected this problem. The Company is currently assessing the Year 2000 problem readiness of its third-party supplied software, computer technology, and other services. Based upon the results of this assessment, the Company will develop and implement, if necessary, a remediation plan with respect to third-party software, computer technology, and services that are not Year 2000 ready. At this time, the expenses associated with this assessment and potential remediation plan cannot presently be determined. Year 2000 problems and associated costs could have a material adverse effect on the Company's business, financial condition, and results of operation. COMPETITION The market for the Company's Internet related services and products is intensely competitive and is characterized by rapid changes in technology and user needs as well as the frequent introduction of new services and Web sites. The Company's principal competitors include other Internet Service Providers, Internet Presence Providers, providers of VoIP, computer software and technology companies, cable operators, and on-line information, advertising, and shopping services on the Internet. These competitors have longer operating histories, greater name recognition, larger installed customer bases, and substantially greater financial, technical, and marketing resources than the Company. The Company believes that the principal factors affecting competition in its proposed market include service performance and reliability, product functionality, ability to respond to changing customer needs, ease of use, quality of technical service, training, quality of support, and price. Other than technical expertise and the limited time available to enter the market, there are no significant proprietary or other barriers of entry that could keep potential competitors from developing or acquiring similar tools and providing competing services in the Company's proposed market. The Company's ability to compete successfully in the sale of services and software will depend in large part upon its ability to attract new customers, sell products and services, deliver and support product enhancements, and respond effectively to continuing technological changes by developing new products and services. There can be no assurance that the Company will be able to compete successfully in the future, or that future competition for VoIP services and on-line e-commerce, services, and information will not have a material adverse effect on the business, operating results, and financial condition of the Company. No Assurance that Marketing Programs will be successful. The Company is implementing a variety of retail marketing programs, both outside and on the Internet, to attract potential retail customers from the general public, there is no assurance that any of these marketing strategies, including but not limited to direct mailings, outdoor billboards, cable and television networks, radio advertisements, and credit card advertising inserts, will be successful or that the Company will acquire a significant number of new customers from its marketing program. Many of the strategies are tests that are expensive and unproven as they apply to selling Internet services. If the Company's marketing programs are not successful, it would be expected to have a material adverse impact on the financial condition, operating results and business of the Company. NO ASSURANCE THAT MARKETING PROGRAMS WILL BE SUCCESSFUL The Company is implementing a variety of retail marketing programs, both outside and on the Internet, to attract potential retail customers from the general public. There is no assurance that any of these marketing strategies, including but not limited to direct mailings, outdoor billboards, radio advertisements, and credit card advertising inserts, will be successful or that the Company will acquire a significant 13 number of new customers from its marketing program. Many of the strategies involve testing which is expensive. The strategies are unproven as they apply to selling Internet services. If the Company's marketing programs are not successful, it would be expected to have a material adverse impact on the financial condition, operating results and business of the Company. UNCERTAINTY OF CUSTOMER RETENTION The sales, marketing, and other costs to the Company of acquiring new customers are substantial relative to the monthly fee derived from such customers. Accordingly, the Company believes that its long-term success largely depends on its ability to retain customers, while continuing to attract new customers. The Company continues to invest significant resources in its infrastructure and customer and technical support capabilities. There can be no assurance that such investment will maintain or improve member retention. The Company believes that intense competition from competitors, some of which offer free hours of services to new customers, may cause some of the Company's customers to switch to competitors' services. In addition, a certain number of new Internet users experience the Internet only as a novelty and do not become consistent users of Internet services. These factors may adversely affect the Company's customer retention rates. Unless offset by other factors, significant customer loss could have a material adverse impact on the Company. ON-LINE COMMERCE SECURITY RISKS A significant barrier to on-line commerce and communications is the need for secure transmission of confidential information over public networks. Concerns over the security of transactions conducted on the Internet and other on-line services, as well as user's desires for privacy may also inhibit the growth of the Internet and other on-line services especially as a means of conducting commercial transactions. The activities of the Company and third-party contractors are expected to involve the storage and transmission of proprietary information, such as credit card numbers and other confidential information. Any such security breaches could damage the Company's reputation and expose the Company to a risk of loss, litigation and possible liability. There can be no assurance that the Company's security measures will prevent security breaches or that failure to prevent such security breaches will not have a material adverse effect on the Company's business, prospects, financial condition and results of operations. Merchants on the Internet are subject to the risk of credit card fraud and other types of theft and fraud perpetrated by hackers and on-line thieves. Credit card companies may hold merchants fully responsible for any fraudulent purchases made when the signature cannot be verified. Although credit card companies and others are in the process of developing anti-theft and anti-fraud protections, and while the Company itself is continually monitoring this problem, at the present time the risk from such activities could have a material adverse effect on the Company. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments will not result in a compromise or breach of the algorithms used by the Company to protect customer transaction data. A party who is able to circumvent the Company's security measures could misappropriate confidential information or cause interruptions in the Company's operations. The Company may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. If any such compromise of the Company's security were to occur, it could have a material adverse effect to the Company's business, prospects, financial condition and results of operations. DEPENDENCE ON KEY PERSONNEL The Company's success is substantially dependent on the performance of its executive officers and key employees. Given the Company's stage of development in the CNM Network-TM- business, the Company is dependent on its ability to retain and motivate high quality personnel. Although the Company believes it will be able to continue hiring qualified personnel for such purposes, an inability to do so could materially adversely affect the Company's ability to market, sell, and enhance its services. The market for qualified 14 personnel has historically been, and will continue to be, intensely competitive. The demand for experienced consultants, marketers and programmers is expected to continue to increase significantly over the next several years, particularly as Internet utilization grows. The loss of key employees or the Company's inability to hire and retain other qualified employees could have a material adverse effect on the Company's business. INABILITY TO PROTECT PROPRIETARY RIGHTS The Company regards its CNM Network-TM- concept as proprietary and will attempt to protect it under a combination of copyright, trade secret, and trademark laws as well as by contractual restrictions on employees and third parties. Despite these precautions, it may be possible for unauthorized parties to copy the Company's services or otherwise obtain and use information that the Company regards as proprietary. Existing trade secrets and copyright laws provide only limited protection. Certain provisions of other license and distribution agreements the Company intends to use, including provisions protecting against unauthorized use, copying, transfer, and disclosure, may be unenforceable under the laws of certain jurisdictions. Furthermore, the Company may be required to negotiate limits on these provisions from time to time. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the steps taken by the Company will be adequate to deter misappropriation of proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. Significant and protracted litigation may be necessary to protect the Company's intellectual property rights, to determine the scope of the proprietary rights of others, or to defend against claims for infringement. There can be no assurance that third-party claims, with or without merit, alleging infringement will not be asserted against the Company. Such assertions can be time consuming and expensive to defend. They could require the Company to cease the manufacture, use, and sale of infringing products and services, to incur significant litigation costs and expenses, to develop or acquire non-infringing technology, and to obtain licenses to the alleged infringing technology. There can be no assurance that the Company would be able to develop or acquire alternative technologies or to obtain such licenses on commercially acceptable terms. TRADEMARKS AND TRADENAMES The Company believes that its trademarks and tradenames will have significant value and will be important to the marketing of its services and products. There can be no assurance, however, that the Company's registered trademarks and tradenames with the United States Office of Patents and Trademarks will not violate the proprietary rights of others, that the Company's marks and names would be upheld if challenged, or that the Company will not be prevented from using its marks and names, any of which could have an adverse effect on the Company. In addition, there can be no assurance that the Company will have the financial resources necessary to enforce or defend its trademarks and service marks. POTENTIAL FOR PRODUCT AND SERVICE LIABILITY The Company's products and services will be designed to satisfy its customer's needs. A failure to satisfy a customer's need or an adverse impact on a customer from the Company's products or services could result in a claim for damages against the Company, regardless of the Company's responsibility for such failure. In connection with the sale of its products and services, the Company will attempt to limit contractually its liability for damages arising from negligent acts, errors, mistakes, or omissions. Despite this precaution, there can be no assurance that the limitations of liability set forth in customer contracts would be enforceable or would otherwise protect the Company from liability for damages. The successful assertion of one or more large claims against the Company that exceed available insurance coverages, or changes in the Company's insurance policies, such as premium increases or the imposition of large 15 deductible or co-insurance requirements, could materially and adversely affect the Company's business, operating results, and financial condition. CONTROL BY PRINCIPAL STOCKHOLDER The Company's Chairman of the Board of Directors and President will beneficially own approximately 46.9% of the Company's outstanding shares of Common Stock following this offering, assuming that 3,596,577 Shares are sold and Mr. Rice's 250,000 Outstanding Shares are sold. This stockholder would be able to significantly influence all matters requiring approval by the stockholders of the Company, including the election of directors and the approval of mergers or other business combination transactions. See "PRINCIPAL STOCKHOLDERS." NO DIVIDENDS ON COMMON STOCK The Company does not anticipate the payment of any cash dividends on its Common Stock in the foreseeable future. See "DIVIDEND POLICY." UNINSURED LOSSES There is no assurance that the Company will not incur uninsured liabilities and losses as a result of the conduct of its business. The Company plans to maintain comprehensive liability and property insurance at customary levels. The Company will also evaluate the availability and cost of business interruption insurance. However, should uninsured losses occur, the Shareholders could lose their invested capital. LIABILITIES The Company may have liabilities to affiliated or unaffiliated lenders. These liabilities would represent fixed costs that would be required to be paid regardless of the level of business or profitability experienced by the Company. There is no assurance that the Company will be able to pay all of its liabilities. Furthermore, the Company is always subject to the risk of litigation from licensees, suppliers, employees, and others because of the nature of its business. Litigation can cause the Company to incur substantial expenses and, if cases are lost, judgments and awards can add to the Company's costs. FUTURE ADDITIONAL CAPITAL REQUIREMENTS The Company's capital requirements depend on numerous factors, including the rate of market acceptance of the Company's services, the Company's ability to maintain and expand its customer base, the level of resources devoted to expanding the Company's marketing and sales organization and the Company's research and development activities, the availability of hardware and software provided by third-party vendors, the rate of expansion of the Company's network infrastructure, and other factors. The timing and amount of such capital requirements cannot accurately be predicted. If capital requirements vary materially from those currently planned, the Company may require additional financing. The Company has no commitments for any additional financing, and there can be no assurance that any such commitments can be obtained on favorable terms, if at all. Any additional equity financing may be dilutive to the Company's stockholders, and debt financing, if available, may involve restrictive covenants with respect to dividends, raising future capital and other financial and operational matters. If the Company is unable to obtain additional financing as needed, the Company may be required to reduce the scope of its operations or its anticipated expansion, which could have a material adverse effect on the Company's business, financial condition, and results of operations. See "RISK FACTORS--No Minimum Capital Requirement--Additional Capital May Be Necessary" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources." 16 NO MINIMUM CAPITAL REQUIREMENT--ADDITIONAL CAPITAL MAY BE NECESSARY No minimum capital requirement is imposed in connection with this offering of Shares, and subscription funds may be utilized by the Company as soon as they are accepted, beginning with the commencement of the offering. This offering is made on a best efforts basis with no underwriter, and there is no assurance that the Company will raise any capital pursuant to this offering. If the Company raises only minimal capital from this offering, or significantly less than the maximum capital, then it will likely be required to raise additional capital in the future in order to have sufficient funds to implement its business and marketing plans. If additional capital or financing is not available, the Shareholders could lose their entire investment in the Company. There is no assurance that the Company will raise sufficient additional capital to finance its operations. If the Company does not raise sufficient additional capital, then it would not be able to implement its business and marketing expansion plans, hindering its ability to be in business. Furthermore, the Company may modify this offering due to market conditions or other factors. FUTURE ISSUANCE OF STOCK BY THE COMPANY Following this offering, the Company is expected to have outstanding 10,130,827 shares of Common Stock out of a total of 51,000,000 shares of Common Stock authorized (i.e. 50,000,000 shares of Series 1 Class A Common Stock and 1,000,000 shares of Series 1 Class B Common Stock). The remaining shares of Common Stock not issued or reserved for specific purposes may be issued without any action or approval of the Company's stockholders. Furthermore, the Company's Articles of Incorporation also authorize the issuance of up to 1,000,000 shares of Preferred Stock, no par value, on terms that may be fixed by the Company's Board of Directors without further stockholder action. No shares of Preferred Stock are presently issued or outstanding. The terms of any future series of Common Stock or Preferred Stock, which may include priority claims to assets and dividends, and special voting rights, could adversely affect the rights of holders of the Common Stock. There can be no assurance that the Company will not undertake to issue additional shares of Commons Stock or Preferred Stock if it deems the issuance appropriate. See "DILUTION." SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of the Company's Common Stock in the public market following this offering could adversely affect the market price of the Company's stock. The number of shares of Common Stock available for sale in the public market is limited by restrictions under the Securities Act of 1933, as amended (the "Securities Act"). The outstanding shares of the Company's Common Stock owned by affiliates and by unaffiliated investors are not, however, subject to lock-up agreements and may be sold in accordance with the terms and conditions of Rule 144 of the Securities Act or another exemption from registration, if available. See "SHARES ELIGIBLE FOR FUTURE SALE." EFFECT OF CERTAIN CHARTER PROVISIONS Certain provisions in the Company's Articles of Incorporation allow the Company to issue different classes of Common Stock, the rights and preferences of which may be specified by the Board of Directors at any time prior to issuance, without further stockholder approval, which could have the effect of delaying, deferring or preventing a change in control of the Company, or creating equity securities senior to the Shares and Outstanding Shares. NO PUBLIC MARKET FOR COMMON STOCK Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that a regular trading market will develop and continue after this offering or that the market price of the Common Stock will not decline below the initial public offering price. 17 POTENTIAL VOLATILITY OF STOCK PRICE The stock markets have experienced price and volume fluctuations that have particularly affected the stocks of technology companies, resulting in changes in the market prices of the stocks of many companies that may not have been directly related to the operating performance of those companies. Such broad market fluctuations may adversely affect the market price of the Common Stock following this offering. In addition, the market price of the Common Stock following this offering may be highly volatile. Factors such as variations in the Company's financial results, comments by securities analysts, announcements of technological innovations or new products by the Company or its competitors, changing government regulations, developments concerning the Company's proprietary rights or litigation may have a material adverse effect on the market price of the Common Stock. DETERMINATION OF OFFERING PRICE ARBITRARY--NO UNDERWRITER The Company has determined the initial public offering price of the Shares and the Outstanding Shares in its sole discretion and not pursuant to arms-length negotiations with an underwriter or other third party. The initial public offering price bears no relationship to the book value of the Company's assets, its current earnings or revenues, or any other objective standard. There is no assurance that the initial public offering price for the Shares or the Outstanding Shares will be accepted by the market, or that the Company's stock will not trade for a lower price, if it eventually trades on a public exchange. The initial public offering price may be deemed to have been determined arbitrarily by the Company. In the absence of an underwriter for the offering, purchasers of Shares will not have the benefit of additional due diligence and arms-length negotiation, nor a firm commitment for the purchase of Shares or Outstanding Shares. See "PLAN OF DISTRIBUTION." USE OF PROCEEDS The net proceeds from the sale of 3,596,577 shares of Common Stock offered hereby are estimated to be approximately $42,799,266 assuming an initial public offering price of $14.00 per share, after deducting the offering expenses payable by the Company, estimated to be 15% of the gross proceeds of the offering. The Company expects to use the net proceeds of this offering to finance enhancements to the Company's network infrastructure, including leasehold improvements and investments in network equipment, to fund CNM's marketing programs, to develop new products and services, and for working capital and other general corporate purposes. While the Company has from time to time engaged in preliminary discussions concerning possible acquisitions or joint ventures, it has no present understandings, commitments, agreements or active negotiations with respect to any such transaction. Pending such uses, the net proceeds of this offering will be invested in short-term, investment grade interest bearing securities. See "RISK FACTORS--No Minimum Capital Requirement--Additional Capital May Be Necessary." DIVIDEND POLICY The Company does not intend to pay cash dividends in the foreseeable future on the shares of Common Stock. Cash dividends, if any, that may be paid in the future to holders of Common Stock will be payable when, as, and if declared by the Board of Directors of the Company, based upon the Board's assessment of the financial condition of the Company, its earnings, its need for funds, and other factors including any applicable laws. The Company is not currently a party to any agreement restricting the payment of dividends. See "DESCRIPTION OF CAPITAL STOCK." 18 CAPITALIZATION The following table sets forth as of June 30, 1998 (i) the capitalization of the Company and (ii) the capitalization of the Company as adjusted to reflect the sale of the 3,596,577 Shares of Common Stock being offered hereby at an assumed initial public offering price of $14.00 per share and the application of the estimated net proceeds from the sale of those Shares.
AS OF JUNE 30, 1998 AS ADJUSTED (UNAUDITED) (UNAUDITED) ------------------ -------------- Indebtedness: Long-term indebtedness(1)................................................... $ 0 $ 0 Stockholders' Equity: Preferred Stock, no par value per share, 1,000,000 shares authorized, none issued and outstanding............................................... $ 0 $ 0 Common Stock, Series 1 Class A, no par value per share, 50,000,000 shares authorized, 5,448,800 issued and outstanding(2) 10,130,827 as adjusted(3)................................................. $ 898,100 $ 43,697,366 Common Stock, Series 1 Class B, $.001 par value per share, 1,000,000 shares authorized, 75,000 issued and outstanding and as adjusted(4)............................................................ $ 525,000 $ 525,000 Additional Paid-in Capital.................................................. $ 0 $ 0 Accumulated Deficit During Development Stage................................ $ (1,808,140) $ (1,808,140) Total Shareholders' Equity (Deficit)........................................ $ (385,040) $ 42,414,226 ------------------ -------------- Total Capitalization........................................................ $ (385,040) $ 42,414,226 ------------------ -------------- ------------------ --------------
- ------------------------ (1) Does not include a noninterest-bearing demand promissory note payable by the Company to an affiliated general partnership. See "BUSINESS--Previous Financing and Development Arrangement." (2) Includes 448,800 shares of the Company's Common Stock (as of June 30, 1998) previously sold to outside investors for $2.00 per share as part of a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended, which commenced in October 1997 and terminated on October 8, 1998. Includes 5,000,000 shares of Common Stock owned by Fredrick Rice, the President and Chairman of the Board of Directors of the Company. See "DESCRIPTION OF CAPITAL STOCK" and "PRINCIPAL STOCKHOLDERS." Does not include an additional 1,085,450 shares of Common Stock issued in the private placement between June 30, 1998 and October 8, 1998. See "BUSINESS-- Prior Private Placement of Stock." Does not include any shares which may be subscribed for by Eller Media Company. See "BUSINESS--Agreement with Eller Media Company." (3) The capital to be raised from the placement of Shares is expected to be a potential maximum of $50,352,078. The Common Stock capital, as adjusted, reflects the issuance of 3,596,577 Shares, after deducting offering costs estimated to be 15% of the gross proceeds of the offering. To the extent that more or less than $50,352,078 is raised from the placement of Shares, the figures would be adjusted proportionately. See "PLAN OF DISTRIBUTION." (4) Includes 75,000 shares issued to a prior unaffiliated consultant. Does not reflect an option to purchase 250,000 shares of Series 1 Class B Common Stock held by Consumer Net Partners, an affiliated general partnership, which were issued to it as part of the consideration for all of the partnership's rights in the Company's business. See "BUSINESS--Previous Financing and Development Arrangement." The Series 1 Class B Common Stock does not have voting or dividend rights, but is convertible into Series 1 Class A Common Stock on a share-for-share basis. See "DESCRIPTION OF CAPITAL STOCK--Common Stock." 19 DILUTION As of June 30, 1998, the PRO FORMA net tangible book value of the Company was $1,438,516 or approximately $.22 per share of Common Stock, including the additional 1,085,450 shares issued in the previous private placement as if they had been issued on June 30, 1998. The calculation assumes that the offering costs incurred on the previous private placement are 16% of the gross proceeds of that private placement. PRO FORMA net tangible book value per share consists of total assets less intangible assets and liabilities, divided by the total number of shares of Common Stock outstanding. Without giving effect to any changes in such PRO FORMA net tangible book value after June 30, 1998, other than to give effect to the sale of the 3,596,577 shares of Common Stock offered hereby at an assumed initial public offering price of $14.00 per share and after deducting estimated offering expenses payable by the Company (and accounting for the issuance of an additional 1,085,450 shares of the Company's Common Stock for $2.00 per share between June 30, 1998 and October 8, 1998), the PRO FORMA net tangible book value at June 30, 1998, would have been $44,237,782 or approximately $4.33 per share. As of June 30, 1998, the net tangible book value per share of Common Stock owned by the Company's current stockholders would have increased by approximately $4.11 without any additional investment on their part and the purchasers of the Shares and Outstanding Shares will incur an immediate dilution of approximately $9.67 per share from the offering price. "Dilution" means the difference between the offering price and the PRO FORMA net tangible book value per share after giving effect to the offering. Holders of Common Stock may be subjected to additional dilution if any additional securities are issued as compensation or to raise additional financing. The following table illustrates the dilution which investors participating in this offering will incur and the benefit to current stockholders as a result of this offering: Initial public offering price per share............................. $ 14.00 Pro forma net tangible book per share value as of June 30, 1998(1)........................................................... $ .22 Increase per share attributable to the Offering..................... $ 4.11 Pro forma net tangible book value after this Offering............... $ 4.33 Dilution per share to new investors................................. $ 9.67
- ------------------------ (1) Includes shares of the Company's Common Stock issued or sold between June 30, 1998 and October 8, 1998, on a pro forma basis. See "BUSINESS--Prior Private Placement of Stock." Also includes the prior issuance of 5,000,000 shares of Common Stock to the President and Chairman of the Board of Directors of the Company, and 75,000 shares of Series 1 Class B Common Stock to an unaffiliated prior consultant. Does not include (i) options to purchase 250,000 shares of the Company's Series 1 Class B Common Stock held by Consumer Net Partners, an affiliated general partnership, or (ii) 2,097,500 management, employee, and other stock options granted between July 1997 and September 1998. See "MANAGEMENT" and "DESCRIPTION OF CAPITAL STOCK." The following table sets forth, on an as adjusted basis as of June 30, 1998, the difference between the number of shares of Common Stock purchased from the Company, the total consideration paid, and the average price per share paid by the existing holders of Common Stock and by the new investors, before deducting estimated offering expenses payable by the Company, at an assumed initial public offering price of $14.00 per share:
SHARES PURCHASED TOTAL CONSIDERATION ---------------------------- ----------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------------- --------- ----------------- --------- ------------- Existing Shareholders(1).......................... 6,609,250(1) 65.2% $ 3,593,500(2) 6.7% $ .54 New Investors..................................... 3,596,577 34.8% $ 50,352,078 93.3% $14.00 ---------------- --------- ----------------- --------- ------ Total........................................... 10,130,827 100.0% $ 53,945,578 100.0% $ 5.32 ---------------- --------- ----------------- --------- ------ ---------------- --------- ----------------- --------- ------
20 - ------------------------ (1) Includes shares of the Company's Common Stock issued or sold between June 30, 1998 and October 8, 1998, on a pro forma basis. See "BUSINESS--Prior Private Placement of Stock." Also includes the prior issuance of 5,000,000 shares of Common Stock to the President and Chairman of the Board of Directors of the Company, and 75,000 shares of Series 1 Class B Common Stock to an unaffiliated prior consultant. Does not include (i) options to purchase 250,000 shares of the Company's Series 1 Class B Common Stock held by Consumer Net Partners, an affiliated general partnership, or (ii) 2,097,500 management, employee, and other stock options granted between July 1997 and September 1998. See "MANAGEMENT" and "DESCRIPTION OF CAPITAL STOCK." (2) Does not include $500,000 reflecting the promissory note issued by the Company to Consumer Net Partners as part of the consideration for all of the partnership's rights in the Company's business. See "BUSINESS--Previous Financing and Development Arrangement." 21 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the Financial Statements and Notes to the Financial Statements included elsewhere in this Prospectus. The statement of operations data for the period from inception (May 9, 1996) through December 31, 1996 and the balance sheet data as of December 31, 1996, have been derived from financial statements audited by Caldwell, Becker, Dervin, Petrick & Co. The statement of operations data for the year ended December 31, 1997, and the balance sheet data as of December 31, 1997, have been derived from financial statements audited by Stonefield Josephson Accountancy Corporation, independent certified public accountants. The selected financial data as of and for the six months ended June 30, 1997 and June 30, 1998 have been derived from the Company's unaudited financial statements. In the opinion of management, the unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the periods presented. CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STATE COMPANY)
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30 ------------------------------- -------------------------- INCEPTION (UNAUDITED) (UNAUDITED) (5/9/96 TO 1998 1997 1997 12/31/96) ------------ ------------ ------------ ----------------- STATEMENT OF OPERATIONS DATA: Revenues............................................ $ 11,713 $ 6,916 $ 30,697 $ 20,828 Loss before income taxes............................ (602,436) (9,374) (1,101,605) (101,699) Net Loss............................................ (603,236) (10,174) (1,102,405) (102,499) Net Income (Loss) per share......................... (.11) (.00) (.22) (.02) Cash dividends per common share..................... 0 0 0 0 Weighted average number of shares................... 5,273,290 5,003,619 5,037,857 5,000,000
AT JUNE 30 AT DECEMBER 31 ----------- ------------------- 1998 1997 1996 ----------- -------- -------- BALANCE SHEET DATA: Total Assets............................................................... $856,970 $ 81,973 $ 25,795 Long-term Obligations...................................................... 0(1) 0(1) 0(1)
- ------------------------ (1) The long term obligations do not include a non interest-bearing promissory note in the outstanding principal amount of $500,000 payable by the Company on demand to an affiliated general partnership. See "BUSINESS--Previous Financing and Development Arrangement." 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. REVENUES GENERAL Recurring revenues consist of monthly fees charged to customers for Internet access and other ongoing services. Other revenues generally represent one-time setup fees. Recurring revenues are recognized pro rata over the period for which the services are performed. Other revenues are recognized as earned. SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Revenues for the six month period ended June 30, 1998 were $11,713 as compared to $6,916 for the six month period ended June 30, 1997. The increase in revenues was due primarily to a modest increase in dial-up and Web hosting clients. The Company is still a development stage company and comparisons and trends at this time may not be a meaningful indication of the Company's business prospects. The Company has been focused on installing the telecommunications equipment and software necessary to provide high speed service and to accommodate traffic. It has only recently commenced its comprehensive marketing program. See "BUSINESS--Marketing and Revenues." TWELVE MONTHS ENDED DECEMBER 31, 1997, COMPARED TO PERIOD FROM MAY 9, 1996 (INCEPTION) TO DECEMBER 31, 1996 Revenues for the twelve month period ended December 31, 1997 were $30,697 as compared to $20,828 for the period from inception, May 9, 1996, to December 31, 1996. The increase in revenues was due primarily to a modest increase in the dial-up customers, more advertising revenue from the CNM Shopping Mall on the Internet, and the longer comparative reporting period. Due to the fact that the Company is a development stage company, comparisons and trends at this time may not be a meaningful indication of the Company's business prospects. The revenues generated during this period are primarily from the CNM Shopping Mall. EXPENSES AND LOSS--GENERAL GENERAL The Company's expenses are generally comprised of (i) telecommunications expenses and depreciation expense on equipment used in network operations and for ongoing customer services, (ii) licensing fees, (iii) software development costs, (iv) marketing and referral costs, and (v) general and administrative costs. A small portion of the telecommunication costs are access fees paid to CLECs. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Expenses were $613,843 for the six-month period ending June 30, 1998 as compared to $16,290 for the six-month period ending June 30, 1997. Substantially higher expenses in the six months ended June 30, 1998 primarily resulted from greater expenditures by the Company for advertising, and marketing, as well as the hiring of a significant number of new computer engineers, systems analysts and support personnel. 23 The net loss for the six-month period ended June 30, 1998 was $603,236 compared to a net loss of $10,174 for the six-month period ended June 30, 1997. The significant increase in net loss primarily reflects a rapid increase in the rate at which the Company added infrastructure and management resources in the first half of 1998 as compared to the first half of 1997. TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO PERIOD FROM MAY 9, 1996 (INCEPTION) TO DECEMBER 31, 1996 Expenses were $1,132,302 for the twelve month period ended December 31, 1997 or $1,009,775 higher than the $122,527 for the period from inception, May 9, 1996, to December 31, 1996. The increase was primarily due to increases in salaries, office expenses, outside services, and loss on acquisition of partnership interest from related party. As the Company expands, operating expenses are expected to continue to increase. Due to the fact that this is a development stage company, comparisons and trends have not been established. The net loss for the twelve month period ended December 31, 1997 was $1,102,405 compared to a net loss of $102,499 for the period from inception, May 9, 1996, to December 31, 1996. This increase in the net loss was primarily due to the payment made by the Company to Consumer Net Partners, an affiliated California general partnership, on December 31, 1997, for intangible assets not specifically identified, and the charge to earnings taken by the Company in connection with the granting of 250,000 options to purchase 250,000 shares of Series 1 Class B Common Stock for $.50 per share to Consumer Net Partners. STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 The Company's statement of cash flows for the six months ended June 30, 1998 reflects that operating activities during that period utilized cash of $574,344 as compared to $4,323 of cash provided during the six months ended June 30, 1997. The increase in the use of cash flows from operating activities during the six months ended June 30, 1998 primarily resulted from a higher net loss for the six-month period ending June 30, 1998 as compared to the six-month period ending June 30, 1997. The cash provided by financing activities for the six months ended June 30, 1998 was $769,250 as compared to $4,593 of cash used by financing activities for the six-month period ending June 30, 1997. The cash used by investing activities for the six-month period ending June 30, 1998 was $179,652 as compared to none for the six months ended June 30, 1997. The significantly higher utilization of cash for investing during the first half of 1998 than the first half of 1997 primarily reflects the acquisition of computer equipment, software and related assets. TWELVE MONTHS ENDED DECEMBER 31, 1997, COMPARED TO PERIOD FROM MAY 9, 1996 (INCEPTION) TO DECEMBER 31, 1996 The Company's statement of cash flows for the twelve month period ended December 31, 1997 reflects that operating activities during that period used cash of $128,679 as compared to $62,398 used for the period from inception, May 9, 1996, to December 31, 1996. This increase in the use of cash from operating activities during the twelve month period ended December 31, 1997 primarily resulted from a higher net loss for the twelve month period ended December 31, 1997. The cash provided by financing activities for the twelve month period ended December 31, 1997 was $176,264 as compared to $81,977 of cash provided by financing activities for the period from inception, May 9, 1996, to December 31, 1996. The cash used by investing activities for the period ended December 31, 1997 was $41,740, as compared to $18,878 for the period from inception, May 9, 1996, to December 31, 1996. During the period from inception to December 31, 1997, the money used by investing activities was primarily for acquisition of computer equipment, software and related assets. 24 SALES AND MARKETING Sales and marketing expenses consist primarily of salaries, cost of promotional material, advertising, travel, and third party sales commissions. Sales and marketing expenses were approximately $180.00, or 0.9% of revenues, and zero for the period from inception, May 9, 1996, to December 31, 1996, and the year ended December 31, 1997, respectively. Sales and marketing expenses were zero and $184,536, or 1,575.5% of revenues for the six months ended June 30, 1997 and June 30, 1998, respectively. The Company intends to aggressively promote the CNM brand and as a result expects further significant increases in sales and marketing expenses in future periods. The Company does not capitalize costs associated with the acquisition of customers. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses consist primarily of costs associated with finance and accounting, human resources, management compensation, legal expenses, and office operations. General and administration expenses were approximately $121,334, $394,900, and $427,250 for the period from inception, May 9, 1996, to December 31, 1996, the year ended December 31, 1997, and the six months ended June 30, 1998, respectively. General and administration expenses were approximately $16,290 and $427,250 for the six months ended June 30, 1997 and June 30, 1998, respectively. Since inception, general and administrative expenses have increased as a result of the increased number of employees, increased rent, and other general and administrative expenses as the Company focused on building an administrative infrastructure in anticipation of an increase in the number of customers and employees. During the six months ended June 30, 1998, the Company hired a number of senior management personnel and moved into a new headquarters building, which resulted in a significant increase in general and administrative expenses as compared to the same period in 1997. Management intends to implement a new management information system and continue to expand staff in order to support customer growth. As a result, the Company expects general and administrative expenses to increase in future periods. INCOME TAXES No provision for federal or state income taxes has been recorded as the Company incurred net operating losses through December 31, 1997 and through June 30, 1998. At December 31, 1997, the Company had net operating loss carryforwards for federal income tax purposes of approximately $150,000 which begin to expire in 2017, and for state income tax purposes of approximately $149,000, which begin to expire in 2004. The Tax Reform Act of 1986 includes provisions which limit the net operating loss carryforwards for use in a given year if significant ownership changes have occurred. This offering may result in an ownership change limiting the Company's ability to utilize net operating loss carryforwards to offset future income, if any. The Company has provided a full valuation allowance on the deferred tax asset because of the uncertainty regarding the realizability. POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS The Company's operating results have fluctuated significantly in the past and will likely continue to fluctuate significantly in the future as a result of a variety of factors, many of which are beyond the Company's control. These factors include the rates of and costs associated with new customer acquisition, customer retention, capital expenditures, and other costs relating to the expansion of operations, the timing of new service and product announcements, changes in the pricing policies of the Company and its competitors, market acceptance of new and enhanced versions of the Company's services and products, changes in operating expenses, including telecommunication costs, changes in the Company's strategy, personnel changes, the introduction of alternative technologies, the effect of potential acquisitions, increased competition in the Company's markets and other general economic factors. In addition, a relatively large portion of the Company's expenses are fixed, and therefore the Company's operating margins are particularly sensitive to fluctuations in revenues. Due to these factors, in some future quarter 25 the Company's operating results may fall below the expectations of securities analysts and investors. In such event, the market price of the Company's Common Stock would likely be materially and adversely affected. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations primarily through the private sales of equity securities. The Company's operating activities used net cash of approximately $128,679 and $574,344 during 1997 and the six months ended June 30, 1998, respectively. During 1997 and the six months ended June 30, 1998, net cash used in operations resulted primarily from net losses. Cash used by investing activities has consisted primarily of equipment purchases for the Company's Simi Valley headquarters, for its POPs and for network expansion. For the year ended December 31, 1997 and the six months ended June 30, 1998, capital expenditures amounted to approximately $41,740 and $179,652, respectively. Including the $179,652 spent during the first six months of 1998, the Company anticipates investing approximately $1,100,00 during 1998 on network enhancements, including leasehold improvements and investments in network equipment, with commitments for approximately an additional $11,000,000. Cash from financing activities provided the Company with approximately $769,250 the six months ended June 30, 1998, and $176,264 during the twelve months ended December 31, 1997. The Company's financing activities have consisted of the private sale of Common Stock. From inception through June 30, 1998, the Company raised $897,600 through the private sale of Common Stock. As of December 31, 1997 and June 30, 1998, the Company had cash and cash equivalents of approximately $6,546 and $21,800, respectively, and negative working capital of approximately $615,391 and $643,745, respectively. The Company does not intend to make private offerings of its stock while this Prospectus is in registration or while this offering is being conducted. On September 15, 1998 the Company ceased its private placement of Common Stock pursuant to which it had raised a total of $3,068,500 since it began in October 1997. The Company believes that the net proceeds from this offering will be sufficient to meet the Company's operating expenses and capital requirements for a certain period of time, depending on the amount of capital raised by this offering. In the absence of any capital from this offering, or from an alternative source, the Company estimates that it could be depleted of working capital by the end of 1998. See "RISK FACTORS--No Minimum Capital Requirement--Additional Capital May Be Required." 26 BUSINESS GENERAL The Company was incorporated under the laws of the State of California on May 9, 1996. The Company is a full-service Internet Service Provider and Internet Presence Provider on the World Wide Web, providing dial-up access, dedicated connectivity, virtual Web hosting, Web creation, virtual domain hosting, Web server co-location, technical support, training, and link-up services for businesses and individuals. The Company gives particular attention to providing exemplary customer service at competitive prices. In July 1998, the Company, as an Internet Service Provider, began offering to individuals and businesses dial-up access to the Internet. The Company offers reliable, fast and inexpensive 56K V.90 Personal Access, 112K V.90 Personal Access, and 64k/128k ISDN Personal Access to the Internet. The Company provides complete business solutions in ISDN, frame relay, IDSL and many other Digital Subscriber Lines ("DSL") products and services, corporate firewalls, security audits, and network intrusion investigations. The Company is expanding the scope of sophisticated Internet services that it can provide by installing state-of-the-art Ascend Communications switching equipment and entering into strategic telecommunications access arrangements with competitive local exchange carriers ("CLECs"). The Company intends to provide high quality, high speed voice and data communication services to businesses and individuals by utilizing analog dialup, ISDN, frame relay, DSL, Voice over Internet Protocol ("VoIP"), T-1 and T-3 circuits, and primary rate interface ("PRI") with multiple telephone lines. The wiring in the Company's data center is CAT-5 enhanced, capable of handling 1.2 gigabytes per second. The Company operates a high capacity OC12x3 ATM SONET that is linked directly to the Internet backbone. The Company is currently implementing the equipment and software necessary to provide VoIP. This equipment, along with Ascend GRF 1600 routers, Ascend Max TNTs, Ascend Max 6000s, Ascend GRF 400 routers, and CBX 500 ATM switches enables CNM to provide data communications and quality of service ("QOS") voice telecommunications. Through access arrangements with competitive local exchange carriers ("CLECs"), the Company is installing its switching equipment in several "Points of Presence" ("POPs") to expand its telecommunications network, initially in California and subsequently on a national basis. The Company plans to implement additional POPs in other countries that would enable the Company to provide Internet services and VoIP to customers on a global basis. The Company recently completed the development of proprietary software to enable secure commercial transactions (i.e., purchases and sales) to be conducted within the CNM Network-TM- and on other Web sites. The Company also recently developed a proprietary provisioning system allowing users complete and simplified automation of all the Company's services. CNM provides two levels of service. These services are classified as "Personal" and "Business." Personal Services are defined as services designed and implemented for the individual user. Business Solutions are defined as services designed and implemented for business owners, executives, and employees. Through relationships acquired by CNM with Ascend Communications, ICG Telecom Group, Inc., Pacific Bell Internet, PacNet, Covad, and other high profile companies, the Company will implement both levels of service in Southern California up through Northern California, including San Francisco and Sacramento. The Company's short term plan is to expand coverage of both levels of service on a national basis. The Company's long term plan is to implement these same services on a global basis. Although the Company provides high quality service at low prices for individuals, the Company's primary focus is providing complete business solutions worldwide. 27 PERSONAL SERVICES
INTERNET CONNECTIVITY INTERNET PRESENCE TELEPHONY SERVICES - -------------------------- -------------------------- -------------------------- Analog Dial-up CNM Network Web Space Inter-Local Long Distance ISDN Dedicated/Dial-up CNM Network Email Long Distance Frame Relay Dedicated Internet Software Facsimile Services xDSL Dedicated Technical Support On-Line Account Maintenance Point-To-Point Dedicated On-Line Account Maintenance On-Line Account Maintenance
BUSINESS SOLUTIONS
INTERNET/NETWORK INTERNET CONNECTIVITY INTERNET PRESENCE TELEPHONY SERVICES CONSULTING - --------------------------- --------------------------- --------------------------- --------------------------- Analog Dial-up Web Site Hosting Inter-Local Long Distance Security Evaluation ISDN Dedicated/Dial-up Email Hosting Long Distance Web Design Frame Relay Dedicated Secure E-Commerce Facsimile Services Intranet/Extranet Design xDSL Dedicated Domain Name Service On-Line Account Maintenance LAN/WAN Design Point-To-Point Dedicated Site Promotion On-Line Account Maintenance Co-location Services On-Line Account Maintenance
The Company has recently entered into extensive advertising agreements with Eller Media Company, Advo, Visa Card, Cable Networks and several major Southern California radio stations, as well as multiple reseller agreements to conduct the Company's retail marketing program for prospective dial-up and business solution customers. See "BUSINESS--Marketing and Revenues." The Company also developed, owns, and operates the Consumer Net Marketplace shopping mall on the Internet, which has been on-line since September 1996. Consumer Net Marketplace provides information and sources for the purchase of consumer products and services over the Internet in a convenient shopping mall presentation. Since the introduction of the Company's shopping mall, the Company maintains over 1,200 businesses averaging 1,000,000 hits per month by Internet users. 28 The Company recognizes that the Internet represents a rapidly expanding medium to a growing number of on-line users. The Company's objective is to capitalize on this opportunity by providing enhanced and expanded Internet services to businesses and individuals nationwide, beginning with the State of California. INDUSTRY BACKGROUND The Internet is an increasingly significant global medium for communications, information, and online commerce. International Data Corporation ("IDC") estimates that the number of Internet users was 81 million is 1997 and will reach 177 million by 2000. In addition, IDC projects that ISP revenues in the United States will grow from $4.6 billion in 1997 to $18.3 billion in 2000, implying a compound annual growth rate of 58.5% per year. Continued growth in Internet usage is expected to be fueled by several factors, including the large and growing installed base of personal computers in the workplace and home, advances in the performance and speed of personal computers and modems, improvements in network infrastructure, easier and cheaper access to the Internet, and increased general awareness of the Internet. The networks that comprise the Internet are connected in a variety of ways, including by public switched telephone network and by high speed, dedicated leased lines. Communications on the Internet are enabled by Internet Protocol ("IP"), an inter-networking standard that enables communication across the Internet regardless of the hardware and software used. Over time, as businesses have begun to utilize email, file transfer and, more recently, intranet and extranet services, commercial usage has become a major component of Internet traffic. In 1989, the U.S. government effectively ceased directly funding any part of the Internet backbone. In the mid-1990s, contemporaneous with the increase in commercial usage of the Internet, a new type of provider called an ISP became more prevalent. ISPs offer access, email, customized content, and other specialized services and products aimed at allowing both commercial and residential customers to obtain information from, transmit information to, and utilize resources available on the Internet. ISPs generally operate networks comprised of dedicated lines leased from Internet backbone providers using IP-based switching and routing equipment and server-based applications and databases. Customers are connected to the ISP's POP by facilities obtained by the customer or the ISP from either I-LECs or C-LECs through a dedicated access line or the placement of a circuit-switched local telephone to call the ISP. The rapidly growing need for Internet access and technology has resulted in a highly fragmented industry with the proliferation of over 2000 ISPs operating within the United States. These ISPs are primarily made up of a few large national providers focused on high bandwidth access and a large number of small providers with limited resources focused on serving local markets. Often the solutions offered by these companies fail to address certain elements required to ensure that customers' mission-critical Internet operations are reliable, scalable, and high-performing and these companies fail to provide a broad array of efficient, low-cost communications products and services. The Company believes that customer service has emerged as an increasingly important element of providing Internet services and that often the large, national ISPs do not offer individual customers the level of support desired and that many of the small, regional ISPs do not have the resources necessary to offer adequate customer support. CNM NETWORK SERVICES Internet Connectivity for Businesses and Individuals ANALOG DIAL-UP. CNM provides high-speed access to the Internet over standard telephone lines. Access speeds range from 2400bps to 112kbps. CNM provides access for connections up to 56Kbps for a flat monthly fee of $14.95 and a one-time set-up fee of $25.00. For Multi-Link (2 modems) users, CNM provides access for a flat rate of $18.00 per month and a one time set-up fee of $25.00. 29 ISDN (INTEGRATED SERVICES DIGITAL NETWORK). The Company provides high-speed digital Internet access via ISDN for both dedicated and dial-up customers. Access speeds range from 64Kbps to 128Kbps. Dial-up ISDN fees range from $20.00 to $28.00 depending upon connection speeds. A one-time set-up fee of $25.00 applies to this service. Dedicated ISDN fees range from $125.00 to $235.00 depending upon connection speeds and contract length. A one-time set-up fee of $200.00 applies to this service. xDSL (DIGITAL SUBSCRIBER LINES). XDSL is a burgeoning method of Internet connectivity that includes ADSL (Asymmetric Digital Subscriber Line), sDSL (Symmetric Digital Subscriber Line), RADSL (Rate Adaptive Digital Subscriber Line), and iDSL (ISDN Digital Subscriber Line). DSL is a promising technology that dramatically increases a subscriber's bandwidth, utilizes telephone wiring already installed in virtually every home and business, and offers faster set-up/connection times than the public switched telephone network. These digital circuits enable businesses to connect a LAN (Local Area Network) to the Internet at high speeds for reduced costs. Access speeds range from 144Kbps to 1.54Mps. Fees for xDSL range from $250.00 to $850 per month depending upon access speed. All xDSL customers are charged a one-time set-up fee that varies depending upon service level. FRAME RELAY. CNM offers high-speed dedicated/24 hour connectivity via frame relay. Frame relay connections range from 56Kbps up to 1.544Kbps. Fees for frame relay range from $105.00 to $605.00 depending upon access speed. CNM also charges a one-time set-up fee that varies depending upon access speed. POINT-TO-POINT DEDICATED CIRCUITS. The Company provides high speed private dedicated digital circuits with access speeds ranging from 1.53M(T-1) to 45M(T-3). ON-LINE ACCOUNT MAINTENANCE. The Company provides all customers with on-line account maintenance capability. This capability allows both business and personal users to access their account information in order to review and/or update account information. Internet Presence for Businesses VIRTUAL WEB SITE HOSTING. Virtual Web Site Hosting is a service through which CNM hosts Web pages on behalf of its customers. Targeted for retailers and other businesses, this service enables customers to have a continued presence on the Internet. CNM customers are also able to offer on-line customer service and electronically facilitated order processing. CNM offers space on its proprietary virtual web hosting network for corporate customers. Virtual Web Hosting accommodates businesses and organizations who demand an individualized address on the World Wide Web (i.e. "www.mycompany.com"). Web hosting features include database connectivity, Microsoft FrontPage compatibility, CGI scripting capabilities, and unlimited FTP (File Transfer Protocol) access. Site promotion is provided for customers who purchase certain Virtual Web Hosting packages. The Company also offers "upper level host names," a unique Web service that allows a virtual web hosting customer to have several unique address on the world wide web all of which are based upon the customer's individual domain name (i.e. "sales.mycompany.com"). Prices for Virtual Web Hosting range from $20.00 to $345.00 per month depending upon the package selected by the customer. CNM also charges a one-time set-up fee that also depends upon the package selected. The Company currently supports approximately 200 virtual Web hosting customers. The Company supports and promotes Web sites by providing: - Web production and hosting service. - On-line sales (e-commerce). - Animation/3D graphics. 30 - Sound and live audio environments. - Local, national and global 24-hour access and exposure. - Daily technological research and developments. - Extensive customer service. - Wide varieties of media coverage. - Technical support and training. VIRTUAL EMAIL HOSTING. CNM provides SMTP (Simple Mail Transport Protocol) and POP (Post Office Protocol) for virtual domains. These services are included in Virtual Web Site Hosting packages and can also be purchased separately. As with Virtual Web Hosting, Virtual Email Hosting offers business and organizations a unique presence on the Internet (i.e. joe@mycompany.com). Email hosting features include unlimited Email "forwarding," and "aliases," and "autoresponders." Fees for Virtual Email Hosting depend upon the number of virtual email users and the amount of storage space required. SECURE E-COMMERCE. The Company also offers secured transaction processing via the Internet. Utilizing the Company's experience, virtual hosting customers may implement secured transaction processing over the Internet. Secure E-Commerce allows customers to process transactions on-line in an encrypted manner. Thus, both CNM customers and end users have a safe and secure way to conduct transactions over the Internet. Secure E-Commerce is included with certain Virtual Web Site Hosting packages and can also be purchased with Co-location services. DOMAIN NAME SERVICE. Domain Name Registration allows for unique addresses on the Internet (i.e. "mycompany.com"). CNM charges $75.00 for initial Domain Name Registration. Customers then pay renewal fees on a yearly basis to an Internet Domain Registration Agency, Internic. Domain Name Service is included in all Virtual Web Hosting packages and with co-location services. CO-LOCATION SERVICES. The Company also provides Web server co-location services to allow medium and large scale businesses the ability to house their proprietary servers on CNM's own switches. Co-located customers are provided with a switched ethernet connection to the Company's backbone. This service provides companies with the ability to control their own specific bandwidth and the flexibility to make day-to-day changes, as well as to receive substantial traffic without delays. Customers may purchase "Maintenance Contracts" from CNM to obtain high-level/on-site technical support for their servers. Fees for co- location services vary depending upon transfer rate and rack space needs. The Company currently supports four co-location servers in its Simi Valley headquarters. PROVISIONING SYSTEM. Pursuant to an agreement with Comat Systems Solutions Private Limited, a software development company based in India, the Company has developed a provisioning system to support a retail customer base for virtual and co-location Web hosting. As a split wire application, this system allows automatic end user order processing for Web sites, including DNS registration and host resources set-up. CNM customers can troubleshoot, add additional disk space, and add additional email accounts automatically through the provisioning system. Additionally, the system can initialize accounting records, process bills, generate invoices, and maintain customer accounts for CNM and its clients. VIRTUAL BUSINESS CENTER. The advent of high power, low cost hardware coupled with public domain operating systems and server software has significantly enhanced the profit potential in this Internet market. To take advantage of this market, the Company plans to implement the CNM Network-TM- virtual business center through which the Company can offer a tool kit for domain registration, Web site creation, resource allocation, and Web site maintenance. The service would be offered at various levels of sophistication, ranging from simple Web sites to business Web sites and Web sites with e-commerce capability. The Company plans to include a credit card module for payment to facilitate secure commercial 31 purchases and sales on the Internet. Other planned features include site account database record creation, co-location, name servers, virtual FTP host, email/smpt host, central file services, accounting and virtual domain maintenance modules. Co-located servers are also expected to provide different levels of virtual domain registration and hosting. ON-LINE ACCOUNT MAINTENANCE. The Company provides all customers with on-line account maintenance capability. This allows both business and personal users to access their account information in order to review and/or update account information. Internet Presence for Individuals CNM NETWORK WEB SPACE. The Company offers individual users Web space on the CNM Network Web site. This service is included with all personal connectivity packages and may also be purchased separately. Fees are based upon storage needs. CNM NETWORK EMAIL. CNM includes one email account with all connectivity packages from which Customers may send and receive electronic mail. Additional email accounts can be purchased separately. INTERNET SOFTWARE. Through collaborations with several software developers, CNM has developed an Internet software package that enables customers to use the Internet in a simple and efficient manner. This software package includes a web browser, a news reader, several email client programs, and an audio/video streaming client. The CNM software package is free to all CNM customers. TECHNICAL SUPPORT. To ensure a simple and enjoyable Internet experience, the Company offers superior technical support to all customers. Customer problems are handled in an expedient and efficient manner. A detailed on-line knowledge base is available to all CNM users. Technical support is free for all customers. ON-LINE ACCOUNT MAINTENANCE. The Company provides all customers on-line account maintenance capability. This allows both business and personal users to access their account information in order to review and/or update account information. Internet and Network Consulting for Businesses BUSINESS NETWORK SECURITY SERVICES. CNM offers three levels of security services. The first level consists of a one-time security check-up. This involves intrusion testing of a company's network. Once complete, the Company will identify the appropriate measures needed to improve the security flaws found during the intrusion test. The price of this service varies based upon the size and topology of the network and any fees involved in upgrading the company's network, including, but not limited to software patches on servers and router updates. The second level is an option available to customers who purchase a turnkey dedicated connection package from CNM. CNM technicians, after establishing the network connection, will implement a core level of security measures into the network equipment, such as router enhancements to block malicious network traffic which can disrupt the various computers connected to the network and disrupt a business. The third level of security service involves constant security monitoring of a company's network. Upon entering into a "security support contract," a company will receive constant security monitoring of its network, as well as continuous upgrading of network equipment to guard against network intrusion. At this time, the third level of security service is only available to those who purchase their connectivity from CNM. WEB PRODUCTION. Web production is one of the fastest growing segments of the Internet industry. The Company's Web production services include Web site design, Web site creation, and technical support. CNM customers are able to offer interactive, multimedia advertising displays. This provides businesses 32 with direct gateways to offer goods and services in an attractive and user friendly environment to anyone on the Internet. The Company utilizes several high-quality Web site designers. These designers are available to all CNM customers. Fees for web site design vary depending upon Web site size and content. LAN/WAN DESIGN. Custom network design is provided by the Company's engineering task force. Customized networks can be designed and implemented by the Company. These networks include Local Area Networks and Wide Area Networks. Fees for LAN/WAN design are dependent upon the size and configuration of the customers network needs. Telephony Services for Business and Individuals INTER-LOCAL LONG DISTANCE. The Company will offer inter-local long distance service to both businesses and individuals at highly competitive rates outside and within the network calling radius. LONG DISTANCE. The Company will provide long distance service to both businesses and individuals within the network calling radius. Outside the network calling radius, long distance rates will be offered through a collaborative arrangement with other companies at the lowest rate possible. FACSIMILE SERVICES. MultiVoice reduces remote site communication costs by routing voice and facsimile across the Company's intranet connection. Customers who use the Company's MultiVoice equipment will be charged CNM's inter-local long distance and long distance rates for facsimiles. TELECOMMUNICATIONS NETWORK INFRASTRUCTURE The Company is installing telecommunications equipment and entering into access agreements to build a full service telecommunications network that is presently conceived to encompass the Southwestern United States from California to Texas, and north to Colorado. The Company is currently collaborating with RBOC's such as Pacific Bell and CLECs, primarily ICG Communications, Inc. and Covad Communications, Inc., to provide access for the Company's switching equipment to the Internet backbone, fiber optic cable, and telephone lines. The Company's main switching and related telecommunications equipment is located at its Simi Valley headquarters facility. The Company has established POPs in several locations throughout Southern California and is expected to install more POPs in California by the end of the year, including ones in San Francisco, San Jose, and San Diego. Each of these POPs provides, or is expected to provide, Primary Rate Interface with multiple telephone lines through Pacific Bell and others. The CLECs providing access for the Company's telecommunications equipment generally charge fixed monthly fees for the access service. The Company's POPs are established to permit high speed local dial-up access to the Internet. All of the Company's POPs are expected to contain sufficient switching equipment to provide local dial-up service and frame relay voice and data transmissions. Certain of the Company's POPs installed in strategic locations are also expected to contain CBX 500 ATM switches to enable QOS voice and data long distance transmission on dedicated lines. Larger POPs are currently planned for San Diego and Sacramento, California, as well as Las Vegas and Reno, Nevada, Phoenix, Arizona, Albuquerque, New Mexico, El Paso, Amarillo, San Antonio, and Dallas/Fort Worth, Texas, Oklahoma City, Oklahoma, Denver, Colorado and Salt Lake City, Utah. The Company also plans to offer DSL service pursuant to access and co-location arrangements with Covad Communications, Inc. DSL service capability may be incorporated into the Company's existing and planned POPs, and may also be installed in separate POPs on dedicated switching locations. There is no assurance regarding the timing or whether or not the Company will complete its telecommunications network as presently planned. See "RISK FACTORS." 33 VOICE OVER INTERNET PROTOCOL The most significant trend in the Internet and indeed in the broader telecommunications industry, is the convergence of voice and data communications to a singular mode of transmission. Traditional circuit-switch based communications systems establish a dedicated channel for each communication (such as a telephone call for voice and fax), maintain the channel for the duration of the call, and disconnect the channel at the conclusion of the call. With the inception of faxes and computer data in the late seventies and early eighties, the resources of such circuit-switch based networks became taxed and the need for greater bandwidth became evident. Today, voice, data, and video transmission can be transmitted through a single high-speed data packaging network with the TCP/IP data transmission standard becoming the most widely used methodology. Originally constructed as a network of computer networks, the Internet revolves around the TCP/IP, which moves data in a series of packets. These packets are disassembled at the point of transmission, routed over the Internet backbone in the most efficient manner and reassembled at the point of receipt. The disadvantage of these packets is that they are cumbersome and occupy large amounts of space on telephone wires. As a result, data is slow to arrive at its destination. Various solutions have been created to address this problem, yet to date the most common and effective method is to access a high bandwidth network for transmission. Packet-switch based systems offer several advantages over circuit-switch based systems, particularly the ability to commingle packets from several communication sources together simultaneously onto a single channel. For most communications, particularly those with bursts of information followed by periods of "silence," the ability to commingle packets provides for superior network utilization and efficiency, resulting in more information being transmitted through a given communication channel. There are, however, certain disadvantages to packet-switch based systems as currently implemented. Rapidly increasing demands for data, in part driven by Internet traffic volumes, are straining capacity and contributing to latency (delays) and interruptions in communications transmissions. In addition, there are concerns about the adequacy of the security and reliability of packet-switch based systems as currently implemented. Many initiatives are under way to develop technology to address the disadvantages of packet-switched based systems. Many companies are migrating their data networks to carrier-provided virtual private networks ("VPNs"), using IP, frame relay, and ATM, which are more efficient means of transporting voice, video, and data. These companies are realizing cost savings and improved performance. The Company believes that the IP standard, which is an "open networking standard" broadly adopted on the Internet and elsewhere, should remain a primary focus of these development efforts. The Company expects the benefits of these efforts to be improved communications, reduced latency and lower networking hardware costs. Already, VoIP, or transmission of voice calls from a telephone to a telephone using the Internet Backbone to transmit the data, is being offered to consumers. This new voice and data network solution is evolving for several reasons: - Voice and facsimile communications are currently separate from the corporate data network. The result is inefficient, two incompatible network infrastructures. - With the integration of voice and data traffic onto one network, companies will realize savings in network infrastructure, maintenance, and management costs. - According to a recent CMP survey, over 40% of an organization's long distance costs are attributable to voice. For the average company, integration of voice traffic with data traffic can amount to significant savings. The Company is offering a totally integrated solution for delivering voice and data services over a single data network. The Company recently acquired additional equipment from Ascend Communications to expand further its POPs and the VoIP equipment needed for voice over data over the Company's network. Ascend's MultiVoice-TM- for IP, frame relay, and ATM is the only product on the market to guarantee IP QOS from the access area to the core of the public network. Using MultiVoice, the Company 34 can transparently integrate services between its circuit switched voice/fax and packet switched ATM, frame relay, and IP networks. MultiVoice enables a single data network to carry efficiently and cost-effectively voice, fax, and data, allowing the Company to guarantee quality and provide transparent telephony to its customers. VoIP provides the customer with the ability to make digital local long distance calls through the Company's network for nearly half the cost of traditional telephone companies. CNM will provide IP over its own network as opposed to over the Internet. The Company will use its own high-speed fault-tolerant backbone, whose main purpose is to transport VoIP signals. The use of a dedicated backbone for this transport has numerous advantages over the current trend of transporting VoIP signals across the public Internet. The private CNM backbone will render VoIP traffic immune to the current glitches and saturation issues that are currently felt by the ever-expanding Internet. The highest priority on the CNM VoIP agenda is to provide a QOS that rivals that of the current Public Service Telephone Network ("PSTN"). Another advantage of carrying VoIP traffic across a high speed ATM backbone is fine-tuned control over the backbone bandwidth. This control will allow CNM to use the inherent traffic-shaping abilities provided by the ATM specification to ensure a truly incredible QOS to the customer. The private backbone also ensures a higher level of security and data-confidence, which not only aids the VoIP side, but will also increase the confidentiality of electronic commercial transactions. The combination of this emerging VoIP technology along with the security and stability of a high-speed private backbone gives the customer the best of the current PSTN, which is dedicated solely to the purpose of voice based telecommunications, and the IP based network, whose flexibility and redundancy give it the ability to continue running, even in the face of massive failure on the part of other sections of the network. COMMERCE ON THE INTERNET The emergence of the Web has created major opportunities for companies to advertise and promote their products and services in a targeted, interactive and multimedia market. IDC HTTP:// WWW.IDCRESEARCH.COM estimates that the number of users accessing the Web will grow from over 50 million in 1997 to over 200 million by 2000. A large and growing base of personal computers installed in the workplace and home, advances in the performance and speed of computers and modems, the amazing technological advances recently developed that are now being implemented such as "Web Television," improvements in network infrastructure, easier and cheaper access to the Internet, and increased awareness of the Internet among consumer and trade customers are contributing to the growth. A study by O'Reilly & Associates (HTTP://WWW.ORA.COM) in 1997 indicated that 50% of large, 25% of mid-sized and 8% of small businesses had access to the Internet, for a total of more than half a million businesses. Based on a study by O'Reilly & Associates on US Business Establishments with Internet Access, past growth curves, and the expected incorporation of the Internet into banking and credit card activity, ACTIVMedia (HTTP:// WWW.ACTIVMEDIA.COM) predicts that those numbers will swell to over 5.9 million, or 92% of United States business establishments, by 2001. With nearly every large US business (i.e., more than 500 employees) connected to the Internet and with pressure to upgrade mounting, the connectivity market is expected to remain vibrant. Although the international market has been slower to embrace the advantages of the Internet, ACTIVMedia predicts that the European and Pacific Rim Web populations will grow at an "exponential rate." Based on its study of Web marketers, the upward curve in sales generated by the Internet is only just beginning as Web users become more accustomed to shopping on-line. Even in the United States, where Internet use is most advanced, Internet commerce is still in its infancy and experiencing tremendous growth. During the 1997 holiday season, on-line orders soared. Internet on-line services are fast becoming a new social phenomenon in shopping. "Electronic malls" are exerting a powerful on-line presence and the concept of electronic shopping malls and e-commerce, in the Company's view, will shape the future of world economics. The Company owns and operates a fully designed, state of the art Internet shopping presence on the World Wide Web named Consumer Net 35 Marketplace (HTTP://WWW.CONSUMERMARKET.COM). Internet "search engines" offer on-line users quick and easy access to the Consumer Net Marketplace shopping mall. One of the crucial developmental aspects of on-line shopping malls is advancement of technologies. Design in three dimensional appearances enables users to simulate walking among stores from their computers or televisions while at the same time engaging in shopping. On-line stores provide text and/or catalog pictures of goods and services which can be purchased electronically and delivered directly to the customer. With proper design and technology, an Internet shopping mall has the capacity to rent space to an unlimited number of stores with unlimited inventory. As such, each store transcends the notion of a traditional store and can provide information hubs and service centers in addition to normal merchandise. New products and services, special discounts, and "sale items" can be advertised and changed daily. With an ever increasing global market, an Internet mall can generate substantial sales. The Company commenced operating its electronic shopping mall Web site in September 1996. The Company's electronic mall operates under the name Consumer Net Marketplace or "CNM" at HTTP:// WWW.CONSUMERMARKET.COM. Since the introduction of the Company's shopping mall, the Company maintains over 1,200 businesses averaging 1,000,000 hits per month by Internet users. CNM is listed with most major and secondary Internet search engines such as Yahoo, Alta Vista, Infoseek, Excite, Magellan, Lycos, HotBot and others. CNM plans to make on-line shopping increasingly cost effective, convenient and enjoyable as the CNM business plan envisions. The CNM Web site was awarded: - "FAME", a prestigious Award of Excellence for 1997. - "Starting Point", HotSite's Award in 1997. CNM suppliers include such companies as Netscape, Microsoft, Superior Bank Card Services, Advo Direct Marketing, BMD Solutions, Softbank, Modem Media, Left Field, Integrated Telemanagement Services, Yahoo, Excite, Web Crawler, Visa, Master Card, American Express and many other leading industry providers. The Company's customers are a wide range of independent private or public businesses now on-line or which need a presence on the Web, particularly small and medium sized, specialized vendors who would not otherwise have the national market exposure offered by the CNM shopping mall. The advertising customers currently include Amazon.com, USA Today, 800-Florals by Phillip's, Loralie, Hollywood Cookie Studio, Wired News, Advanced Comfort, Excite, Sports Center On-Line, Vinylvendors, Virtual Vineyards, C/NET, Toys R Us, Zip2, Fragrance Counter and many others within the CNM Network-TM-. CNM STRATEGY CNM's objectives are to become a global ISP and VoIP telecommunications provider to its personal and business solution users of the Internet. The key elements of CNM's strategy include: EXPANSION OF CUSTOMER BASE. CNM believes that a key to its success in the competitive ISP market is to rapidly expand its user base, thereby amortizing its fixed assets over a larger revenue base and enhancing its ability to enter into favorable arrangements. The Company plans to accelerate its efforts and financial commitments to attract new users and will continue to aggressively advertise and promote its services to individuals and the business community. PERSONAL SERVICES AND BUSINESS SOLUTIONS. The Company offers an extensive range of services to both individuals and businesses. In order to continue to attract and retain individual users, the Company will offer user friendly Internet access and services. Accordingly, the Company will continue to devote significant resources to expanding its customer and technical support and enhancing its network operations capability. The CNM software, which includes front-end software and documentation for Windows 95 and Windows 98 users, is designed to make it easy for users to register and configure their system for Internet 36 access. At the same time, the Company is enhancing its network infrastructure to offer highly sophisticated and complete business solutions, including VoIP, high end dedicated access, state of the art co-location services, and four highly demanded flavors of DSL products (aDSL, iDSL, sDSL, and xDSL). Moreover, the Company constantly works to develop new services, content and features to enhance that user experience. UTILIZATION OF THIRD PARTY SERVICE PROVIDERS. In order to maintain its focus on user needs, the Company leverages the infrastructure of others by leasing POP capacity from ICG Telecom Group, Inc., Pacific Bell Internet, Covad Communications, Inc., and IBM Technologies. In addition to lowering required capital expenditures, the Company believes that this approach gives it flexibility to rapidly expand its service coverage. Moreover, access to multiple networks provides users with increased service quality resulting from redundant network access. The Company will continue to pursue this strategy so that it can devote its significant resources to its sales and marketing efforts and to improving its users' Internet experience. ENHANCE MARKETING AND DISTRIBUTION. The Company plans to expand its targeted marketing programs and distribution efforts in geographic markets other than California in order to achieve a nationwide presence and obtain brand recognition. In order to achieve these goals the Company will utilized print publication, radio, billboards, and direct mail. CNM closely monitors the results of its marketing techniques as part of an ongoing effort to increase the cost-effectiveness of its marketing efforts. ENHANCE NETWORK INFRASTRUCTURE. To effectively attract new customers and continue to offer high quality service, the Company is making significant capital investments, including the expansion of its data center, accounting, and billing systems. CNM believes that its planned infrastructure will be adequate to manage a significant increase in its customer base. AGREEMENT WITH STARNET. Recently the Company entered into an agreement with Starnet, Inc. Under this agreement the Company will lease POPs throughout the United States from Starnet, Inc. These POPs, in conjunction with the Company's existing POPs, will allow the Company to offer its Internet connectivity services on a national basis. COMPANY RESEARCH AND DEVELOPMENT VOICE OVER INTERNET PROTOCOL. At present, CNM is continuing its research and development of VoIP technology. VoIP technology simulates telephone conversations by processing analog signals which cannot be done on regular networks. VoIP technology allows the conversion of analog signals into digital data. The data is then moved digitally and transformed back into analog. The receiving telephone then produces the same high quality sound of the conversation as if it were a regular phone call. CNM is working on improving the existing VoIP technology which is still undergoing major developments. The key to VoIP's success in business applications is high quality voice reproduction, low bandwidth consumption, and gateway payback periods of less than 18-24 months. To that end, CNM is developing proprietary VoIP service to offer toll quality levels of sound reproduction, ensuring more widespread usage among its clients. The second key to VoIP's success is minimizing WAN bandwidth consumption. CNM is improving on "silence suppression" technology which recognizes periods of silence in a conversation or facsimile transmittal, and stops the transmission of IP speech packets during those periods. This technology can reduce bandwidth consumption by up to 60%. The most attractive aspect of VoIP technology is the cost savings it can bring to businesses. The cost savings can come from several areas: (1) reduced intracompany voice and facsimile communications costs, (2) reduced selected PSTN communications costs by using off-net calling, (3) reduced selected 800 number calling costs by making local numbers that ride over the corporate IP network available to outside callers, 37 and (4) reduced costs from reducing the number of telephone lines in proportion to the offloading of calling volume to the VoIP network. PROVISIONING SYSTEM. CNM has developed a proprietary provisioning system for allocating resources for its Web Server/ATM. This system allows the end user to set up various levels of virtual Web services without a system administrator. The end user is able to: - register a domain name - move a domain name from another ISP - determine the resources the end user requires, including -- number of email accounts -- monthly transfer -- disk space -- database access -- front page access -- e-commerce merchant accounts - add or subtract incremental offerings to the end user's site at a later date, including -- additional email users -- additional disk space -- higher transfer - select payment options The end user can also use the provisioning system as a maintenance tool kit. If the end user experiences a problem with his site, the end user can use the CNM provisioning system tool kit to analyze the site for errors. In many instances, the tool kit can fix the problem. If the tool kit is unable to fix the problem, the provisioning system tool kit will provide the CNM administrator with a diagnostic printout. The provisioning system interacts with the CNM billing system allowing for various departments to access an end user's history information. The provisioning system can also be used to: - set up and sell dedicated connectivity services - set up and sell personal dial up products - set up resources for co-located services - manage and maintain these accounts The provisioning system reduces costs in terms of the following: - reduced system administrative personnel for handling account settings and troubleshooting - reduced staff costs for account billing and tracking 38 - increased customer satisfaction MARKETING AND REVENUES The Company's current or anticipated sources of revenue are derived from (i) Web site development fees paid by customers, primarily businesses, which engage the Company to design and establish Web sites for them on the Internet, (ii) Web site hosting fees, (iii) fees for virtual domain hosting, (iv) fees for co- location services (v) fees for business consulting relating to conducting commerce and advertising on the Internet, (vi) fees for designing Intranet and Internet solutions for networking projects, (vii) Web site advertising fees from advertisers on the CNM Network-TM- Web site, (viii) fees for monitoring and upgrading Web sites for other businesses, (ix) fees for dial-up Internet access service, X2, 56K Flex ISDN and frame relay, and (x) fees for developing corporate firewalls and other Internet security features. The Company is presently designing the infrastructure and is retaining additional management with the technical expertise to enable it to provide the following services from which future revenue may potentially be earned: (a) secure commercial transactions on the Internet utilizing the Company's proprietary e-commerce (shopping cart) technology which is planned for use on the CNM Network-TM- Web site and for licensing to third parties, (b) VoIP, (c) QOS voice and data telecommunications, (d) video and real audio streaming, (e) Web support provisioning system software for use by the Company and its licensees, (f) licensing the Company's proprietary search engine currently in development and (g) other proprietary products which may be developed by the Company in the future. The Company recently established a high capacity OC-12x3 ATM SONET to provide Internet backbone solutions nationwide beginning with the State of California. CNM currently promotes and advertises its business via the Internet and a wide variety of other media campaigns. The Company has recently entered into extensive advertising agreements with Eller Media Company, Advo, Visa Card, Cable Networks and several major Southern California radio stations as well as multiple reseller agreements to conduct the Company's retail marketing program for prospective dial-up and business solution customers. Through the Company's agreement with VISA, customers in the Los Angeles area who already charge monthly Internet access service fees will receive information in their monthly VISA statements about the Company's dial-up access service. These advertisements will allow customers to sign-up for the Company's service and to charge the monthly access fee directly to their VISA accounts. The term of the Company's agreement with VISA is month to month. The Company entered into an advertising agreement with Eller Media Company in June 1998. In addition, Eller Media Company has agreed in principle to provide the Company with extensive billboard and other outdoor advertising in Southern California at certain rates in exchange for the right to subscribe for up to 1,000,000 shares of the Company's Common Stock. See "BUSINESS--Proposed Agreement with Eller Media." The Company has an agreement with Advo Direct Marketing for direct mass mailings of the Company's advertising materials to specific areas of the Southern California market. The direct mailing campaign may be expanded to other areas of the United States in the future, in coordination with the planned expansion of the Company's telecommunications network. The current mailing campaign with Advo commenced in May 1998 and is scheduled to continue through December 1998. The Company also plans to advertise its Internet access services on local radio stations from San Diego to Santa Barbara beginning in September 1998. The Company has already purchased advertising time on a month-to-month basis. The marketing activities for the Consumer Net Marketplace Shopping Mall are conducted out by CNM's in-house sales and marketing force. CNM screens and identifies potential vendors via email, facsimile, and telephone, and then prioritize each vendor accordingly. CNM's criteria for vendors in its shopping mall include diversity, name recognition, commercial reputation and sales volume. 39 AGREEMENT WITH ELLER MEDIA The Company is currently conducting a major billboard advertising campaign throughout Southern California with Eller Media Company, an advertising firm specializing in marketing programs utilizing outdoor billboards, shelters and other outdoor venues. In connection with the current program, Eller Media Company and the Company entered into a subscription agreement on October 7, 1998 pursuant to which Eller Media has agreed to provide additional remnant outdoor advertising space to CNM at a price equal to 50% of the negotiated rate for outdoor advertising space in the market where the remnant space is available (excluding any production costs), in consideration for shares of CNM's Common Stock at a price of $2.00 per share. Eller Media will subscribe for shares as CNM orders advertising services. Eller Media has the right to subscribe for up to 1,000,000 shares of CNM's Common Stock pursuant to the agreement, depending on the level of orders made by the Company. The subscription agreement terminates on December 31, 1999, regardless of the number of shares of CNM Common Stock to which Eller Media subscribes by that date pursuant to the agreement. The subscription agreement also provides that Eller Media Company has certain piggyback registration rights with respect to its shares of CNM, applicable to the next registration statement (except on Form S-4 or S-8) after the registration statement encompassing this Prospectus, to the extent that Eller Media Company cannot sell such shares pursuant to Rule 144. If the next registration statement has an underwriter, then the underwriter may reduce the number of Eller Media Company's shares registered if other selling security holders' shares on the registration statement, if any, are also reduced on a pro rata basis. PREVIOUS FINANCING AND DEVELOPMENT ARRANGEMENT Fredrick Rice and certain associates formed Consumer Net Partners, a California general partnership ("CNP"), in 1996 with $500,000 of contributed equity. Approximately 85% of the of the partnership equity (after deducting expenses related to the operation and formation of the general partnership) was allocated to Consumers On-Line Development Group, Inc. ("COLD Group"). Pursuant to a Management Agreement with CNP, COLD Group was engaged to manage and oversee the development of an on-line shopping mall. COLD Group was also engaged to purchase equipment and design software programming for the CNM electronic shopping mall and for the development of merchant participation in the mall, including the preparation of marketing and lead-generation materials to promote the mall. The COLD Group served as the managing partner of CNP with Fredrick Rice as the principal shareholder and President of the COLD Group. The COLD Group dissolved in July 1997 and assigned all of its rights to CNP. See "CERTAIN TRANSACTIONS." The remaining partnership equity, approximately 15%, was allocated to the Company to participate in the promotion and start up operation of the CNM electronic shopping mall. CNP also advanced funds to the Company to finance the Company's ability to provide support services to CNP and the COLD Group for the CNM shopping mall. The Company is repaying the advance as part of its purchase of all of CNP's and the COLD Group's interest in the CNM electronic shopping mall and related intangible assets. Pursuant to the CNP Partnership and Management Agreements, 75% of net income generated by the CNM shopping mall would be paid to CNP and allocated as follows: 75% to the CNP general partners (after deducting partnership expenses) and 25% to the COLD Group. On December 31, 1997, the Company purchased all of the rights and interests held by CNP in the Company's potential income for a combination of a promissory note payable on demand and options to purchase the Company's Series 1 Class B Common Stock. The aggregate purchase price was (i) $500,000, payable by issuance of a noninterest-bearing promissory note payable to CNP upon demand (which includes repayment of the advance by CNP, the proceeds of which will be allocated among the CNP partners along with the balance of the Company's payment on the promissory note), plus (ii) options to purchase 250,000 shares of Series 1 Class B Common Stock for a period of three years at a purchase price of $.50 per share. Pursuant to CNP's General Partnership Agreement, the written consent of a majority-in-interest of the partners of CNP must 40 approve the sale of rights to the Company. The consent of a majority-in-interest of the partners of CNP has been obtained. PRIOR PRIVATE PLACEMENT OF STOCK Commencing on October 1, 1997, the Company made a private placement of its Series 1 Class A Common Stock to investors for a purchase price of $2.00 per share pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of the Regulation D promulgated under Section 4(2). The private placement terminated on October 8, 1998. Pursuant to the private placement, the Company issued 1,534,250 shares of its Common Stock and raised $3,068,500 in total capital. See "SELLING SECURITY HOLDERS." COMPETITION The market for the Company's Internet related services is diverse and highly competitive. The competition is expected to continue to increase significantly. The Internet is characterized by few barriers to entry, relatively low participation costs, and innovative and rapidly expanding services. The Company expects competition to persist, intensify, and increase in the future. Most of the Company's current and potential competitors have longer operating histories, greater name recognition, larger installed customer bases, and significantly greater financial, technical, and marketing resources than the Company. Although the Company believes that the diversity of the Internet market will provide opportunities for a variety of marketing techniques, it is possible that the industry could become dominated by a limited number of entities. The Company competes directly with several other ISPs, IPPs, and companies offering a variety of on-line services. Some of these existing competitors, as well as potential future competitors, have or could have significantly greater financial, technical, and marketing resources than the Company. The Company believes that the principal competitive factors in its market are Web site location recognition, variety of products and services, and technological innovation. The Company believes that its current ISP and IPP services, VoIP services, and shopping mall configuration will provide it with the opportunity to compete effectively in the market. See "RISK FACTORS--Competition." GOVERNMENT REGULATION The Company is not currently subject to direct regulation by any government agency, other than regulations applicable to businesses generally, and there are currently few laws or regulations directly applicable to commerce on the Internet. Nevertheless, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet covering issues such as user privacy, pricing, telephone services, and characteristics and quality of services. The adoption of any such laws or regulations may decrease the growth of the Internet, which could in turn decrease the demand for the Company's services and increase the Company's cost of doing business, or otherwise have an adverse effect on the Company's business, operating results and financial condition. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, telephony, libel and personal privacy is uncertain. See "RISK FACTORS--Government Regulatory Policy Risks." PROPRIETARY RIGHTS The Company believes its trademarks, service marks, trade secrets and intellectual property are essential to its success. The Company relies upon trademark and copyright law, trade secret protection and confidentiality agreements with its employees, customers and others to protect its proprietary rights. The Company has registered the domain names "cnmnetwork.com," "consumermarket.com," and "cnminc.com" with Internic for the exclusive use of such names on the Internet. The Company has registered its service marks and trademarks in the United States and internationally, including "CNM Network-TM-," "CNM Inc.," "Consumer Market," and "Consumer Net Marketplace." While the Company 41 will endeavor to rely on trademark, trade secret, and copyright law to protect its technology, the Company believes that factors such as the technologies and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are more essential to establishing and maintaining a technology leadership position. The Company presently has no patents or patent applications pending. There can be no assurance that others will not develop technologies that are similar or superior to the Company's technologies. The Company has entered into confidentiality or license agreements with its employees, consultants and vendors, and generally controls access to and distribution of its other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's products or technology without authorization, or to develop similar technology independently. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries, and the global nature of the Internet makes it virtually impossible to control the ultimate destination of the Company's products. To license its products, the Company will primarily rely on licenses that are not signed by the end-user and, therefore, may be unenforceable under the laws of certain jurisdictions. There can be no assurance that the steps taken by the Company will prevent misappropriation of its technology or that such agreements will be enforceable. Furthermore, while the Company attempts to monitor the product quality and customer service provided by CNM, there is no assurance that such participants will not offer and sell products or services that might adversely affect the reputation or utilization of the CNM Network-TM-. See "RISK FACTORS." EMPLOYEES As of October 7, 1998 the Company employs 32 full-time and over 20 part time employees, including four senior executive officers, twelve computer engineering systems administrators and programmers, seven administrative personnel, nine marketing representatives and assistants, and multiple customer support personnel. The Company may engage outside consultants in the future, including systems and software analysts and marketing personnel. See "MANAGEMENT." The Company is highly dependent on the technical and managerial skills of its key employees, including technical, sales, marketing, financial, and executive personnel, and on its ability to identify, hire and retain additional personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be able to retain existing personnel or to identify or hire additional personnel. In addition, the Company is highly dependent on the continued services of its senior management team, which currently is composed of a small number of individuals. The inability to attract, hire or retain the necessary technical, sales, marketing, financial and executive personnel, or the loss of the services of any member of the Company's senior management team, could have a material adverse effect on the Company's business, financial condition and results of operations. SEASONALITY The Company's operations are not expected to be affected by seasonal fluctuations, although the Company's cash flow may be affected by fluctuations in the timing of cash receipts from its customers. FACILITIES The Company's executive offices are located at 1900 Los Angeles Avenue, Second Floor, Simi Valley, California 93065, (805) 520-7170. The Company's Internet addresses are: WWW.CNMNETWORK.COM, WWW.CONSUMERMARKET.COM, and WWW.CNMINC.COM. The Company's email address is: info@cnmnetwork.com. Information contained on the Company's World Wide Web site shall not be deemed to be a part of this Prospectus. The Company has signage rights at its executive offices, which are expected to accommodate projected demand for space over the next two years. 42 The Company has also secured POP sites in several other locations throughout the Los Angeles Metropolitan Area to provide dial-in coverage for personal dial up access to the Internet. Additional POPs are expected to be obtained either (i) pursuant to traditional leases for space or (ii) pursuant to equipment facilities (barter) agreements under which the Company will receive space for its switching equipment in consideration for providing a certain amount of bandwidth access to the landlord. The Company anticipates that it will obtain future POP locations primarily through barter arrangements. LEGAL PROCEEDINGS The Company is not currently aware of any legal proceedings or claims that it believes will or could have a material adverse effect on the Company's financial position or results of operation. 43 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information with respect to the Company's directors and executive officers as of October 7, 1998.
NAME AGE POSITION - ----------------------------------------- ----------- ----------------------------------------------------------------- Fredrick J. Rice......................... 40 Chairman of the Board of Directors, President, Chief Executive Officer and Chief Financial Officer Donald Lee Carver........................ 43 Vice President of International Network Development Christopher Young........................ 26 Senior Computer Systems Engineer and Systems Analyst Jon P. DeOng............................. 26 Senior Computer Systems Engineer and Systems Analyst Christopher Fogel........................ 25 Senior Computer Systems Engineer and Systems Analyst Laura Murtagh............................ 29 Secretary Kenneth K. Lattin........................ 52 Director Charles Rice............................. 34 Director Dr. Douglas Benson....................... 67 Director Mark J. Richardson....................... 45 Director
FREDRICK J. RICE is the founder of Consumer Net Marketplace, Inc. Mr. Rice has been President, Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company since the Company's inception in January 1996. Prior to founding the Company, in 1995, Mr. Rice was the President and Chairman of the Board of Directors of Consumers On-Line Development, Inc., the managing partner of Consumer Net Partners, a California general partnership. See "CERTAIN TRANSACTIONS." Mr. Rice, from 1990 through 1995, held various positions in the securities and financial services industry involving stocks, funds and venture capital interests and was a securities broker registered with the National Association of Securities Dealers, Inc. Mr. Rice settled an administrative proceeding with the Securities and Exchange Commission which permanently enjoins him from any violations of certain sections of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. Mr. Rice has an extensive advertising and marketing background in print media, radio and television broadcast for over 14 years. Fredrick Rice is the brother of Charles Rice. DONALD LEE CARVER has been the Vice President of International Network Development for the Company since March 1998. Mr. Carver oversees CNM's development of its global network by utilizing his relationships with foreign government officials and representatives of other telecommunication companies developed during his career. Prior to joining the Company, Mr. Carver was the Senior Systems Administrator for the Web Hosting Division of Netcom On-line Communications, Inc. from November 1996 until March 1998, where he was responsible for the administration and maintenance of co-located servers. He was also responsible for developing and implementing a centralized NFS server farm and automated backup recovery strategy for the Web hosting section, as well as developing and implementing strategies to migrate from 10 BaseT passive hub base network for the server farm to a fully switched 100 BaseTx network. Mr. Carver worked with Pentium 200 Web servers, along with a variety of other related hardware, and NT3.51, NT4.0, Irix, Linux and other related software. From July 1996 until November 1996, Mr. Carver was an Internet Software Developer for Comat InterActive and the Web Master for www.comat.com. During his tenure with Comat, Mr. Carver developed international relationships for networking and Internet development. These relationships included individuals in the ministries of telecommunications in India and Pacific Rim nations. Mr. Carver has also fostered relationships with representatives of major telecommunication firms doing business in these countries. Mr. Carver worked 44 for the Dallas Planning Department as a UNIX/WinNT Network Administrator from December 1989 until July 1996, where he installed and configured the City's Internet connection and services. Mr. Carver was a GIS Analyst for the City of Dallas Planning Department from February 1986 until December 1989. Mr. Carver attended the University of North Texas commencing in 1984 where he earned most of the credits necessary for a Bachelors of Science in Urban Geography and Earth Sciences. Mr. Carver earned an Associate Degree in Applied Science-Horticulture from Tarrant County Junior College in 1981. Mr. Carver has earned several supplemental certificates in various systems and network administration environments. CHRISTOPHER L. YOUNG has been a Senior Computer Engineer and Systems Analyst with the Company since March 1998. Prior to joining the Company, Mr. Young was a Systems Administrator with Netcom On-line Communications, Inc. in Dallas, Texas from May 1997 until March 1998, where he was responsible for managing a wide variety of Web servers, primarily utilizing Linux, Intel hardware and the Apache Web server. Mr. Young was responsible for third level technical support on all Web hosting related services, including domain home services, FTP services, electronic mail service, SQL services and Front Page services. Mr. Young was also responsible for monitoring Netcom's network, installing and configuring the Oracle Database System, and utilizing a variety of hardware and software tools, including 3Com's HP Openview, Sun Microsystem's workstations, Digital's servers, Budtool, Sun OS, Windows NT Sever and Workstation and Mac OS. From June 1996 until May 1997, Mr. Young was a Systems Administrator for Hownet Communications, where he managed Hownet's computer network (Internet), administered all accounts, database security, and hardware and software technical support, and performed HTML programming, graphic design and photography. Mr. Young has also been a Web page designer for WebStuff Networks and a Sales and Technical Support Trainer for The Internet Store. Mr. Young's basic skills include UNIX administration, networking, operating systems, and software programming and applications. JON P. DEONG has been a Senior Computer Engineer and Systems Analyst with the Company since March 1998. Prior to joining the Company, Mr. DeOng was a Senior Systems Administrator in the Web Hosting Department of Netcom On-line Communications, Inc. in Dallas, Texas from June 1996 until March 1998. As the Senior Systems Administrator, Mr. DeOng was responsible for the business center design and software specification, administrative tool set, installation, configuration, maintenance and monitoring of over 50 secure Unix Internet Web servers, eight secure NT Internet Web servers and co-located servers and customers. Mr. DeOng was also responsible for third level technical support for all Web hosting related services, including domain home services, FTP services, electronic mail services, SQL services and FrontPage services. Mr. DeOng also worked with the development group to design, implement and support Automated Web Hosting Software, on-line payment services, and dial-up access service. From June 1994 until June 1996, Mr. DeOng worked with the Texas Department of Health as a Technical Clerk III in the NICADS Department. From February 1992 until June 1994, Mr. DeOng was an Information Systems Supervisor for Labels On The Go. Mr. DeOng has computer software and systems experience in troubleshooting, automation, firewall setup, network traffic information, disk usage information, processing Internic data, establishing list servers and collecting statistics. CHRISTOPHER FOGEL has been a Senior Computer Engineer and Systems Analyst with the Company since March 1998. Prior to joining the Company, Mr. Fogel was a Senior Systems Administrator in the Web Hosting Department of Netcom On-line Communications, Inc. in Dallas, Texas from September 1996 until March 1998. As the Senior Systems Administrator, Mr. Fogel was the business center architect, responsible for data flows and software module specification and coding various Perl interfaces, the installation, configuration, maintenance and monitoring of over 50 secure Unix Internet Web servers, eight secure NT Internet Web servers and co-located servers and customers. Mr. Fogel was also responsible for third level technical support for all Web hosting related services, including domain home services, FTP services, electronic mail services, SQL services and FrontPage services. Mr. Fogel also worked with the development group to design, implement and support Automated Web Hosting Software, on-line payment services, and dial-up access service. From January 1996 until September 1996, Mr. Fogel worked with CyberRamp 45 L.L.C. in Dallas, Texas as a Systems Administrator. Mr. Fogel was responsible for System Maintenance of six UNIX machines, maintenance of machine service including: Web Servers, Domain Name Service (DNS), Users accounts, Email, FTP servers and POP servers. Configuration and usage of network equipment including: Ascend MAX 4000, Ascend Pipeline 25 (and 50), Gandalf Edge Router, Cisco 4000 and Motorola BitSurfer Pro. From September 1994 until January 1996, Mr. Fogel was the System Administrator of Project Development for Moorhead State University in Moorhead, MN. Mr. Fogel was responsible for designing all facets of the schools existing Web server and site, system maintenance of the UNIX machine upon which the Web site and all pertaining data was placed, assisting students with computer related problems and related projects. LAURA MURTAGH became the Secretary of the Company on September 30, 1998. Ms. Murtagh has been in the private practice of law since 1994. In August 1998, Ms. Murtagh joined the law firm of Richardson & Associates where she practices in the areas of corporate and securities law. Prior to joining Richardson & Associates, Ms. Murtagh was an associate with the law firm of Preston, Gates & Ellis LLP. At Preston, Gates & Ellis LLP, Ms. Murtagh practiced in the area of high technology intellectual property law. Prior to joining Preston, Gates & Ellis LLP, Ms. Murtagh was corporate counsel for Zenith Information Systems, Inc. Ms. Murtagh graduated from the University of California, Berkeley with honors in 1991 with a Bachelors of Arts. Ms. Murtagh earned a Juris Doctor from Boston University School of Law in 1994, graduating cum laude. Ms. Murtagh is a member of the California State Bar. KENNETH K. LATTIN became a Director in August 1998. Mr. Lattin has been an active real estate broker for over 18 years, specializing in office, commercial, and industrial property. Mr. Lattin is President of the Edwin S. Johnson Company, a real estate investment and development company, and owns Trevent Management, a property management and real estate consulting company. After graduating from the University of Southern California in 1972 with a Bachelor of Science in Business with an emphasis in Accounting, Mr. Lattin worked for five years as a senior auditor for Price Waterhouse assisting clients such as Disney, Toyota, and U.S. Steel. As a First Lieutenant in the U.S. Army, Mr. Lattin served in Vietnam as a platoon leader, company commander, and battalion and brigade operations officer. He was awarded the Silver Star, Bronze Star with V divice, Bronze Star with oak leaf cluster, Army Commendation medal, and Purple Heart. CHARLES RICE became a Director in August 1998. Since 1990, Mr. Rice has been the President of Cmeca Corporation, a production services corporation for film, television, commercials, and video. Involved in over 300 feature film products and award winning videos, Mr. Rice has worked with Warner Brothers, Universal, Saban, Sony, Disney, NBC, ABC, CBS, FOX, and Paramount. At Cmeca, Mr. Rice has developed sales, direct marketing, and administrative service divisions and designed marketing campaigns and a training program. Prior to working at Cmeca, in 1985 Mr. Rice founded Perfect Image, an industrial advertising and marketing corporation, with offices throughout Southern California. At Perfect Image, Mr. Rice developed advertising and promotional campaigns for subsidiaries of Unocal, Chevron, Texaco, Mobil, and other major oil companies. In 1982 Mr. Rice joined National Image's sales department and eventually became a regional vice president. Mr. Rice attended California State University of Northridge where he earned a degree in Business Administration with an emphasis in Finance and a minor in real estate. Mr. Rice is the brother of Fredrick Rice. DR. DOUGLAS BENSON became a Director in August 1998. Dr. Benson has practiced family medicine in Los Angeles, California for 37 years. Dr. Benson received his Bachelor degree from Andrews University and his Doctor of Medicine from Loma Linda University. Dr. Benson served on the Board of Directors of Andrews University for over ten years. He was a founder, majority stockholder, and Director of Heritage Bank in Berrien Springs, Michigan which received praise from the Michigan Bank Examiners Office as the first bank to show a profit in the first year of business. Now retired, Dr. Benson manages his investments which include commercial and farm real estate, real estate development, and Hardwood Equities, a company that produces black walnut trees. Dr. Benson is the general partner of Edwin S. Johnston Co., a 46 purchaser of shares of CNM in the Company's previous private placement of stock. See "SELLING SECURITY HOLDERS." MARK J. RICHARDSON has been a Director of the Company since September 30, 1998. Mr. Richardson has been in the private practice of law since 1978 in the areas of corporate and securities law, and has had his own law firm in those practice areas since June 1993. Prior to forming his own law firm, Mr. Richardson was a partner and an associate in private law firms and the Vice-President of a Southern California savings and loan institution, responsible for real estate securities. Mr. Richardson graduated from the University of Michigan summa cum laude in 1975 with a Bachelors of Science from the School of Natural Resources, with Phi Beta Kappa honors. Mr. Richardson earned a Juris Doctor from the University of Michigan Law School in 1978, graduating cum laude. Mr. Richardson is a member of the California State Bar and Los Angeles County Bar Associations. He was a contributing author to the Prentice Hall publication CALIFORNIA STATE PARTNERSHIP LAW from 1985 to 1993. All directors hold office until the next annual meeting of stockholders and until their successors are elected. Officers are elected to serve, subject to the discretion of the Board of Directors, until their successors are appointed. BOARD OF DIRECTORS AND COMMITTEES The Company's Board of Directors presently consists of five members: Fredrick J. Rice, Charles Rice, Mark J. Richardson, Kenneth K. Lattin, and Dr. Douglas Benson. The Board of Directors may be expanded in the future. All employee and consultant compensation, including payroll expenditures, salaries, stock options, stock incentives, and bonuses, must be approved by the unanimous consent of the members of the Compensation Committee of the Company's Board of Directors, whose members have not yet been determined. The Compensation Committee is expected to be comprised of Directors who are not executive officers of the Company. The Bylaws of the Company generally provide for majority approval of directors in order to adopt resolutions. The Board of Directors intends to appoint an Audit Committee. The Audit Committee will be authorized by the Board of Directors to review, with the Company's independent accountants, the annual financial statements of the Company prior to publication, and to review the work of, and approve non-audit services preformed by, such independent accountants. The Audit Committee will make annual recommendations to the Board for the appointment of independent public accountants for the ensuing year. The Audit Committee will also review the effectiveness of the financial and accounting functions and the organization, operations and management of the Company. EXECUTIVE COMPENSATION No executive officer of the Company received compensation from the Company in excess of $100,000 during the fiscal year ending December 31, 1997. Upon the availability of funds, the Company expects to commence paying an annual salary to Fredrick Rice, the President and Chairman of the Board of Directors of the Company, equal to $180,000 per year, as well as a company automobile allowance. The compensation payable to the Company's executive officers will generally not exceed that which is customarily paid in the industry by companies of comparable size and in the same geographic areas. Directors receive no cash compensation for their services to the Company as directors, but are reimbursed for expenses actually incurred in connection with attending meetings of the Board of Directors. 47 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the Compensation Committee of the Board are expected to be an officer or employee of the Company. No executive officer of the Company serves as a member of the Board of Directors or compensation committee of any other entity that has one or more executive officers serving on the Company's Compensation Committee. EMPLOYMENT AGREEMENTS AND STOCK OPTION PLAN The Company has entered into employment agreements with its executive officers and other key employees of the Company. All of the employment agreements are terminable at will. A stock incentive program (the "1997 Stock Option Plan") for the directors, executive officers, employees and key consultants of the Company has been adopted pursuant to which 2,000,000 shares of authorized but unissued Series 1 Class A Common Stock and 100,000 shares of authorized but uninsured Series 1 Class B Common Stock have been reserved for issuance to the officers, directors, employees and key consultants of the Company. Within 90 days after the effective date of the Registration Statement encompassing this Prospectus, the Company intends to file a Form S-8 Registration Statement registering the Company's 1997 Stock Option Plan under the Securities Act of 1933, as amended, as well as the other stock options issued outside of the 1997 Stock Option Plan. See "DESCRIPTION OF CAPITAL STOCK--Stock Options Granted Outside of the Plan." As of October 7, 1998, the following stock options have been issued to the directors, executive officers and key employees of the Company under the 1997 Stock Option Plan: OPTIONS FOR SERIES 1 CLASS A COMMON STOCK
DATE OF NUMBER OF VESTING EXERCISE EXPIRATION NAME OF GRANTEE GRANT OPTIONS SCHEDULE(1) PRICE(2) DATE - --------------------------------------------- --------- ----------- ------------------ ----------- ------------ Randy D. Greene.............................. 12/15/97 200,000 40,000: 12/15/97 $ 2.00 12/15/2000 40,000: 12/15/98 12/15/2001 40,000: 12/15/99 12/15/2002 40,000: 12/15/00 12/15/2003 40,000: 12/15/01 12/15/2004 Donald Lee Carver............................ 3/25/98 200,000 40,000: 3/25/98 $ 2.00 3/25/2001 40,000: 3/25/99 3/25/2002 40,000: 3/25/00 3/25/2003 40,000: 3/25/01 3/25/2004 40,000: 3/25/02 3/25/2005 Christopher L. Young......................... 3/16/98 100,000 20,000: 3/16/98 $ 2.00 3/16/2001 20,000: 3/16/99 3/16/2002 20,000: 3/16/00 3/16/2003 20,000: 3/16/01 3/16/2004 20,000: 3/16/02 3/16/2005 Christopher L. Young......................... 8/31/98 100,000 20,000: 8/31/98 $ 2.00 8/31/2001 20,000: 8/31/99 8/31/2002 20,000: 8/31/00 8/31/2003 20,000: 8/31/01 8/31/2004 20,000: 8/31/02 8/31/2005
48
DATE OF NUMBER OF VESTING EXERCISE EXPIRATION NAME OF GRANTEE GRANT OPTIONS SCHEDULE(1) PRICE(2) DATE - --------------------------------------------- --------- ----------- ------------------ ----------- ------------ Jon P. DeOng................................. 3/16/98 100,000 20,000: 3/16/98 $ 2.00 3/16/2001 20,000: 3/16/99 3/16/2002 20,000: 3/16/00 3/16/2003 20,000: 3/16/01 3/16/2004 20,000: 3/16/02 3/16/2005 Jon P. DeOng................................. 8/31/98 100,000 20,000: 8/31/98 $ 2.00 8/31/2001 20,000: 8/31/99 8/31/2002 20,000: 8/31/00 8/31/2003 20,000: 8/31/01 8/31/2004 20,000: 8/31/02 8/31/2005 Christopher Fogel............................ 3/31/98 100,000 20,000: 3/30/98 $ 2.00 3/30/2001 20,000: 3/30/99 3/30/2002 20,000: 3/30/00 3/30/2003 20,000: 3/30/01 3/30/2004 20,000: 3/30/02 3/30/2005 Christopher Fogel............................ 8/31/98 100,000 20,000: 8/31/98 $ 2.00 8/31/2001 20,000: 8/31/99 8/31/2002 20,000: 8/31/00 8/31/2003 20,000: 8/31/01 8/31/2004 20,000: 8/31/02 8/31/2005 Olivia Salyer................................ 12/15/97 20,000 4,000: 12/15/97 $ 2.00 12/15/2000 4,000: 12/15/98 12/15/2001 4,000: 12/15/99 12/15/2002 4,000: 12/15/00 12/15/2003 4,000: 12/15/01 12/15/2004 Olivia Salyer................................ 5/01/98 10,000 2,000: 5/01/98 $ 2.00 5/01/2001 2,000: 5/01/99 5/01/2002 2,000: 5/01/00 5/01/2003 2,000: 5/01/01 5/01/2004 2,000: 5/01/02 5/01/2005 Richard Knittle.............................. 7/01/98 20,000 4,000: 7/01/98 $ 2.00 7/01/2001 4,000: 7/01/99 7/01/2002 4,000: 7/01/00 7/01/2003 4,000: 7/01/01 7/01/2004 4,000: 7/01/02 7/01/2005 Charles Rice................................. 7/01/98 300,000 60,000: 7/01/98 $ 2.00 7/01/2001 60,000: 7/01/99 7/01/2002 60,000: 7/01/00 7/01/2003 60,000: 7/01/01 7/01/2004 60,000: 7/01/02 7/01/2005 Kenneth K. Lattin............................ 8/04/98 400,000 80,000: 8/04/98 $ 2.00 8/04/2001 80,000: 8/04/99 8/04/2002 80,000: 8/04/00 8/04/2003 80,000: 8/04/01 8/04/2004 80,000: 8/04/02 8/04/2005
49
DATE OF NUMBER OF VESTING EXERCISE EXPIRATION NAME OF GRANTEE GRANT OPTIONS SCHEDULE(1) PRICE(2) DATE - --------------------------------------------- --------- ----------- ------------------ ----------- ------------ Dr. Douglas Benson........................... 8/31/98 100,000 20,000: 8/31/98 $ 2.00 8/31/2001 20,000: 8/31/99 8/31/2002 20,000: 8/31/00 8/31/2003 20,000: 8/31/01 8/31/2004 20,000: 8/31/02 8/31/2005 Judd L. Bourgeois............................ 8/31/98 10,000 2,000: 8/31/98 $ 2.00 8/31/2001 2,000: 8/31/99 8/31/2002 2,000: 8/31/00 8/31/2003 2,000: 8/31/01 8/31/2004 2,000: 8/31/02 8/31/2005 William J. Lawrence.......................... 8/31/98 5,000 1,000: 8/31/98 $ 2.00 8/31/2001 1,000: 8/31/99 8/31/2002 1,000: 8/31/00 8/31/2003 1,000: 8/31/01 8/31/2004 1,000: 8/31/02 8/31/2005 Eric Hankins................................. 8/31/98 20,000 4,000: 8/31/98 $ 2.00 8/31/2001 4,000: 8/31/99 8/31/2002 4,000: 8/31/00 8/31/2003 4,000: 8/31/01 8/31/2004 4,000: 8/31/02 8/31/2005 Denise J. Garcia............................. 8/31/98 5,000 1,000: 8/31/98 $ 2.00 8/31/2001 1,000: 8/31/99 8/31/2002 1,000: 8/31/00 8/31/2003 1,000: 8/31/01 8/31/2004 1,000: 8/31/02 8/31/2005 Mark J. Richardson........................... 9/30/98 50,000 10,000: 9/30/98 $ 2.00 9/30/2001 10,000: 9/30/99 9/30/2002 10,000: 9/30/00 9/30/2003 10,000: 9/30/01 9/30/2004 10,000: 9/30/02 9/30/2005 Laura D. Murtagh............................. 9/30/98 25,000 5,000: 9/30/98 $ 2.00 9/30/2001 5,000: 9/30/99 9/30/2002 5,000: 9/30/00 9/30/2003 5,000: 9/30/01 9/30/2004 5,000: 9/30/02 9/30/2005 William Wu................................... 10/07/98 5,000 1,000: 10/07/98 $ 2.00 10/7/2001 1,000: 10/07/99 10/7/2002 1,000: 10/07/00 10/7/2003 1,000: 10/07/01 10/7/2004 1,000: 10/07/02 10/7/2005
- ------------------------ (1) The vesting of all stock options accelerates in the event that the Company sells all or substantially all of its assets, merges with another company, is acquired by another company or enters into a similar business combination. The vesting of stock options also accelerates for officers, directors and key employees who are terminated from their position with the Company, after which they would have 90 days to exercise their vested options before they would expire. 50 (2) The exercise price is equal to the fair market value of each share of the Company's Common Stock on the date of the issuance of the options. Each stock option for Series 1 Class A Common Stock confers upon the holder the right to purchase one share of the Company's Series 1 Class A Common Stock for a price of $2.00 per share at any time from the vesting date to the expiration date. KEY EMPLOYEES AND CONSULTANTS The Company has certain key employees and consultants who will assist in product and solution development, and implementation and marketing for the Company. These key employees and consultants will also perform marketing, administrative, and other services for the Company. LIMITATION OF LIABILITY AND INDEMNIFICATION Under California Corporation Law and the Company's Amended and Restated Articles of Incorporation, the Company's directors will have no personal liability to the Company or its stockholders for monetary damages incurred as the result of the breach or alleged breach by a director of his "duty of care". This provision does not apply to the director's (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence. The effect of this provision in the Company's Amended and Restated Articles of Incorporation is to eliminate the rights of the Company and its stockholders (through stockholder's derivative suits on behalf of the Company) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (vi) above. This provision does not limit nor eliminate the rights of the Company or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the Company's Amended and Restated Articles of Incorporation provide that if California law is amended to authorize the future elimination or limitation of the liability of a director, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the law, as amended. The California Corporations Code grants corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable law. The Company's Bylaws provide for indemnification of such persons to the full extent allowable under applicable law. These provisions will not alter the liability of the directors under federal securities laws. The Company intends to enter into agreements to indemnify its directors and officers, in addition to the indemnification provided for in the Company's Bylaws. These agreements, among other things, indemnify the Company's directors and officers for certain expenses (including attorney's fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Company, arising out of such person's services as a director or officer of the Company, any subsidiary of the Company or any other company or enterprise to which the person provides services at the request of the Company. The Company believes that these provisions and agreements are necessary to attract and retain qualified directors and officers. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been 51 informed 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. AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS Under the California Corporations Code, a corporation's articles of incorporation can be amended by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote, and a majority of the outstanding stock of each class entitled to vote as a class, unless the certificate requires the vote of a larger portion of the stock. The Company's Restated Articles of Incorporation do not require a larger percentage affirmative vote. As is permitted by the California Corporations Code, the Company's Bylaws give its Board of Directors the power to adopt, amend or repeal the Company's Bylaws. The Company's shareholders entitled to vote have concurrent power to adopt, amend or repeal the Company's Bylaws. CERTAIN TRANSACTIONS Fredrick Rice and certain associates formed Consumer Net Partners, a California general partnership ("CNP") in 1996. CNP provided the start-up equity for the Internet shopping mall concept and previously held certain rights and interests in the electronic shopping mall business. Pursuant to CNP's Partnership Agreement, it retained a right to receive 75% of net income generated by the Company. From inception through December 31, 1997 the CNM shopping mall business had not generated any net income. Fredrick Rice also serves as the President and sole shareholder of Consumers On-Line Development, Inc. Consumers On-Line Development, Inc. was primarily responsible for managing and overseeing the development, creation, establishment and marketing of the CNM electronic shopping mall. Pursuant to a Management Agreement with CNP, Consumers On-Line Development, Inc. had a 25% net revenue interest in revenue received by CNP which is generated by the CNM electronic shopping mall business. In July 1997, Consumers On-Line Development, Inc. dissolved and assigned all of its rights to CNP. On December 31, 1997, the Company purchased all the rights and interest held by CNP in the CNM Internet shopping mall business, including all rights pursuant to the Management Agreement between CNP and Consumers On-Line Development, Inc. The Company issued to CNP a non interest-bearing promissory note in the principal amount of $500,000, payable on demand, and an option to purchase 250,000 shares of the Company's Series 1 Class B Common Stock at an exercise price of $.50 per share for a period of three years, in consideration for CNP's rights in the Company's business. See "BUSINESS-- Previous Financing And Development Arrangement." The Company has not and does not anticipate obtaining an independent valuation of the rights and interests being purchased. Although the Company believes the purchase consideration to be fair and reasonable, there is no assurance that such consideration reflects the true value of the rights and interests being acquired. Due to the positions held by Mr. Rice, he has a potential conflict of interest in any transactions between the Company and CNP. Mr. Rice is aware of these conflicts and will endeavor at all times to do what is in the best interest of each entity with which he is affiliated. If an objection is raised or if he should determine, on his own volition, that he cannot overcome any real or perceived conflict, Mr. Rice would withdraw from participating in such transaction. As indicated previously, the Company's purchase of rights from CNP received the approval of a majority in-interest of the general partners of CNP. Mr. Rice does not personally have any voting rights in the CNP general partnership. 52 PRINCIPAL STOCKHOLDERS GENERAL The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of October 8, 1998: (a) by each person who is known by the Company to own beneficially more than 5% of the Company's Common Stock, (b) by each of the Company's executive officers and directors, and (c) by all officers and directors of the Company as a group.
PERCENTAGE OWNERSHIP SHARES ------------------------ BENEFICIALLY BEFORE AFTER NAME AND ADDRESS OF OWNER OWNED(1) OFFERING(2) OFFERING(3) - ----------------------------------------------------------------- ----------------- ----------- ----------- Fredrick Rice(4) ................................................ 1900 Los Angeles Ave., Second Floor Simi Valley, California 93065 5,000,000 76.5% 46.9% All officers and directors as a group (5 persons)......................................... 5,000,000(5) 76.5% 46.9%
- ------------------------ (1) The person named in the table has sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by him, except as otherwise indicated. (2) Reflects 1,534,250 shares of the Company's Common Stock previously issued (as of October 8, 1998) in a private placement to outside investors. See "BUSINESS--Prior Private Placement of Stock." (3) Assumes the issuance of 3,596,577 Shares offered by this Prospectus and the sale of 250,000 Outstanding Shares owned by Fredrick Rice. See "SELLING SECURITY HOLDERS." (4) Fredrick Rice is the President, Chief Financial Officer, and Chairman of the Board of Directors of the Company. Mr. Rice received these shares as the founder of the Company. See "MANAGEMENT." (5) Does not include (a) 75,000 shares of Series 1 Class B Common Stock owned by a prior unaffiliated consultant to the Company, (b) stock options to purchase up to 1,970,000 shares of the Company's Series 1 Class A Common Stock held by the executive officers, directors and employees of the Company, 394,000 of which are currently vested, (c) stock options to purchase up to 250,000 shares of the Company's Series 1 Class B Common Stock held by Consumer Net Partners, an affiliated general partnership, and (d) stock options to purchase up to 127,500 shares of the Company's Series 1 Class A Common Stock granted to certain investors outside of the Company's 1997 Stock Option Plan, 25,500 of which are currently vested. See "MANAGEMENT--Employment Agreements and Stock Options," "BUSINESS--Previous Financing and Development Arrangement," and "DESCRIPTION OF CAPITAL STOCK--Stock Options Granted Outside Plan." 53 DESCRIPTION OF CAPITAL STOCK GENERAL The authorized capital stock of the Company consists of 50,000,000 shares of Series 1 Class A Common Stock, no par value per share, of which 6,534,250 are issued and outstanding, 1,000,000 shares of Series 1 Class B Common Stock, $.001 par value per share, of which 75,000 shares are issued and outstanding and 1,000,000 shares of Preferred Stock, no par value per share, none of which is issued. See "CAPITALIZATION." COMMON STOCK The Company is authorized to issue 50,000,000 shares of Series 1 Class A Common Stock, no par value per share, of which 6,534,250 shares are issued and outstanding as of October 8, 1998. Holders of Series 1 Class A Common Stock are entitled to dividends when, as, and if declared by the Board of Directors out of funds available therefor, subject to any priority as to dividends for Preferred Stock that may be outstanding. See "DIVIDEND POLICY." Holders of Series 1 Class A Common Stock are entitled to cast one vote for each share held at all stockholder meetings for all purposes, including the election of directors. The holders of more than 50% of the Series 1 Class A Common Stock issued and outstanding are entitled to vote, present in person or by proxy and constitute a quorum at all meetings of stockholders. The vote of the holders of a majority of Series 1 Class A Common Stock present at such a meeting will decide any question brought before such meeting, except for certain actions such as amendments to the Company's Restated Articles of Incorporation, mergers or dissolution's which require the vote of the holders of a majority of the outstanding Series 1 Class A Common Stock. Upon liquidation or dissolution, the holder of each outstanding share of Series 1 Class A Common Stock will be entitled to share equally in the assets of the Company legally available for distribution to such stockholder after payment of all liabilities and after distributions to preferred stockholders legally entitled to such distributions. Holders of Series 1 Class A Common Stock do not have any preemptive, subscription or redemption rights. They are entitled to cumulative voting rights under the California Corporations Code. Under cumulative voting, minority shareholders may have the right to vote one or more members onto the Company's Board of Directors. See "DESCRIPTION OF CAPITAL STOCK--Cumulative Voting." The Series 1 Class B Common Stock essentially has all of the same rights as the Series 1 Class A Common Stock on a pro rata basis, including with respect to a liquidation, except that the holders of Series 1 Class B Common Stock have no voting or dividend rights. Each share of Series 1 Class B Common Stock is convertible into one share of Series 1 Class A Common Stock at any time. All outstanding shares of Common Stock are fully paid and non-assessable. PREFERRED STOCK The Company has authorized 1,000,000 shares of Preferred Stock, no par value. As of October 8, 1998 the Company has not issued any shares of Preferred Stock. The Preferred Stock may be issued in such series as are designated by the Company's Board of Directors, and the Board of Directors may fix the number of authorized shares of Preferred Stock for each series, and the rights, preferences, and privileges of each series of Preferred Stock. STOCK OPTIONS GRANTED OUTSIDE PLAN The Company has granted stock options to purchase a total of 127,500 shares of the Company's Series 1 Class A Common Stock to 15 individuals outside of the 1997 Stock Option Plan. The exercise price of all of these stock options is $2.00 per share and they are exercisable for three years after vesting. The stock options were granted during the period of June 20, 1997 to August 31, 1998. The stock options vest one-fifth upon grant and one-fifth each year thereafter over a four year vesting period. Accordingly, as of October 7, 1998, 25,500 of the 127,500 stock options granted had vested. The stock options granted 54 outside of the plan include 5,000 stock options granted to Bruce Seidel, President of the Southern California Shelter Division of Eller Media Company, and 5,000 stock options granted to Paul Thompson, Account Executive of the Southern California Division of Eller Media Company. The stock options granted outside of the plan also include 50,000 stock options granted to Edward Allen Consulting, an Internet marketing consulting firm. Edward Allen consulting is owned by the brother of Fredrick Rice, the President of the Company. These stock options were granted during the period from July 1997 to August 1998. See "BUSINESS--Proposed Agreement with Eller Media." CUMULATIVE VOTING Pursuant to the Company's Bylaws and in accordance with the California Corporations Code, each holder of Series 1 Class A Common Stock is entitled to one vote for each share of the Company's Common Stock held, and such holders may be entitled to cumulative voting rights in the election of directors. Under the California Corporations Code, cumulative voting is not required unless, at the annual meeting and prior to the voting, at least one shareholder gives notice of his intention to cumulate his votes. If one shareholder gives notice of an intention to cumulate votes, then all shareholders have cumulative voting rights in the election of directors. If no such notice is given, voting for directors is non-cumulative, which means that a simple majority of the shares voting may elect all of the directors. Under cumulative voting, each shareholder entitled to vote has the right to give one candidate a number of votes equal to the number of authorized directors multiplied by the number of votes to which his shares are entitled, or to distribute his votes on the same principle among as many candidates as he desires. As a result, each share of the Company's Series 1 Class A Common Stock has a number of votes equal to the number of authorized directors. The California cumulative voting law applies only to the election of directors and not to any other matters as to which shareholders may vote. TRANSFER AGENT AND REGISTRAR The Company has selected US Stock Transfer Corporation in Glendale, California as the Transfer Agent and Registrar. 55 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for the Common Stock of the Company. Future sales of Common Stock in the public market could adversely affect market prices prevailing from time to time. Sales of substantial amounts of Common Stock of the Company in the public market after various restrictions lapse could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. Upon the completion of this offering, assuming that the maximum number of Shares offered by this Prospectus are sold, the Company will have 10,130,827 shares of Common Stock, of which 3,596,577 Shares of Common Stock and 403,423 Outstanding Shares sold in this offering will be freely tradable without restriction under the Securities Act. The 6,609,250 shares of Common Stock held by existing stockholders prior to this offering were issued and sold by the Company in reliance on exemptions from the registration requirements of the Securities Act and are deemed "restricted shares" under Rule 144. These shares may be sold in the public market only if registered, or pursuant to an exemption from registration such as Rules 144, 144(k) or 701 under the Securities Act of 1933, as amended. The existing shareholders of the Company have not entered into any lock-up or other agreements pursuant to which they have agreed not to sell the stock of the Company that they own. Accordingly, 5,075,000 shares will become eligible for immediate public resale subject to Rule 144, including the volume limitations of Rule 144(e). The remaining 1,534,250 shares held by existing stockholders will become eligible for public resale at various times following expiration of the one-year holding periods pursuant to Rule 144(d), subject to the volume limitations of Rule 144(e). After a holding period of two years, non-affiliates of the Company may sell their shares without volume limitations pursuant to Rule 144(k). In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares for at least one year (including the holding period of any prior owner, except an affiliate) is entitled to sell in "broker's transactions" or to market makers, within any three month period commencing 90 days after the date of this Prospectus, a number of shares that does not exceed the greater of (i) one percent of the number of shares of Common Stock then outstanding (approximately 10,130,827 shares immediately after this offering) or (ii) the average weekly trading volume of the Common Stock during the four calendar weeks preceding the required filing of a Form 144 with respect to such sale. Sales under Rule 144 are generally subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without having to comply with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Under Rule 701 of the Securities Act, persons who purchase shares upon exercise of options granted prior to the effective date of this offering are entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144 without having to comply with the holding period requirements of Rule 144 and, in the case of persons who are not affiliates of the Company, without having to comply with the public information, volume limitation or notice provisions of Rule 144. 56 SELLING SECURITY HOLDERS THE OUTSTANDING SHAREHOLDERS The selling shareholders include (i) Fredrick Rice who was issued a total of 5,000,000 founder's shares, and (ii) 120 investors who purchased 1,534,250 shares in a private placement between October 1, 1997 and October 8, 1998. The selling security holders are offering 10% of their shareholdings in the Company pursuant to this Prospectus, except Frederick Rice, the President and Chairman of the Board of Directors of the Company, who is offering 5% of his shares in the Company. The following table lists the selling security holders who are Outstanding Shareholders and the number of Outstanding Shares offered by them for sale.
NUMBER OF NAME OF OUTSTANDING SHAREHOLDER(2) OUTSTANDING SHARES - ------------------------------------------------------ ------------------ Fredrick Rice(1)...................................... 250,000 Millard & Yvonne Fry.................................. 250 Bernice Harray........................................ 2,800 George F. Carlsten.................................... 1,150 Woodrow Cunningham.................................... 375 Francois Jamati....................................... 850 Vance H. Watland Trust................................ 250 Virgil C. Buhrman..................................... 250 Edward Greist & Margaret Layton....................... 500 Carl H. Karduck....................................... 500 Delores Henne......................................... 3,350 John & Henrietta Marino............................... 1,000 Bette Carmer & George Bailey.......................... 250 Thomas G. Nolta....................................... 6,250 Naomi F. Smith........................................ 225 Joseph Kadlec, Sr..................................... 872 Jack E. Allen......................................... 225 Albin J. Konchar...................................... 400 Laurence B. Falk...................................... 62 Joseph Brown, Jr...................................... 250 Howell L. Tarver...................................... 1,000 Leonard Eisner........................................ 250 Douglas Ariyoshi Family Trust......................... 250 John D. Rice.......................................... 1,500 David Gharaman........................................ 650 Peter & Jeanne McCauley............................... 400 Joseph & Mary Spisich................................. 300 Roger McClure......................................... 150 W. Andrew Stone....................................... 225 James L. Lafferty..................................... 1,000 Muriel Brobst......................................... 1,000 Paul & Sharon Montagne................................ 62 Walter Wulff.......................................... 1,000 Oran Bly.............................................. 125 Margaret G. Terrill................................... 100 Kenneth W. Terrill.................................... 100 Kenneth Hare.......................................... 62
57
NUMBER OF NAME OF OUTSTANDING SHAREHOLDER(2) OUTSTANDING SHARES - ------------------------------------------------------ ------------------ Stan Norman........................................... 250 Mary E. Peters........................................ 500 Robert C. Gregg....................................... 500 Robert W. Hitt........................................ 350 Terry D. Lee.......................................... 125 Nicholas F. Shehadi................................... 900 Judith Lampert........................................ 500 Edward & Joan Rodberg................................. 850 Lisa Rodberg.......................................... 250 Althea Jacobs......................................... 100 Bradley H. & Donn Greene.............................. 100 Yakov & Lillian Sapozhnikov........................... 500 George Walcott........................................ 125 Louis & Peggy Youlos.................................. 500 Joyce Johnson......................................... 100 Muriel Shandler....................................... 100 Laura Berg............................................ 300 Lillian Dickmon....................................... 625 Terry Harper.......................................... 500 William Kugler........................................ 500 Laroma Management..................................... 200 Alfred & Andrea Medina................................ 250 Alan & Dale Rodberg................................... 150 Estelle Tenenbaum..................................... 300 Lois Welsh............................................ 800 Wanda Wirick.......................................... 3,000 Rick & Renita Dechellis............................... 200 Ann McCauley.......................................... 50 Maureen McCauley...................................... 50 Edward J. Snider...................................... 5,250 Pearl N. Eyre......................................... 450 Lonnie Gene Prewitt................................... 1,250 Elaine Halko.......................................... 750 Richard Labahn........................................ 1,000 Patricia L. Gapik..................................... 150 Erwin Heiser.......................................... 1,500 William W. Straub, III................................ 500 Allen L. & Virginia Redfield.......................... 600 Theodore Nalepa....................................... 1,150 George & Paula Rountree............................... 100 Victor Suits.......................................... 125 Debra A. Boone........................................ 100 William & Marge Crombie............................... 200 John Sherman.......................................... 500 Charles Stewart....................................... 150 Dennis Bassett........................................ 2,500 Virgil Ice............................................ 125 Terry Daus............................................ 125 George M. Long........................................ 1,300
58
NUMBER OF NAME OF OUTSTANDING SHAREHOLDER(2) OUTSTANDING SHARES - ------------------------------------------------------ ------------------ Tom Johnson........................................... 250 Edwin S. Johnston Co.................................. 25,600 Jeffery & Barbara Phillips............................ 440 Robert & Jaqueline Haynes............................. 1,150 Bruce Lairmore........................................ 350 John M. Pata.......................................... 100 Paula Grassel......................................... 100 Brian Hurd............................................ 50 William Joseph Lucas.................................. 1,500 George M. Toran, Jr................................... 750 Anton Grasl........................................... 1,000 Arthur Schoen......................................... 500 Corbin 22 Ltd......................................... 450 Candace Lee........................................... 500 Dede P. Wandel........................................ 500 Dennis & Patricia Rozsa............................... 500 Dennis D. Silver...................................... 1,500 Constante & Jane Tacata............................... 150 Jay George Stone...................................... 250 Robert & Shirley Torrey............................... 2,000 Anthony & Karen Wolosowski............................ 350 Frederick W. Brienen.................................. 100 Craig Desalva......................................... 600 Keith & Eunice Ethell................................. 250 Cornett Ferrell....................................... 500 Kenneth Hitts......................................... 125 Gerald Kopstein....................................... 125 Cyd Lucas............................................. 500 John & Irene Meany.................................... 2,500 Jane N. Park.......................................... 1,000 John & Ivalee Patterson............................... 125 Dr. Marvin A. Piper................................... 37,500 Mary Poulos........................................... 750 Louis Rahhal.......................................... 750 Charles Rice.......................................... 3,500 Lou Rice.............................................. 1,750 James Skeoch.......................................... 200 William R. Jones...................................... 75 John Oppelt........................................... 75 Karen Angone.......................................... 500 Dan Prunk............................................. 400 Mark Shah............................................. 200 Joseph Quenneville.................................... 250 Mitesh Parikh......................................... 500 Mary Hankins.......................................... 500 Dr. Carl Todd Bridges................................. 500 George Bridges........................................ 500 Dr. George I. "Trace" Bridges, III.................... 500 Jack Bryan............................................ 1,000
59
NUMBER OF NAME OF OUTSTANDING SHAREHOLDER(2) OUTSTANDING SHARES - ------------------------------------------------------ ------------------ Major Gregory Lang.................................... 500 Matthias Dautremont................................... 50 Paresh Patel.......................................... 300 Kalyan Majmundar...................................... 100 Paul Pantera.......................................... 150 American Mortgage Professionals, Inc.................. 200 Mary Jane Von Bokel................................... 125 Robert & Victoria Brooks.............................. 250
- ------------------------ (1) Fredrick Rice is the President and Chairman of the Board of Directors. Mr. Rice received 5,000,000 shares of Common Stock as founder's stock for an aggregate price of $500.00. (2) These individuals, other than Mr. Rice, purchased these Outstanding Shares for $2.00 per share in a private placement of Common Stock made by the Company commencing on October 1, 1997 and terminating on October 8, 1998. PLAN OF DISTRIBUTION The Shares are being offered by the Company on a best-efforts basis by its officers, directors and employees, and possibly through registered broker-dealers selected by the Company who are members of the National Association of Securities Dealers, Inc. or independent referral sources. As of the date of this Prospectus, the Company had not entered into selling agreements with any registered broker-dealers. No selling commissions will be paid to the officers, employees or directors of the Company for Shares or Outstanding Shares sold by or through them. The Company will pay selling commissions to participating broker-dealers equal to a percentage of the purchase price of the Shares and Outstanding Shares sold by them, to be determined by management in negotiations with such parties. The Company may also reimburse participating broker-dealer firms for due diligence costs on an accountable or non-accountable basis. The Company will indemnify participating broker-dealer firms, if any, with respect to the disclosures made in this Prospectus. The Shares and Outstanding Shares will be sold together as shares are sold in this offering, in proportion to the relative number of Shares and Outstanding Shares covered by this Prospectus, subject to mathematical rounding when necessary. Accordingly, when a lot of 100 shares is sold pursuant to this Prospectus, nine shares will be Outstanding Shares and 91 shares will be Shares issued by the Company. As among the Outstanding Shareholders, their shares will be sold on a pro rata basis in accordance with the relative number of Outstanding Shares offered by them pursuant to this Prospectus. Prior to this offering, there has been no public market for the Common Stock. The initial public offering price will be determined by the Company and may not be indicative of the market price of the Common Stock following this offering. Among the factors to be considered in such determination are prevailing market conditions, certain financial information of the Company, market valuations of other companies that the Company believes to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. LEGAL MATTERS The validity of the issuance of the shares of Common Stock offered hereby will be passed upon for the Company by Richardson & Associates, Santa Monica, California. Mark J. Richardson, Esq. and Laura Murtagh, Esq, members of the law firm, are a director and corporate secretary of the Company, respectively, positions which they have held since September 30, 1998. Mr. Richardson and Ms. Murtagh have stock options in the Company. See "MANAGEMENT." 60 EXPERTS The financial statements as of December 31, 1997 and for the twelve month period ending December 31, 1997 included in this Prospectus and Registration Statement have been so included in reliance on the report of Stonefield Josephson, independent certified accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements as of December 31, 1996 and for the period from inception on May 9, 1996 to December 31, 1996 included in this Prospectus and Registration Statement have been so included in reliance on the report of Caldwell, Becker, Dervin, Petrick & Co., independent certified public accountants, given on the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company has filed a registration statement on Form S-1 (the "Registration Statement") with the Commission under the Securities Act in respect of the Common Stock offered hereby. This Prospectus omits certain information contained in the Registration Statement as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement, including the exhibits thereto, and Financial Statements and Notes thereto filed as a part thereof. Statements herein concerning the contents of any contract or other document filed with the Commission as an exhibit to the Registration Statement are not necessarily complete and are qualified in all respects by such reference. Copies of the Registration Statement, including all exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can be obtained from the Public Reference Section of the Commission upon payment of certain fees prescribed by the Commission. The Company intends to furnish its stockholders with annual reports containing audited financial statements certified by its independent accountants and quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. 61 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS CONTENTS
PAGE --------- Report of Stonefield Josephson, Inc., Independent Auditors at December 31, 1997............................ F-1 Report of Independent Auditors at December 31, 1996........................................................ F-2 Balance Sheet at June 30, 1998 (unaudited), December 31, 1997 and December 31, 1996........................ F-3 Statement of Operations for the six months ended June 30, 1998 (unaudited) and June 30, 1997 (unaudited) and for the years ended December 31, 1997 and December 31, 1996 and for the period from May 9, 1996 (date of inception) to June 30, 1998........................................................................... F-4 Statement of Shareholders' Deficit for the six months ended June 30, 1998 (unaudited) and June 30, 1997 (unaudited) and for the years ended December 31, 1997 and December 31, 1996 and for the period from May 9, 1996 (date of inception) to June 30, 1998............................................................. F-5 Statements of Cash Flows for the six months ended June 30, 1998 (unaudited) and June 30, 1997 (unaudited) and for the years ended December 31, 1997 and December 31, 1996 and for the period from May 9, 1996 (date of inception) to June 30, 1998........................................................................... F-7 Notes to Financial Statements.............................................................................. F-10
INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Consumer Net Marketplace, Inc. Simi Valley, California We have audited the accompanying balance sheet of Consumer Net Marketplace, Inc. as of December 31, 1997, and the related statements of operations, shareholders' deficit and cash flows for the year ended December 31, 1997. 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 statement. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Consumer Net Marketplace, Inc. at December 31, 1997, and the results of its operations and its cash flows for the year ended December 31, 1997, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 13, the Company has had significant losses in the past, and has been dependent on outside equity investors to finance its operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with respect to these matters are described in Note 13 to the financial statements. The financial statements do not included any adjustments that might result from the outcome of these uncertainties. Stonefield Josephson, Inc. CERTIFIED PUBLIC ACCOUNTANTS Santa Monica, California August 25, 1998 F-1 INDEPENDENT AUDITORS' REPORT August 22, 1997 To the Board of Directors and Stockholders Consumer Net Marketplace Simi Valley, California We have audited the accompanying balance sheet of Consumer Net Marketplace, (A California S Corporation), (a development stage company) as of December 31, 1996, and the related statements of (loss), stockholder(1)s (deficit), and cash flows for the period from inception (May 10, 1996) to December(7)31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the 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 audits provide a reasonable basis for our opinion. In our opinion, such financial statements referred to above present fairly, in all material respects, the financial position of Consumer Net Marketplace as of December 31, 1996, and the results of its operations and its cash flows for the initial period then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 7 to the financial statements, there is doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ CALDWELL, BECKER, DERVIN, PETRICK & CO., L.L.P. - ------------------------------------------------------------ CALDWELL, BECKER, DERVIN, PETRICK & CO., L.L.P. F-2 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
DECEMBER 31, DECEMBER 31, 1997 1996 JUNE 30, ------------- ------------ 1998 ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash............................................................... $ 21,800 $ 6,546 $ 701 Accounts and advances receivable, net of allowance for doubtful accounts......................................................... 2,365 1,940 2,043 Prepaid advertising................................................ 573,600 -- -- Loan receivable, shareholder....................................... 500 500 500 ------------- ------------- ------------ Total current assets............................................. 598,265 8,986 3,244 ------------- ------------- ------------ PROPERTY AND EQUIPMENT, net.......................................... 214,480 55,574 20,092 DEFERRED OFFERING COSTS.............................................. 14,998 15,137 -- OTHER ASSETS......................................................... 29,227 2,276 2,459 ------------- ------------- ------------ 258,705 72,987 22,551 ------------- ------------- ------------ $ 856,970 $ 81,973 $ 25,795 ------------- ------------- ------------ ------------- ------------- ------------ LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Notes payable, related party....................................... $ 500,000 $ 500,000 $ 87,037 Note payable, bank................................................. 8,510 -- -- Accounts payable and accrued expenses.............................. 159,900 124,377 40,757 Accrued advertising expenses....................................... 573,600 -- -- ------------- ------------- ------------ Total current liabilities........................................ 1,242,010 624,377 127,794 ------------- ------------- ------------ CONTINGENCIES AND COMMITMENTS SHAREHOLDERS' DEFICIT: Common stock; Series 1, Class A, no par value, 20,000,000 shares authorized, 5,448,800 shares issued and outstanding.............. 898,100 137,500 500 Common stock; Series 1, Class B, convertible, par value $.001, 1,000,000 shares authorized, 75,000 shares issued and outstanding...................................................... 525,000 525,000 -- Deficit accumulated during the development stage................... (1,808,140) (1,204,904) (102,499) ------------- ------------- ------------ Total shareholders' deficit...................................... (385,040) (542,404) (101,999) ------------- ------------- ------------ $ 856,970 $ 81,973 $ 25,795 ------------- ------------- ------------ ------------- ------------- ------------
See accompanying independent auditors' report and notes to financial statements. F-3 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
PERIOD FROM PERIOD FROM MAY 9, 1996 MAY 9, 1996 SIX MONTHS YEAR ENDED (INCEPTION) TO (INCEPTION) ENDED JUNE DECEMBER 31, DECEMBER 31, TO JUNE 30, 30, 1997 1997 1996 1998* ----------- -------------- -------------- ----------- SIX MONTHS ENDED JUNE (UNAUDITED) 30, 1998 ----------- (UNAUDITED) Revenues....................... $ 11,713 $ 6,916 $ 30,697 $ 20,828 $ 63,238 Selling, general, and administrative expense....... 611,786 16,290 394,900 121,334 1,128,020 Loss on acquisition of partnership interest from related party................ -- -- 733,562 -- 733,562 Bad debt expense............... 2,057 -- 3,840 1,193 7,090 ----------- ----------- -------------- -------------- ----------- Net loss from operations....... (602,130) (9,374) (1,101,605) (101,699) (1,805,434) Interest expense............... (306) -- -- -- (306) ----------- ----------- -------------- -------------- ----------- Net loss before income taxes... (602,436) (9,374) (1,101,605) (101,699) (1,805,740) Provision for income taxes..... (800) (800) (800) (800) (2,400) ----------- ----------- -------------- -------------- ----------- Net loss....................... $(603,236) $ (10,174) $ (1,102,405) $ (102,499) ($1,808,140) ----------- ----------- -------------- -------------- ----------- ----------- ----------- -------------- -------------- ----------- Net loss per common share basic and diluted.................. $ (.11) $ (.00) $ (.22) $ (.02) $ (.14) ----------- ----------- -------------- -------------- ----------- ----------- ----------- -------------- -------------- ----------- Weighted average number of shares outstanding basic and diluted...................... 5,273,290 5,003,619 5,037,857 5,000,000 5,273,290 ----------- ----------- -------------- -------------- ----------- ----------- ----------- -------------- -------------- -----------
* Audited from inception to December 31, 1997 and unaudited from January 1, 1998 to June 30, 1998. See accompanying independent auditors' report and notes to financial statements. F-4 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF SHAREHOLDERS' DEFICIT
SERIES 1, CLASS A COMMON SERIES 1, CLASS B DEFICIT STOCK COMMON STOCK ACCUMULATED DURING TOTAL ------------------------ -------------------- THE DEVELOPMENT STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT STAGE DEFICIT ------------ ---------- --------- --------- ------------------ ------------ Balance at inception May 9, 1996.............................. 10,000,000 $ 1,000 -- $ -- $ -- $ 1,000 Cancellation of shares..................... (5,000,000) (500) -- -- -- (500) Net loss for the year ended December 31, 1996..................................... -- -- -- -- (102,499) (102,499) ------------ ---------- --------- --------- ------------------ ------------ Balance at December 31, 1996............... 5,000,000 500 -- -- (102,499) (101,999) Issuance of shares in connection with services provided to the Company......... 75,000 150,000 -- 150,000 Issuance of shares in connection with private placement........................ 72,250 137,000 -- -- -- 137,000 Issuance of Series 1, Class B Common Stock options for repurchase of partnership interest with related party.............. -- -- -- 375,000 -- 375,000 Net loss for the year ended December 31, 1997..................................... -- -- -- -- (1,102,405) (1,102,405) ------------ ---------- --------- --------- ------------------ ------------ Balance at December 31, 1997............... 5,072,250 137,500 75,000 525,000 (1,204,904) (542,404) Issuance of shares in connection with private placement (unaudited)............ 376,550 760,600 -- -- -- 760,600 Net loss for the six months ended June 30, 1998 (unaudited)......................... -- -- -- -- (603,236) (603,236) ------------ ---------- --------- --------- ------------------ ------------ Balance at June 30, 1998 (unaudited)....... 5,448,800 $ 898,100 75,000 $ 525,000 $ (1,808,140) $ (385,040) ------------ ---------- --------- --------- ------------------ ------------ ------------ ---------- --------- --------- ------------------ ------------
See accompanying independent auditors' report and notes to financial statements. F-5 (This page intentionally left blank.) F-6 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
PERIOD FROM MAY PERIOD FROM 9, 1996 MAY 9, 1996 SIX MONTHS SIX MONTHS YEAR ENDED (INCEPTION) TO (INCEPTION) ENDED JUNE ENDED JUNE DECEMBER 31, DECEMBER 31, TO JUNE 30, 30, 1998 30, 1997 1997 1996 1998* ----------- ----------- --------------- --------------- ------------ (UNAUDITED) (UNAUDITED) CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net loss......................... $(603,236) $ (10,174) $(1,102,405) $(102,499) $(1,808,140) ----------- ----------- --------------- --------------- ------------ ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization.... 20,838 3,997 6,441 3,029 30,308 Non-reciprocal expenses paid by affiliate...................... -- -- -- 880 880 Loss on acquisition of partnership interest from related party.................. -- -- 733,562 -- 733,562 Issuance of common stock for services received.............. -- -- 150,000 -- 150,000 CHANGES IN ASSETS AND LIABILITIES: (INCREASE) DECREASE IN ASSETS: Accounts receivable.............. (2,484) 1,706 (3,735) (3,236) (9,455) Allowance for doubtful accounts....................... 2,057 (1,193) 3,838 1,193 7,088 Other assets..................... (27,043) -- -- (2,520) (29,563) Prepaid advertising costs........ (573,600) -- -- -- (573,600) INCREASE (DECREASE) IN LIABILITIES: Increase in accounts payable, accrued expenses and other liabilities.................... 35,524 9,987 83,620 40,755 159,899 Accrued advertising expenses..... 573,600 -- -- -- 573,600 ----------- ----------- --------------- --------------- ------------ Total adjustments.............. 28,892 14,497 973,726 40,101 1,042,719 ----------- ----------- --------------- --------------- ------------ Net cash provided by (used for) operating activities......... (574,344) 4,323 (128,679) (62,398) (765,421) ----------- ----------- --------------- --------------- ------------
* Audited from inception to December 31, 1997 and unaudited from January 1, 1998 to June 30, 1998. See accompanying independent auditors' report and notes to financial statements. F-7 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (CONTINUED) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
PERIOD FROM MAY PERIOD FROM 9, 1996 MAY 9, 1996 SIX MONTHS SIX MONTHS YEAR ENDED (INCEPTION) TO (INCEPTION) ENDED JUNE ENDED JUNE DECEMBER 31, DECEMBER 31, TO JUNE 30, 30, 1998 30, 1997 1997 1996 1998* ----------- ----------- --------------- --------------- ------------ (UNAUDITED) (UNAUDITED) CASH FLOWS USED FOR INVESTING ACTIVITIES-- purchase of property and equipment (179,652) -- (41,740) (18,878) (240,270) ----------- ----------- --------------- --------------- ------------ CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Proceeds from sale of common stock.......................... 760,600 -- 137,000 -- 897,600 Proceeds from issuance of note payable, related party......... -- 16,300 54,401 81,977 136,378 Principal payment of notes payable, bank.................. (1,349) -- -- -- (1,349) (Increase) decrease in deferred offering costs................. 139 (20,893) (15,137) -- (14,998) Note payable, bank............... 9,860 -- -- -- 9,860 ----------- ----------- --------------- --------------- ------------ Net cash provided by (used for) financing activities......... 769,250 (4,593) 176,264 81,977 1,027,491 ----------- ----------- --------------- --------------- ------------ NET INCREASE (DECREASE) IN CASH.... 15,254 (270) 5,845 701 21,800 CASH, beginning of period.......... 6,546 701 701 -- -- ----------- ----------- --------------- --------------- ------------ CASH, end of period................ $ 21,800 $ 431 $ 6,546 $ 701 $ 21,800 ----------- ----------- --------------- --------------- ------------ ----------- ----------- --------------- --------------- ------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid.................... $ 306 $ -- $ -- $ -- $ 306 ----------- ----------- --------------- --------------- ------------ ----------- ----------- --------------- --------------- ------------ Income taxes paid................ $ -- $ 1,600 $ 800 $ -- $ 2,400 ----------- ----------- --------------- --------------- ------------ ----------- ----------- --------------- --------------- ------------
* Audited from inception to December 31, 1997 and unaudited from January 1, 1998 to June 30, 1998. See accompanying independent auditors' report and notes to financial statements. F-8 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (CONTINUED) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: 1. During 1997, the Company issued Series 1, Class B Common Stock for services rendered provided to the Company with stock valued at $150,000. 2. On December 31, 1997, the Company purchased certain rights and interest from Consumer Net Partners (CNP), a related party and issued notes and stock options for such rights and cash advances from CNP as mentioned in Note 4 as follows: Promissory note issued............................................... $ 500,000 Options for Series 1, Class B Common Stock issued and valued at...... 375,000 Cash advances received from CNP during: 1996............................................................... (87,037) 1997............................................................... (54,401) ----------- Consideration for certain rights and interest from CNP which was written off in 1997................................................ $ 733,562 ----------- -----------
See accompanying independent auditors' report and notes to financial statements. F-9 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (1) NATURE OF BUSINESS: Consumer Net Marketplace, Inc. (the "Company") is in the development stage of business as a full service Internet Service Provider ("ISP") and Internet Presence Provider ("IPP") on the World Wide Web (the "Web") which includes Web services, Web creating, virtual Web hosting, server co-location, technical support, training, and link-up services for individuals and businesses. The Company is focused on providing complete individual and business products and services over the Internet. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: CASH AND CASH EQUIVALENTS: For purposes of the statement of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations. PROPERTY AND EQUIPMENT: Property and equipment, recorded at cost, are depreciated or amortized using the straight-line and accelerated methods over the estimated useful lives of the assets, which is generally five to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of their estimated lives or the lease. INCOME TAXES: At inception (May 9, 1996), the Company elected to taxed under the provisions of subchapter S of the Internal Revenue Code. Under these provisions, the Company does not pay federal income taxes on its taxable income. Instead, the stockholders were liable for individual federal and California income taxes on their respective shares of the Company's taxable income. On September 1, 1997, the Company elected to revoke S corporation status and will be taxed as a C corporation. Income taxes are accounted for under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting basis and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. CONCENTRATION OF CREDIT RISK: Financial instruments that potentially subject the Company to concentrations of credit risk consists principally of cash investments. The Company's cash investment policies limit investments to short-term, low risk instruments. FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's financial instruments principally consist of accounts receivable, accounts payable, line of credit, note payable to a bank, and notes payable to a related party as defined by Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments." The carrying value of accounts receivable and accounts payable approximate of their fair value due to the short-term nature of these instruments. The carrying value of the line of credit and note payable to a bank F-10 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) approximates its fair market value since these financial statements carry a floating interest rate. The fair market value of the note payable to a related party approximated its carrying value based on current market rates for such debt USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NET LOSS PER COMMON SHARE: The Company has adopted Statement of Financial Accounting Standard No. 128, Earnings per Share ("SFAS No. 128"), which is effective for annual and interim financial statements issued for periods ending after December 15, 1997. In accordance with SFAS No. 128, prior years per share amounts have been restated. SFAS No. 128 was issued to simplify the standards for calculating earnings per share ("EPS") previously in APB No. 15, Earnings Per Share. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS. The new rules also require dual presentation of basic and diluted EPS on the face of the statement of operations. For the six months ended June 30, 1998 and 1997, and the years ended December 31, 1997 and for the period from May 9, 1996 (inception) to December 31, 1996, the per share data is based on the weighted average number of common and common equivalent shares outstanding, and are calculated in accordance with Staff Accounting Bulletin of the Securities and Exchange Commission (SAB) No. 98 whereby common stock, options or warrants to purchase common stock or other potentially dilutive instruments issued for nominal consideration must be reflected in basic and diluted per share calculations for all periods in a manner similar to a stock split, even if anti-dilutive. Accordingly, in computing basic earnings per share, nominal issuances of common stock are reflected in a manner similar to a stock split or dividend. In computing diluted earnings per share, nominal issuances of common stock and potential common stock are reflected in a manner similar to a stock split or dividend. INTERIM FINANCIAL STATEMENTS (UNAUDITED): The accompanying unaudited condensed financial statements for the interim periods ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Regulation SX. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. F-11 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (3) PROPERTY AND EQUIPMENT: A summary of property and equipment, recorded at cost is as follows:
DECEMBER 31, (UNAUDITED) -------------------- JUNE 30, 1998 1997 1996 ------------- --------- --------- Data communications equipment............................ $ 28,986 $ 6,371 $ -- Office and other equipment............................... 163,304 58,429 23,060 Leasehold improvements................................... 52,162 -- -- ------------- --------- --------- 244,452 64,800 23,060 Less accumulated depreciation and amortization........... 29,972 9,226 2,968 ------------- --------- --------- $ 214,480 $ 55,574 $ 20,092 ------------- --------- --------- ------------- --------- ---------
Depreciation and amortization expense charged to operations amounted to $20,838, $3,997, $6,441 and $3,029 for the six months ended June 30, 1998 and 1997 and the years ended December 31, 1997 and for the period from May 9, 1996 (inception) to December 31, 1996, respectively. (4) RELATED PARTY TRANSACTIONS: Fredrick Rice, officer and major shareholder of the Company, and certain associates formed Consumer Net Partners, a California general partnership ("CNP") in 1996. CNP provided the start-up equity for the Internet shopping mall concept and previously held certain rights and interest in the electronic shopping mall business. Pursuant to CNP's Partnership Agreement, it retained a right to receive 75% of net income generated by the Company. From inception through December 31, 1997, the CNM shopping mall business had not generated any net income. Fredrick Rice also serves as the President and sole shareholder of Consumers On-Line Development, Inc., which services as the Managing Partner of CNP. Consumers On-Line Development, Inc. was primarily responsible to manage and oversee the development, creation, establishment and marketing of the CNM electronic shopping mall. Pursuant to a Management Agreement with CNP, Consumers On-Line Development, Inc. had a 25% net revenue interest in revenue received by CNP which is generated by the CNM electronic shopping mall business. No payments have been made to Consumers On-Line Development, Inc. pursuant to its Management Agreement. On December 31, 1997, the Company purchased all the rights and interest held by CNP in the CNM Internet shopping mall business, including all rights pursuant to the Management Agreement between CNP and Consumers On-Line Development, Inc. The Company issued to CNP a non-interest bearing note in the principal amount of $500,000, payable on demand from the proceeds of this offering, and an option to purchase 250,000 shares of the Company's Series 1, Class B common stock at an exercise price of $.50 per share, valued at an aggregate amount of $375,000 for a period of three years, in consideration for CNP's rights in the Company's business and for cash advances and property received from CNP to the Company amounted to $141,438 ($54,401 in 1997 and $87,037 in 1996). Pursuant to Accounting Principles Board opinion No. 17, the costs of developing, maintaining, or restoring intangible assets which are not specifically identifiable, have indeterminable lives, or are inherent in a continuing business and related to an enterprise as a whole, such as goodwill, should be deducted from F-12 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (4) RELATED PARTY TRANSACTIONS: (CONTINUED) income when incurred. Since there was no specifically identifiable asset received from the partnership, a charge to 1997 operations of $733,562, net of payments from CNP, was recorded. The Company also leases property from one of the board of directors of the Company (see Note 7). (5) LINES OF CREDIT: The Company has secured a revolving credit agreement with its bank under which the Company may borrow up to a maximum principal amount of $15,000 with interest at 18% per annum. The line of credit is secured by company assets as stated in the agreement. Payments of 3.5% of the outstanding balance plus accrued interest are due monthly. The outstanding principle balance under these lines of credit was $8,511 at June 30, 1998. (6) NOTE PAYABLE, RELATED PARTY: Note payable issued in connection with the purchase of Consumer Net Partners' Rights in the Company's business as mentioned in Note 4 above. The note is non-interest bearing and is payable on demand. (7) COMMITMENTS AND CONTINGENCIES: LEASES The Company leases its facilities under noncancellable operating leases expiring in various years through 2003. One of the facilities was leased from a related party at a monthly rate of $818. Rent expense for all periods were accounted for under the straight-line method. Total rent expense for the six months ended June 30, 1998 and 1997 and for the years ended December 31, 1997 and for the period from May 9, 1996 (inception) to December 31, 1996 for all operating leases amounted to $37,016, $2,235, $11,235 and $6,786, respectively. The minimum lease payments for the years ended December 31, are as follows:
Year ending December 31, 1998............................................................................ $ 46,237 1999............................................................................ 112,120 2000............................................................................ 108,030 2001............................................................................ 110,911 2002............................................................................ 112,351 2003 and thereafter............................................................. 37,450 ---------- $ 527,099 ----------
SIGNIFICANT AGREEMENT In April 1998, the Company entered into an agreement with Pacific Bell Internet to provide Internet access service to the Company at a monthly fee of $30,664 for a period of five years. F-13 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (7) COMMITMENTS AND CONTINGENCIES: (CONTINUED) EMPLOYMENT AGREEMENT The Company has entered into an employment agreement with an officer of the Company requiring payment effective July 1997, of annual compensation of $180,000 plus future increases, if appropriate. The Company has also entered into various employment agreements with other executives of the Company requiring payment of annual compensation ranging from $24,000 to $60,000. (8) PREPAID ADVERTISING COSTS: In June 1998, the Company entered into various contracts with two advertising companies to provide outdoor and in-home advertising for the Company from July 1998 to November 1998 for a total cost of $573,600. These advertising costs will be amortized over the periods in which advertising space is used. Subsequent to June 30, 1998, the Company entered into additional contracts and agreements with one of the advertising companies (see Note 12). Advertising expense for the six months ended June 30, 1998 and 1997 and for the year ended December 31, 1997 and for the period from May 9, 1996 (inception) to December 31, 1996 is $28,563, $531, $5,070 and $65,434, respectively. (9) INCOME TAXES: The stockholders, upon incorporating the Company, elected to treat the Company as an S Corporation under the Internal Revenue Code. On September 1, 1997, this election was revoked by all stockholders of the Company. The Company is now subject to income taxes on income earned after August 31, 1997. At December 31, 1997, the Company had net operating loss carryforwards for federal income tax purposes totaling approximately $153,000, which begin to expire in 2017. Operating loss carryforwards for state income tax purposes totaling approximately $149,000, which will begin to expire in 2004. The Tax Reform Act of 1986 includes provisions which may limit the net operating loss carryforwards available for use in any give year if certain events occur, including significant changes in ownership. If the Company is successful in completing its proposed initial public offering, utilization of the Company's net operating loss carryforwards to offset future income may be limited. Deferred tax assets at December 31, 1997 include the following:
Net operating loss carryforwards.................................................. $ 61,200 Valuation allowance............................................................... (61,200) ---------- $ -- ---------- ----------
The Company recorded a full valuation allowance for net deferred tax assets as management does not believe it is more likely than not that the deferred tax asset will be realized. (10) STOCK OPTION PLAN: The Company has established stock option plans for its Directors, employees and consultants (the "1997 Stock Option Plan"). F-14 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (10) STOCK OPTION PLAN: (CONTINUED) The 1997 Stock Option Plan allows for options (including Incentive Stock Options) to be granted to directors, employees and consultants at less that fair market value at date of grant. These options vest at 20% each year commencing at the date of grant and expire three years from the date of vesting. The total number of options available to grant under this plan is 2,000,000 shares of Series 1, Class A common stock and 100,000 shares of Series 1, Class B common stock. A summary of the Stock Option Plan-- Series 1, Class A Common Stock as of and for the six months ended June 30, 1998 and the year ended December 31, 1997 are as follows:
JUNE 30, 1998 ----------------------------- DECEMBER 31, 1997 (UNAUDITED) ---------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ---------- ----------------- --------- ----------------- Outstanding at beginning of year...................... 582,500 $ 2.00 -- $ Granted............................................. 510,000 2.00 582,500 2.00 Exercised........................................... -- Forfeited/Expired................................... (240,000) -- ---------- --------- Outstanding at June 30, 1998 and December 31, 1997, respectively........................................ 852,500 582,500 ---------- --------- ---------- ---------
A summary of the Stock Option Plan-- Series 1, Class B Common Stock as of and for the six months ended June 30, 1998 and the year ended December 31, 1997 are as follows:
JUNE 30, 1998 ----------------------------- DECEMBER 31, 1997 (UNAUDITED) ---------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ---------- ----------------- --------- ----------------- Outstanding at beginning of year...................... 5,000 $ .50 -- Granted............................................. -- 5,000 $ .50 Exercised........................................... -- -- Forfeited/Expired..................................... -- -- ---------- --------- Outstanding at June 30, 1998 and December 31, 1997, respectively........................................ 5,000 5,000 ---------- --------- ---------- ---------
The Company has elected, as permitted by FASB Statement No. 123, "Accounting for Stock Based Compensation" ("FASB 123"), to account for its stock compensation arrangements under the provisions of Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, because the exercise price of the Company's employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. Subsequent to June 30, 1998, the Company granted 835,000 shares of Series 1, Class A common stock options at $2.00 per share, exercisable at 20% each year commencing on the grant date. The additional stock options granted included 300,000 stock options granted to a person who is related to the Company's principal shareholder. F-15 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (10) STOCK OPTION PLAN: (CONTINUED) Proforma information regarding net income and earnings per share as if the Company had accounted for its employee stock options under the fair value method of such pronouncement has not been presented as the amounts are not materially different. (11) SERIES 1--CLASS B COMMON STOCK: In 1997, the Company and its Board of Directors agreed to authorize and provide for the issue of 1,000,000 shares of Series 1, Class B common stock. The shares are not entitled to receive dividends. Each Series 1, Class B share will automatically be converted into 1 share of Series 1, Class A common stock upon the closing of an initial public offering. (12) SUBSEQUENT EVENTS: COMMON STOCK Subsequent to June 30, 1998, the Company issued 207,250 shares of common stock at $2.00 per share in a private placement, raising total proceeds of $414,500. LEASES In July 1998, the Company entered into a capital lease agreement. The following is a schedule of future minimum lease payments for agreements entered into subsequent to June 30, 1998:
CAPITAL LEASES ---------- Year ending December 31, 1998............................................................................ $ 76,436 1999............................................................................ 152,872 2000............................................................................ 152,872 2001............................................................................ 76,436 ---------- 458,617 Less amount representing interest................................................. (84,700) ---------- Present value of future lease payments............................................ $ 373,917 ---------- ----------
PURCHASE COMMITMENT In August 1998, the Company entered into an agreement with a vendor to purchase computer network equipment at a cost of approximately $2.6 million. The agreement provides the Company to pay the vendor with a full cash payment upon the completion of the Company's initial public offering or enter into an equipment lease agreement for the entire amount by December 15, 1998. ADVERTISING AGREEMENT In August 1998, the Company entered into a tentative agreement with an advertising company to provide additional outdoor advertising for the Company. The Company will issue 1,000,000 shares of F-16 CONSUMER NET MARKETPLACE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (12) SUBSEQUENT EVENTS: (CONTINUED) common stock Series 1, Class A at $2.00 per share in exchange for advertisement space at a discounted price. These outdoor advertising spaces would be preemptable. Shares to be issued to the advertising company are kept in an escrow account and released as advertising services are provided. Subsequent to June 30, 1998, the Company entered into additional contracts and agreements with the same advertising company for additional advertising space for a total fee of $365,370. (13) GOING CONCERN: The Company's financial statements for the six months ended June 30, 1998 and 1997 and for the years ended December 31, 1997 and for the period from May 9, 1996 (inception) to December 31, 1996 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company expects to incur substantial expenditures to produce Internet services to the public. The Company's working capital plus limited revenue from its current operations will not provide sufficient funds for the Company's ongoing operations. Management recognizes that the Company must generate additional resources to enable it to continue operations. Management's plans include the sale of additional equity securities. Towards this goal, management is in the process of preparing the initial public offering of the Company's common stock. However, no assurance can be given that the Company will be successful in raising additional capital. Further, there can be no assurance, assuming the Company successfully raises additional equity, that the Company will achieve profitability or positive cash flow. (14) RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENT: The December 31, 1996 financial statements were restated to reclassify paid in capital of $87,037 to notes payable, related party due to items were inadvertently misclassified. This restatement did not affect net income (loss) for the same period ended December 31, 1996. F-17 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................. 3 The Company.................................... 3 Risk Factors................................... 6 Use of Proceeds................................ 18 Dividend Policy................................ 18 Capitalization................................. 19 Dilution....................................... 20 Selected Financial Data........................ 22 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 23 Business....................................... 27 Legal Proceedings.............................. 43 Management..................................... 44 Certain Transactions........................... 52 Principal Stockholders......................... 53 Description of Capital Stock................... 54 Shares Eligible for Future Sale................ 56 Selling Security Holders....................... 57 Plan of Distribution........................... 60 Legal Matters.................................. 60 Experts........................................ 61 Additional Information......................... 61 Financial Statements........................... F-1
------------------------ UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 4,000,000 SHARES [LOGO] COMMON STOCK --------------------- PRELIMINARY PROSPECTUS --------------------- OCTOBER 8, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following are the estimated expenses, other than underwriting discounts and commissions, to be borne by the Company in connection with the issuance and distribution of the Common Stock being registered:
ITEM AMOUNT - -------------------------------------------------------------------------------- ------------ Securities and Exchange Commission registration fee............................. $ 16,520.00 NASD filing fee................................................................. * Nasdaq Small Cap Market listing fee............................................. * Blue Sky fees and expenses...................................................... * Printing and engraving expenses................................................. * Legal fees and expenses......................................................... * Accounting fees and expenses.................................................... * Transfer Agent and Registrar fee................................................ * Miscellaneous................................................................... * ------------ Total......................................................................... $ * ------------ ------------
* To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Amended and Restated Articles of Incorporation provide that directors of the Company will not be personally liable for monetary damages to the Company or its stockholders for breaches of their fiduciary duty of care or other duties as directors to the extent provided by California law. The Company's Bylaws and Indemnification Agreements with each director provide that the Company will indemnify (i) directors who succeed in the defense of any proceeding to which the director was a party; or (ii) directors who are made a party to a proceeding because of their service for or on behalf of the Company if the directors acted in good faith in or not against the Company's best interest or if the directors had no reasonable cause to believe their conduct was unlawful. Indemnification is not available to directors who are adjudged liable to the Company, who receive improper benefits, who make unlawful distributions, or who appropriate a business opportunity of the Company. The Company's Board of Directors has the discretion to apply these provisions to officers, employees and agents of the Company. In appropriate circumstances, the Company will advance or reimburse reasonable expenses if authorized by the Board of Directors, legal counsel, or the stockholders. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since its inception in May 1996, the Registrant has issued unregistered securities in the following transactions: SHARES OF COMMON STOCK 1. On May 9, 1996, the Company issued 5,000,000 shares of Series 1 Class A Common Stock to Mr. Fredrick Rice as founder's stock for an aggregate price of $500.00. 2. On August 20, 1997, the Company issued 75,000 shares of Series 1 Class B Common Stock to a prior unaffiliated consultant, for services rendered. II-1 3. From October 1, 1997 until October 8, 1998, the Company sold 1,534,250 shares of Series 1 Class A Common Stock to investors in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder, at a purchase price of $2.00 per share. OPTIONS TO PURCHASE COMMON STOCK 4. From June 20, 1997 to August 31, 1998, the Company granted a total of 127,500 stock options to purchase 127,500 shares of its Series 1 Class A Common Stock for a purchase price of $2.00 per share. These options were not issued pursuant to the Company's 1997 Stock Option Plan. 5. On December 15, 1997, the Company granted options to purchase 200,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 per share to Ms. Vickie C. McLoughlin in consideration for Ms. McLoughlin's development efforts and employment with the Company. These options were granted pursuant to the Company's 1997 Stock Option Plan. Upon termination by Ms. McLoughlin of her employment on June 26, 1998, 60,000 of these options had vested and the balance expired. The vested options expire on September 26, 1998 in accordance with their terms unless they are exercised before that date. 6. On December 15, 1997, the Company granted options to purchase 200,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Randy D. Greene in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 7. On December 15, 1997, the Company granted options to purchase 20,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Ms. Olivia Sayler in consideration for her continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 8. On December 31, 1997, the Company granted options to purchase 250,000 shares of Series 1 Class B Common Stock at an exercise price of $0.50 per share to Consumer Net Partners in exchange for all rights and interest held by Consumer Net Partners in the CNM Internet shopping mall business. These options were not issued pursuant to the Company's 1997 Stock Option Plan. 9. On March 25, 1998, the Company granted options to purchase 200,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Donald Lee Carver in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 10. On March 16, 1998, the Company granted options to purchase 100,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Christopher L. Young in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 11. On March 16, 1998, the Company granted options to purchase 100,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Jon P. DeOng in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 12. On March 31, 1998, the Company granted options to purchase 100,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Christopher Fogel in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. II-2 13. On May 1, 1998, the Company granted options to purchase 10,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Ms. Olivia Sayler in consideration for her continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 14. On July 1, 1998, the Company granted options to purchase 20,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Rick Knittle in consideration for his continuing efforts as a key consultant to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 15. On July 1, 1998, the Company granted options to purchase 300,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Charles Rice in consideration for his service as a director of the Company. These options were granted pursuant to the Company's 1997 Stock Option Plan. 16. On August 4, 1998, the Company granted options to purchase 400,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Kenneth K. Lattin in consideration for his service as a director of the Company. These options were granted pursuant to the Company's 1997 Stock Option Plan. 17. On August 31, 1998, the Company granted options to purchase 100,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Dr. Douglas Benson in consideration for his service as a director of the Company. These options were granted pursuant to the Company's 1997 Stock Option Plan. 18. On August 31, 1998, the Company granted options to purchase 100,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Christopher L. Young in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 19. On August 31, 1998, the Company granted options to purchase 100,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Jon P. DeOng in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 20. On August 31, 1998, the Company granted options to purchase 100,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Christopher Fogel in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 21. On August 31, 1998, the Company granted options to purchase 10,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Judd L. Bourgeois in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 22. On August 31, 1998, the Company granted options to purchase 5,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. William J. Lawrence in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 23. On August 31, 1998, the Company granted options to purchase 20,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Eric Hankins in consideration for his continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. 24. On August 31, 1998, the Company granted options to purchase 5,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Ms. Denise J. Garcia in consideration for her continuing efforts to develop the Company and its business. These options were granted pursuant to the Company's 1997 Stock Option Plan. II-3 25. On September 30, 1998, the Company granted options to purchase 50,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. Mark J. Richardson in consideration for his service as a director of the Company. These options were granted pursuant to the Company's 1997 Stock Option Plan. 26. On September 30, 1998, the Company granted options to purchase 25,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Ms. Laura D. Murtagh in consideration for her service as the Corporate Secretary of the Company. These options were granted pursuant to the Company's 1997 Stock Option Plan. 27. On October 7, 1998, the Company granted options to purchase 5,000 shares of Series 1 Class A Common Stock at an exercise price of $2.00 to Mr. William Wu in consideration for his consulting services to the Company. These options were granted pursuant to the Company's 1997 Stock Option Plan. All issuances of securities described above were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. All of the securities were acquired by the investors for investment and with no view toward the resale or distribution thereof. In each instance, the investor was either an employee of the Company or a sophisticated investor, the offers and sales were made without any public solicitation and the stock certificates bear restrictive legends. No underwriter was involved in the transactions and no commissions were paid. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits:
EXHIBIT NUMBER DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------------- 3.1 The Amended and Restated Articles of Incorporation of Consumer Net Marketplace, Inc. 3.2 The Bylaws, as amended, of Consumer Net Marketplace, Inc. 3.3 Amendment to Amended and Restricted Articles of Incorporation of Consumer Net Marketplace, Inc. 4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and Bylaws defining rights of holders of Common Stock. 4.2 Specimen Stock Certificate. 4.3 Stock Option Plan for Directors, Employees and Key Consultants of Consumer Net Marketplace, Inc. 4.4 Form of Stock Option Agreement for the Plan. 4.5 Form of Stock Option Agreement for Series 1 Class B Common Stock Not Subject to the Stock Option Plan. 4.6 Amendment to Stock Option Plan for Directors, Employees, and Key Consultants of Consumer Net Marketplace, Inc.* 5.1 Form of Legal Opinion and Consent of Mark J. Richardson, Esq. 10.1 Agreement by and between Eller Media Company and Consumer Net Marketplace, Inc. dated June 5, 1998. 10.2 Agreement by and between Eller Media Company and Consumer Net Marketplace, Inc. dated July 10, 1998. 10.3 Agreement by and between Eller Media Company and Consumer Net Marketplace, Inc. dated June 4, 1998. 10.4 Consulting Agreement by and between Comat Systems Solutions Private Limited, India and Consumer Net Marketplace, Inc.
II-4
EXHIBIT NUMBER DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------------- 10.5 Lease Agreement by and between Ascend Credit Corporation and Consumer Net Marketplace, Inc. dated July 1, 1998. 10.6 Purchase Order for additional equipment from Ascend Communications, Inc. dated August 12, 1998. 10.7 Sales Agreement by and between Pacific Bell Internet Services and Consumer Net Marketplace, Inc. dated March 4, 1998. 10.8 ISP Customer Agreement by and between Covad Communications Company and Consumer Net Marketplace, Inc. 10.9 Forms of CNM Network-TM- Reseller Terms and Conditions. 10.10 Lease Agreement by and between Levitt, Levitt & Lijgash and Consumer Net Marketplace, Inc. dated April 8, 1998. 10.11 Lease Agreement by and between Edwin S. Johnston Company and Fred Rice doing business under the name Consumer Net Marketplace, Inc. dated May 28, 1998. 10.12 Facility Agreements for Equipment Placement by Consumer Net Marketplace, Inc. 10.13 Agreement by and between Advo Direct Marketing and Consumer Net Marketplace, Inc. 10.14 License Agreement by and Between Netscape, Inc. and Consumer Net Marketplace, Inc. 10.15 License Agreement by and between Qualcomm, Inc. and Consumer Net Marketplace, Inc. 10.16 Promissory Note, dated December 31, 1997, payable by Consumer Net Marketplace, Inc. to Consumer Net Partners. 10.17 Assignment, dated December 31, 1997, by and between Consumer Net Marketplace, Inc. and Consumer Net Partners. 10.18 Subscription Agreement by and between the Company and Eller Media Company, dated October 7, 1998.* 10.19 Agreement with Starnet, Inc., dated October 6, 1998.* 10.20 Service Agreement by and between the Company, Consumer Net Partners, and Consumers On-Line Development, Inc., dated May 10, 1996. 23.1 Consent of Stonefield Josephson, independent public accountants. 23.2 Consent of Caldwell, Becker, Dervin, Petrick & Co., independent certified public accountants. 27 Financial Data Schedule
- ------------------------ * To be filed by amendment. + Confidential treatment requested. (b) Financial Statement Schedules: All of the financial statement schedules for which provision is made in the applicable accounting regulations of the Commission are either not required under the related instructions or are inapplicable and have therefore been omitted, except for the Financial Data Schedule referenced above as Exhibit 27 and filed herewith; provided, however, that Exhibit 27 shall not be deemed filed for purposes of Section 11 of the Securities Act, Section 18 of the Exchange Act and Section 323 of the Trust Indenture Act, or otherwise be subject to the liabilities of such sections, nor shall it be deemed a part of this Registration Statement. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons to the Company, the Company has been advised that in the opinion of the II-5 Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of a prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Simi Valley, State of California, on the 8th day of October, 1998. CONSUMER NET MARKETPLACE, INC.--REGISTRANT By: /s/ FREDRICK J. RICE ------------------------------- Fredrick J. Rice PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark J. Richardson, Esq. his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of each of them, or their or his substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below on the 8th day of October, 1998, by the following persons in the capacities indicated.
SIGNATURES TITLE - ------------------------------ -------------------------- /s/ FREDRICK J. RICE President, Chairman of the - ------------------------------ Board of Directors, Fredrick J. Rice Chief Executive Officer /s/ KENNETH K. LATTIN - ------------------------------ Director Kenneth K. Lattin /s/ CHARLES RICE - ------------------------------ Director Charles Rice /s/ DR. DOUGLAS BENSON - ------------------------------ Director Dr. Douglas Benson /s/ MARK J. RICHARDSON - ------------------------------ Director Mark J. Richardson
II-7 INDEX TO EXHIBIT (a) Exhibits:
EXHIBIT NUMBER DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------------- 3.1 The Amended and Restated Articles of Incorporation of Consumer Net Marketplace, Inc. 3.2 The Bylaws, as amended, of Consumer Net Marketplace, Inc. 3.3 Amendment to Amended and Restricted Articles of Incorporation of Consumer Net Marketplace, Inc. 4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and Bylaws defining rights of holders of Common Stock. 4.2 Specimen Stock Certificate. 4.3 Stock Option Plan for Directors, Employees and Key Consultants of Consumer Net Marketplace, Inc. 4.4 Form of Stock Option Agreement for the Plan. 4.5 Form of Stock Option Agreement for Series 1 Class B Common Stock Not Subject to the Stock Option Plan. 4.6 Amendment to Stock Option Plan for Directors, Employees, and Key Consultants of Consumer Net Marketplace, Inc.* 5.1 Form of Legal Opinion and Consent of Mark J. Richardson, Esq. 10.1 Agreement by and between Eller Media Company and Consumer Net Marketplace, Inc. dated June 5, 1998. 10.2 Agreement by and between Eller Media Company and Consumer Net Marketplace, Inc. dated July 10, 1998. 10.3 Agreement by and between Eller Media Company and Consumer Net Marketplace, Inc. dated June 4, 1998. 10.4 Consulting Agreement by and between Comat Systems Solutions Private Limited, India and Consumer Net Marketplace, Inc. 10.5 Lease Agreement by and between Ascend Credit Corporation and Consumer Net Marketplace, Inc. dated July 1, 1998. 10.6 Purchase Order for additional equipment from Ascend Communications, Inc. dated August 12, 1998. 10.7 Sales Agreement by and between Pacific Bell Internet Services and Consumer Net Marketplace, Inc. dated March 4, 1998. 10.8 ISP Customer Agreement by and between Covad Communications Company and Consumer Net Marketplace, Inc. 10.9 Forms of CNM Network-TM- Reseller Terms and Conditions. 10.10 Lease Agreement by and between Levitt, Levitt & Lijgash and Consumer Net Marketplace, Inc. dated April 8, 1998. 10.11 Lease Agreement by and between Edwin S. Johnston Company and Fred Rice doing business under the name Consumer Net Marketplace, Inc. dated May 28, 1998. 10.12 Facility Agreements for Equipment Placement by Consumer Net Marketplace, Inc. 10.13 Agreement by and between Advo Direct Marketing and Consumer Net Marketplace, Inc. 10.14 License Agreement by and Between Netscape, Inc. and Consumer Net Marketplace, Inc. 10.15 License Agreement by and between Qualcomm, Inc. and Consumer Net Marketplace, Inc. 10.16 Promissory Note, dated December 31, 1997, payable by Consumer Net Marketplace, Inc. to Consumer Net Partners. 10.17 Assignment, dated December 31, 1997, by and between Consumer Net Marketplace, Inc. and Consumer Net Partners.
EXHIBIT NUMBER DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------------- 10.18 Subscription Agreement by and between the Company and Eller Media Company, dated October 7, 1998.* 10.19 Agreement with Starnet, Inc., dated October 6, 1998.* 10.20 Service Agreement by and between the Company, Consumer Net Partners, and Consumers On-Line Development, Inc., dated May 10, 1996. 23.1 Consent of Stonefield Josephson, independent public accountants. 23.2 Consent of Caldwell, Becker, Dervin, Petrick & Co., independent certified public accountants. 27 Financial Data Schedule
- ------------------------ * To be filed by amendment. + Confidential treatment requested. (b) Financial Statement Schedules: All of the financial statement schedules for which provision is made in the applicable accounting regulations of the Commission are either not required under the related instructions or are inapplicable and have therefore been omitted, except for the Financial Data Schedule referenced above as Exhibit 27 and filed herewith; provided, however, that Exhibit 27 shall not be deemed filed for purposes of Section 11 of the Securities Act, Section 18 of the Exchange Act and Section 323 of the Trust Indenture Act, or otherwise be subject to the liabilities of such sections, nor shall it be deemed a part of this Registration Statement. EX-3.1 2 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF CONSUMER NET MARKETPLACE ONE: The name of this corporation is CONSUMER NET MARKETPLACE. TWO: The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code. THREE: The name and address in the State of California of this corporation's initial agent for service of process is: ROBERT E. SUTTLE, Attorney at Law, 7355 Topanga Canyon Boulevard, Suite 201, Canoga Park, California 91303. FOUR: This corporation is authorized to issue only one class of shares of stock, and the total number of shares which this corporation is authorized to issue is Twenty Million (20,000,000) DATED: May 6, 1996 Signed by Robert E. Suttle, Incorporator I declare that I am the person who executed the above Articles of Incorporation and such Instrument is by may act and deed. Signed by Robert E. Suttle AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CONSUMER NET MARKETPLACE Fredrick J. Rice and Vickie McLoughlin certify that: 1. They are the president and the secretary, respectively, of Consumer Net Marketplace. 2. The articles of incorporation of this corporation are amended and restated to read in full as follows: FIRST: The name of this corporation is CONSUMER NET MARKETPLACE, INC. SECOND: The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a professional permitted to be incorporated by the California Corporations Code. THIRD: The aggregate number of shares which the corporation shall have authority to issue is twenty-one million (21,000,000), of which twenty million (20,000,000) shares shall be Class A common stock, no par value, and one million (1,000.000) shares shall be Class B common stock, $.001 par value. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article THIRD, to provide for the issuance of the shares of Class B common stock in series by filing a certificate pursuant to the applicable law of the State of California, to establish from time-to-time the number of shares to be included in each such series and to fix the designation, powers, and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each such series of Class B common stock shall include, but not be limited to, determination of the following: a. The number of shares constituting that series and the distinctive designation of that series. b. Whether that series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights. c. Whether that series shall have conversion rights and if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine. d. Any other relative rights, preferences and limitations of that series. FOURTH: The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. This corporation is also authorized, to the fullest extent permissible under California law, to indemnify its agents (as defined in Section 317 of the California Corporations Code), whether by bylaw, agreement or otherwise, for breach of duty to this corporation and its shareholders in excess of that expressly permitted by Section 317 and to advance defense expenses to its agents in connection with such matters as they are incurred, subject to the limits on such excess indemnification set forth in Section 204 of the California Corporations Code. If, after the effective date of this Article, California law is amended in a manner which permits a corporation to limit the monetary or other liability of its directors or to authorize indemnification of, or advancement of such defense expenses to, its directors or other persons, in any such case to a greater extent than is permitted on such effective date, the references in this Article to "California law" shall to that extent be deemed to refer to California law as so amended. 3. The foregoing Amended and Restated Articles of Incorporation have been duly approved by the Board of Directors. 4. The foregoing Amended and Restated Articles of Incorporation have been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of the corporation is 5,075,000. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Dated 8/20/97 signed by Fredrick J. Rice, President Dated 8/20/97 signed by Vickie McLoughlin, Secretary CONSUMER NET MARKETPLACE August 22, 1997 Internal Revenue Service Center Fresno, CA 93888 Dear Sir or Madam: Revocation of "S" Election by Consumer Net Marketplace, Inc. I.D. No 95-4580601 Please accept this letter as the statement of Consumer Net Marketplace Inc. the consent of its current shareholders (as required by Regulations Sections 1.1362-2(a) and 1.1362-6(a)(3)) to revoke the election made under IRC Section 1362(a) that was filed on July 19, 1996. In support of this statement, please be advised that: (1) 5,000,000 shares of Consumer Net Marketplace, Inc. common stock are issued and outstanding at date hereof; (2) This revocation will be effective for the corporation's short taxable year commencing September 1, 1997; (3) Fredrick J. Rice, 575 Fairfield Road, Simi Valley, California, T.I.N. 383-707958. Tax year ending December 31, currently holds 5,000,000 shares of the common stock and consents to this revocation; Signed by Fredrick J. Rice as both President and Shareholder 1919 WILLIAMS STREET, SUITE 220, SIMI VALLEY, CA 93065 EX-3.2 3 EXHIBIT 3.2 BY-LAWS OF CONSUMER NET MARKETPLACE A CALIFORNIA CORPORATION ARTICLE I OFFICES Section 1. PRINCIPAL OFFICE. The principal office for the transaction of business of the corporation is hereby fixed and located at 5737 Kanan Road, City of Agoura Hills, County of Los Angeles, State of California. The location may be changed by approval of a majority of the authorized Directors, and additional offices may be established and maintained at such other place or places, either within or without California, as the Board of Directors may from time to time designate. Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be established by the Board of Directors at any place or places where the corporation is qualified to do business. ARTICLE II DIRECTORS - MANAGEMENT Section 1. RESPONSIBILITY OF BOARD OF DIRECTORS. Subject to the provisions of the General Corporation Law and to any limitations in the Articles of Incorporation of the corporation relating to action required to be approved by the Shareholders, as that term is defined in Section 153 of the California Corporations Code, or by the outstanding shares, as that term is defined in Section 152 of the Code, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-today operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Section 2. STANDARD OF CARE. Each Director shall perform the duties of a Director, including the duties as a member of any committee of the Board upon which the Director may serve, in good faith, in a manner such Director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, as an ordinary prudent person in a like position would use under similar circumstances. (Sec. 309) Section 3. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of Section 1, in the event that this corporation shall elect to become a close corporation as defined in Sec. 158, its Shareholders may enter into a Shareholders' Agreement as defined in Sec. 186. Said Agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the Shareholders, provided, however, such agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each Shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Sec. 300 (d); and the Directors shall be relieved to that extent from such liability. Section 4. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of Directors shall be five (5) until changed by a duly adopted amendment to the Articles of Incorporation or by an amendment to this by-law adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, as provided in Sec. 212. Section 5. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each annual meeting of the Shareholders to hold office until the next annual meeting. Each Director, including a Director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. Section 6. VACANCIES. Vacancies in the Board of Directors may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, except that a vacancy created by the removal of a Director by the vote or written consent of the Shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each Director so elected shall hold office until the next annual meeting of the Shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the Board of Directors shall be deemed to exist in the event of the death, resignation, or removal of any Director, or if the Board of Directors by resolution declares vacant the office of a Director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of Directors is increased, or if the shareholders fail, at any meeting of shareholders at which any Director or Directors are elected, to elect the number of Directors to be voted for at that meeting. The Shareholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the Directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. No reduction of the authorized number of Directors shall have the effect of removing any Director before that Director's term of office expires. Section 7. REMOVAL OF DIRECTORS. The entire Board of Directors or any individual Director may be removed from office as provided by Secs. 302, 303 and 304 of the Corporations Code of the State of California. In such case, the remaining Board members may elect a successor Director to fill such vacancy for the remaining unexpired term of the Director so removed. Section 8. NOTICE, PLACE AND MANNER OF MEETINGS. Meetings of the Board of Directors may be called by the Chairman of the Board, or the President, or any Vice President, or the Secretary, or any two (2) Directors and shall be held at the principal executive office of the corporation, unless some other place is designated in the notice of the meeting. Members of the Board may participate in a meeting through use of a conference telephone or similar communications equipment so long as all members participating in such a meeting can hear one another. Accurate minutes of any meeting of the Board or any committee thereof, shall be maintained as required by Sec. 1500 of the Code by the Secretary or other Officer designated for that purpose. Section 9. ANNUAL MEETINGS. The organization meetings of the Board of Directors shall be held immediately following the adjournment of the annual meetings of the Shareholders. Section 10. OTHER REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at the corporate offices, or such other place as may be designated by the Board of Directors, without call at such time as from time to time be fixed by the Board of Directors. Such regular meetings may be held without notice. If said day shall fall upon a holiday, such meetings shall be held on the next succeeding business day thereafter. No notice need to be given of such regular meetings. Section 11. SPECIAL MEETINGS - NOTICES - WAIVERS. Special meetings of the Board may be called at any time by any of the aforesaid officers, i.e., by the Chairman of the Board or the President or any Vice President or the Secretary or any two (2) Directors. At least forty-eight (48) hours notice of the time and place of special meetings shall be delivered personally to the Directors or personally communicated to them by a corporate Officer by telephone or telegraph. If the notice is sent to a Director by letter, it shall be addressed to him or her at his or her address as it is shown upon the records of the corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the Directors are regularly held. In case such notice is mailed, it shall be deposited in the United States mail, postage prepaid, in the place in which the principal executive office of the corporation is located at least four (4) days prior to the time of the holding of the meeting. Such mailing, telegraphing, telephoning or delivery as above provided shall be due, legal and personal notice to such Director. When all of the Directors are present at any Directors' meeting, however called or noticed, and either (i) sign a written consent thereto on the records of such meeting, or, (ii) if a majority of the Directors are present and if those not present sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minutes thereof, whether prior to or after the holding of such meeting, which said waiver, consent or approval shall be filed with the Secretary of the corporation, or, (iii) if a Director attends a meeting without notice but without protesting, prior thereto or at its commencement, the lack of notice, then the transactions thereof are as valid as if had at a meeting regularly called and noticed. Section 12. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION OR BY-LAWS. In the event only one (1) Director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the Directors shall be deemed to refer to such notice, waiver, etc., by such sole Director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. Section 13. DIRECTORS ACTION BY UNANIMOUS WRITTEN CONSENT. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting and with the same force and effect as if taken by a unanimous vote of Directors, if authorized by a writing signed individually or collectively by all members of the Board. Such consent shall be filed with the regular minutes of the Board. Section 14. QUORUM, A majority of the number of Directors as fixed by the Articles of Incorporation or By-Laws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the Directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a minority of the Directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of Directors, if any action taken is approved by a majority of the required quorum for such meeting. Section 15. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place be fixed at the meeting adjourned and held within twenty-four (24) hours, but if adjourned more than twenty-four (24) hours, notice shall be given to all Directors not present at the time of the adjournment. Section 16. COMPENSATION OF DIRECTORS. Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board a fixed sum and expense of attendance, if any, may be allowed for attendance at each regular and special meeting of the Board; provided that nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. Section 17. COMMITTEES. Committees of the Board may be appointed by resolution passed by a majority of the whole Board. Committees shall be composed of two (2) or more members of the Board, and shall have such powers of the Board as may be expressly delegated to it by resolution of the Board of Directors, except those powers expressly made non-delegable by Sec. 311. Section 18. ADVISORY DIRECTORS. The Board of Directors from time to time may elect one or more persons to be Advisory Directors who shall not by such appointment be members of the Board of Directors. Advisory Directors shall be available from time to time to perform special assignments specified by the President, to attend meetings of the Board of Directors upon invitation and to furnish consultation to the Board. The period during which the title shall be held may be prescribed by the Board of Directors. If no period is prescribed, the title shall be held at the pleasure of the Board. Section 19. RESIGNATIONS. Any Director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. ARTICLE III OFFICERS Section 1. OFFICERS. The Officers of the corporation shall be a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other Officers as may be appointed in accordance with the provisions of Section 3 of this Article III. Any number of offices may be held by the same person. Section 2. ELECTION. The Officers of the corporation, except such Officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold office until he or she shall resign or shall be removed or otherwise disqualified to serve, or a successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such other Officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an Officer under any contract of employment, any Officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting to the Board, or, except in case of an Officer chosen by the Board of Directors, by any Officer upon whom such power of removal may be conferred by the Board of Directors. Any Officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the Officer is a party. Section 5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By- for regular appointments to that office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned by the Board of Directors or prescribed by the By-Laws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article III. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an Officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and Officers of the corporation. He or she shall preside at all meetings of the Shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. The President shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 8. VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws. Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the Shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to he given, notice of all the meetings of the Shareholders and of the Board of Directors required by the By-Laws or by law to be given. He or she shall keep the seal of the corporation in safe custody, and shall have such other power 5 and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws. Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any Director. This Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and Directors, whenever they request it, an account of all of his or her transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. ARTICLE IV SHAREHOLDERS' MEETINGS Section 1. PLACE OF MEETINGS. All meetings of the Shareholders shall be held at the principal executive office of the corporation unless some other appropriate and convenient location be designated for that purpose from time to time by the Board of Directors. Section 2. ANNUAL MEETINGS. The annual meetings of the Shareholders shall be held, each year, at the time and on the day designated by the Board of Directors. The date so designated shall be within five (5) months after the end of the fiscal year of the corporation and within fifteen (15) months after the last annual meeting. If this day shall be a legal holiday, then the meeting shall be held on the next succeeding business day, at the same hour. At the annual meeting, the Shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation and transact such other business as may be properly brought before the meeting. Section 3. SPECIAL MEETINGS. Special meetings of the Shareholders may be called at any time by the Board of Directors, the Chairman of the Board, the President, a Vice President, the Secretary, or by one or more Shareholders holding not less than one-tenth (1/10) of the voting power of the corporation. Except as next provided, notice shall be given as for the annual meeting. Upon receipt of a written request addressed to the Chairman, President, Vice President, or Secretary, mailed or delivered personally to such Officer by any person (other than the Board) entitled to call a special meeting of Shareholders, such Officer shall cause notice to be given, to the Shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of such request. If such notice is not given within twenty (20) days after receipt of such request, the persons calling the meeting may give notice thereof in the manner provided by these By-Laws or apply to the Superior Court as provided in Sec. 305 (c). Section 4. NOTICE OF MEETINGS - REPORTS. Notice of meetings, annual or special, shall be given in writing not less than ten (10) nor more than sixty (60) days before the date of the meeting to Shareholders entitled to vote thereat. Such notice shall be given by the Secretary or the Assistant Secretary, or if there be no such Officer, or in the case of his or her neglect or refusal, by any Director or Shareholder. Such notices or any reports shall be given personally or by mail or other means of written communication as provided in Sec. 601 of the Code and shall be sent to the Shareholder's address appearing on the books of the corporation, or supplied by him or her to the corporation for the purpose of notice, and in the absence thereof, as provided in Sec. 601 of the Code. Notice of any meeting of Shareholders shall specify the place, the day and the hour of meeting, and (1) in case of special meeting, the general nature of the business to be transacted and no other business may be transacted, or (2) in the case of an annual meeting, those matters which the Board at date of mailing, intends to present for action by the Shareholders. At any meetings where Directors are to be elected, notice shall include the names of the nominees, if any, intended at date of notice to be presented by management for election. If a Shareholder supplies no address, notice shall be deemed to have been given if mailed to the place where the principal executive office of the corporation, in California, is situated, or published at least once in some newspaper of general circulation in the County of said principal office. Notice shall be deemed given at the time it is delivered personally or deposited in the mail or sent by other means of written communication. The Officer giving such notice or report shall prepare and file an affidavit or declaration thereof. When a meeting is adjourned for forty-five (45) days or more, notice of the adjourned meeting shall be given as in case of an original meeting. Save, as aforesaid, it shall not be necessary to give any notice of adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. Section 5. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of Shareholders, however called and noticed, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the Shareholders entitled to vote, not present in person or by proxy, sign a written waiver of notice, or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance shall constitute a waiver of notice, unless objection shall be made as provided in Sec. 601 (e). Section 6. SHAREHOLDERS ACTING WITHOUT A MEETING DIRECTORS. Any action which may be taken at a meeting of the Shareholders, may be taken without a meeting or notice of meeting if authorized by a writing signed by all of the Shareholders entitled to vote at a meeting for such purpose, and filed with the Secretary of the corporation, provided, further, that while ordinarily Directors can only be elected by unanimous written consent under Sec. 603 (d), if the Directors fail to fill a vacancy, then a Director to fill that vacancy may be elected by the written consent of persons holding a majority of shares entitled to vote for the election of Directors. Section 7. OTHER ACTIONS WITHOUT A MEETING. Unless otherwise provided in the California Corporations Code or the Articles, any action which may be taken at any annual or special meeting of Shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorized or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Unless the consents of all Shareholders entitled to vote have been solicited in writing, (1) Notice of any Shareholder approval pursuant to Secs. 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten (10) days before the consummation of the action authorized by such approval, and (2) Prompt notice shall be given of the taking of any other corporate action approved by Shareholders without a meeting by less than unanimous written consent, to each of those Shareholders entitled to vote who have not consented in writing. Any Shareholder giving a written consent, or the Shareholder's proxyholders, or a transferee of the shares of a personal representative of the Shareholder or their respective proxy- may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation. Section 8. QUORUM. The holders of a majority of the shares entitled to vote thereat, present in person, or represented by proxy, shall constitute a quorum at all meetings of the Shareholders for the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the Shareholders, the Shareholders entitled to vote thereat, present in person, or by proxy, shall have the power to adjourn the meeting from time to time, until the requisite amount of voting shares shall be present. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at a meeting as originally notified If a quorum be initially present, the Shareholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum, if any action taken is approved by a majority of the Shareholders required to initially constitute a quorum. Section 9. VOTING. Only persons in whose names shares entitled to vote stand on the stock records of the corporation on the day of any meeting of Shareholders, unless some other day be fixed by the Board of Directors for the determination of Shareholders of record, and then on such other day, shall be entitled to vote at such meeting. Provided the candidate's name has been placed in nomination prior to the voting and one or more Shareholder has given notice at the meeting prior to the voting of the Shareholder's intent to cumulate the Shareholder's votes, every Shareholder entitled to vote at any election for Directors of any corporation for profit may cumulate their votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which his or her shares are entitled, or distribute his or her votes on the same principle among as many candidates as he or she thinks fit. The candidates receiving the highest number of votes up to the number of Directors to be elected are elected. The Board of Directors may fix a time in the future not exceeding sixty (60) days preceding the date of any meeting of Shareholders or the date fixed for the payment of any dividend or distribution, or for the allotment or rights, or when any change or conversion or exchange of shares shall go into effect, as a record date for the determination of the Shareholders entitled to notice of and to vote at any such meeting, or entitled to receive any such dividend or distribution, or any allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares. In such case only Shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting, or to receive such dividends, distribution or allotment of rights, or to exercise such rights, as the case may be notwithstanding any transfer of any share on the books of the corporation after any record date fixed as aforesaid. The Board of Directors may close the books of the corporation against transfers of shares during the whole or any part of such period. Section 10. PROXIES. Every Shareholder entitled to vote, or to execute consents, may do so, either in person or by written proxy, executed in accordance with the provisions of Secs. 604 and 705 of the Code and filed with the Secretary of the corporation. Section 11. ORGANIZATION. The President, or in the absence of the President, any Vice President, shall call the meeting of the Shareholders to order, and shall act as chairman of the meeting. In the absence of the President and all of the Vice Presidents, Shareholders shall appoint a chairman for such meeting. The Secretary of the corporation shall act as Secretary of all meetings of the Shareholders, but in the absence of the Secretary at any meeting of the Shareholders, the presiding Officer may appoint any person to act as Secretary of the meeting. Section 12. INSPECTORS OF ELECTION. In advance of any meeting of Shareholders the Board of Directors may, if they so elect, appoint inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election be not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any such meeting may, and on the request of any Shareholder or his or her proxy shall, make such appointment at the meeting in which case the number of inspectors shall be either one (1) or three (3) as determined by a majority of the Shareholders represented at the meeting. Section 13. (A) SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions, in the event this corporation elects to become a close corporation, an agreement between two (2) or more Shareholders thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in Sec. 706, and may otherwise modify these provisions as to Shareholders' meetings and actions. (B) EFFECT OF SHAREHOLDERS' AGREEMENTS. Any Shareholders' Agreement authorized by Sec. 300 (b), shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Sec. 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Secs. 158, (defining close corporations), 202 (requirements of Articles of Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201 (e) (reorganization) or Chapters 15 (Records and Reports) or 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. ARTICLE V CERTIFICATES AND TRANSFER OF SHARES Section 1. CERTIFICATES FOR SHARES. Certificates for shares shall be of such form and device as the Board of Directors may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; a statement of the rights, privileges, preferences and restrictions, if any; a statement as to the redemption or conversion, if any; a statement of liens or restrictions upon transfer or voting, if any; if the shares be assessable or, if assessments are collectible by personal action, a plain statement of such facts. All certificates shall be signed in the name of the corporation by the Chairman of the Board or Vice Chairman of the Board or the President or Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the Shareholder. Any or all of the signatures on the certificate may be facsimile. In case any Officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that Officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an Officer, transfer agent, or registrar at the date of issue. Section 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of the fact and shall, if the Directors so require, give the corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in at least double the value of the stock represented by said certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to be lost or destroyed. Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, which shall be an incorporated bank or trust company, either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the Board of Directors may designate. Section 5. CLOSING STOCK TRANSFER BOOKS - RECORD DATE. In order that the corporation may determine the Shareholders entitled to notice of any meeting or to vote 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 other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days prior to any other action. If no record date is fixed; the record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. The record date for determining Shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is given. The record date for determining Shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Section 6. LEGEND CONDITION. In the event any shares of this corporation are issued pursuant to a permit or exemption therefrom requiring the imposition of a legend condition, the person or persons issuing or transferring said shares shall make sure said legend appears on the certificate and shall not be required to transfer any shares free of such legend unless an amendment to such permit or a new permit be first issued so authorizing such a deletion. Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Sec. 418 (c). ARTICLE VI RECORDS - REPORTS - INSPECTION Section 1. RECORDS. The corporation shall maintain, in accordance with generally accepted accounting principles, adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal executive office in the State of California, as fixed by the Board of Directors from time to time. Section 2. INSPECTION OF BOOKS AND RECORDS. All books and records provided for in Sec. 1500 shall be open to inspection of the Directors and Shareholders from time to time and in the manner provided in said Sec. 1600 - 1602. Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS. The original or a copy of these By-Laws, as amended or otherwise altered to date, certified by the Secretary, shall be kept at the corporation's principal executive office and shall be open to inspection by the Shareholders of the corporation at all reasonable times during office hours, as provided in Sec. 213 of the Corporations Code. Section 4. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 5. CONTRACTS, ETC. -- HOW EXECUTED. The Board of Directors, except as in the By-Laws otherwise provided, may authorize any Officer or Officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no Officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purpose or to any amount, except as provided in Sec. 313 of the Corporations Code. ARTICLE VII ANNUAL REPORTS Section 1. REPORT TO SHAREHOLDERS, DUE DATE. The Board of Directors shall cause an annual report to be sent to the Shareholders not later than one hundred twenty (120) days after the close of the fiscal or calendar year adopted by the corporation. This report shall be sent at least fifteen (15) days before the annual meeting of Shareholders to be held during the next fiscal year and in the manner specified in Section 4 of Article IV of these By-Laws for giving notice to Shareholders of the corporation. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report of independent accountants or, if there is no such report, the certificate of an authorized Officer of the corporation that the statements were prepared without audit from the books and records of the corporation. Section 2. WAIVER. The annual report to Shareholders referred to in Section 1501 of the California General Corporation Law is expressly dispensed with so long as this corporation shall have less than one hundred (100) Shareholders. However, nothing herein shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the Shareholders of the corporation as they consider appropriate. ARTICLE VIII AMENDMENTS TO BY-LAWS Section 1. AMENDMENT BY SHAREHOLDERS. New By-Laws may be adopted or these By-Laws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the Articles of Incorporation of the corporation set forth the number of authorized Directors of the corporation, the authorized number of Directors may be changed only by an amendment of the Articles of Incorporation. Section 2. POWERS OF DIRECTORS. Subject to the right of the Shareholders to adopt, amend or repeal By-Laws, as provided in Section 1 of this Article VIII, and the limitations of Sec. 204 (a) (5) and Sec. 212, the Board of Directors may adopt, amend or repeal any of these By-Laws other than a By-Law or amendment thereof changing the authorized number of Directors. Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law is adopted, it shall be copied in the book of By-Laws with the original By-Laws, in the appropriate place. If any By-Law is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book. ARTICLE IX CORPORATE SEAL The corporate seal shall be circular in form, and shall have inscribed thereon the name of the corporation, the year or date of its incorporation, and the word "California". ARTICLE X MISCELLANEOUS Section 1. REFERENCES TO CODE SECTIONS. "Sec." references herein refer to the equivalent Sections of the California Corporations Code effective January 1, 1977, as amended. Section 2. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President and the Secretary or an Assistant Secretary. Section 3. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one (1) or more subsidiaries. Section 4. INDEMNIFICATION AND LIABILITY. The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to the corporation and shareholders through bylaw provisions or through agreements with the agents, or both, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the California Corporations Code. Section 5. ACCOUNTING YEAR. The accounting year of the corporation shall be fixed by resolution of the Board of Directors. CERTIFICATE OF ADOPTION OF BY LAWS ADOPTION BY INCORPORATOR(S) OR FIRST DIRECTOR(S). The undersigned person(s) named in the Articles of Incorporation as the Incorporator(s) or First Director(s) of the above named corporation hereby adopt the same as the By-Laws of said corporation. Executed this 28th day of May, 1996. Signed by ROBERT E. SUTTLE, ESQ. CERTIFICATE BY SECRETARY I DO HEREBY CERTIFY AS FOLLOWS: That I am the duly elected, qualified and acting Secretary of the above named corporation, that the foregoing By-Laws were adopted as the By-Laws of said corporation on the date set forth above by the person(s) named in the Articles of Incorporation as the Incorporator(s) or First Director(s) of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal this 28th day of May 1996. Signed by FREDRICK J. RICE, Secretary CERTIFICATE BY SECRETARY OF ADOPTION BY SHAREHOLDERS' VOTE. THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Secretary of the above named corporation and that the above and foregoing Code of By-Laws was submitted to the Shareholders at their first meeting and recorded in the minutes thereof, was ratified by the vote of Shareholders entitled to exercise the majority of the voting power of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of May, 1996. Signed by FREDRICK J. RICE, Secretary AMENDMENT TO THE BYLAWS OF CONSUMER NET MARKETPLACE A CALIFORNIA CORPORATION Article X, Section 4 of the Bylaws of Consumer Net Marketplace is amended to read as follows: INDEMNIFICATION AND LIABILITY. The liability of the directors and officers of this Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. This Corporation is also authorized, to the fullest extent permissible under California law, to indemnify its agents (as defined in Section 317 of the California Corporations Code), whether by bylaw, agreement or otherwise, for breach of duty to this Corporation and its shareholders in excess of that expressly permitted by Section 317 and to advance defense expenses to its agents in connection with such matters as they are incurred, subject to the limits on such excess indemnification set forth in Section 204 of the California Corporations Code. If, after the effective date of this Section, California law is amended in a manner which permits a corporation to limit the monetary or other liability of its directors or to authorize indemnification of, or advancement of such defense expenses to its directors or other persons, in any such case to a greater extent than is permitted on such effective date, the references in this Section to "California law" shall to that extent be deemed to refer to California law as so amended. CERTIFICATE OF ADOPTION OF AMENDMENT TO THE BYLAWS OF CONSUMER NET MARKETPLACE A CALIFORNIA CORPORATION I, Vickie McLoughlin, hereby certify that: 1. I am the Secretary of Consumer Net Marketplace, a California corporation (the "Corporation"); and 2. The foregoing Amendment to the Bylaws, consisting of one page, is a true and correct copy of the Amendment to the Bylaws of the Corporation as duly adopted by resolution of the Board of Directors of the Corporation at a meeting held on August 20, 1997. IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of August. 1997. Signed by Vickie McLoughlin. Secretary CERTIFICATE OF ADOPTION OF AMENDMENT TO THE BYLAWS OF CONSUMER NET MARKETPLACE A CALIFORNIA CORPORATION AUGUST 4, 1998 I, Randy D. Greene, hereby certify that: 1. I am interim Secretary of Consumer Net Marketplace, a California corporation (the "Corporation"); and 2. The foregoing Amendment to the Bylaws, consisting of one page, is a true and correct copy of the Amendment to the Bylaws of the Corporation as duly adopted by the written consent of a majority of the outstanding shares entitled to vote, as provided in Section 212 of the California Corporations Code, as provided in Article II, Section 4 of the Company's Bylaws. Written consent of the majority of outstanding shares entitled to vote follows. IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of August, 1998. Randy D. Greene, Interim Secretary WRITTEN CONSENT OF THE SOLE HOLDER OF OUTSTANDING VOTING SHARES OF CONSUMER NET MARKETPLACE A CALIFORNIA CORPORATION I, Fredrick J. Rice, hereby certify that: 1 I am the sole shareholder of the outstanding shares entitled to vote as of August 4, 1998; and 2. I consent to the following amended restatement of Article II, Section 4 of the Bylaws of Consumer Net Marketplace, a California corporation: NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of Directors shall be between four (4) and seven (7) and shall be set at five (5) until changed by a duly adopted amendment to the Articles of Incorporation or by an amendment to this bylaw adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, as provided in Section 212. August 4, 1998 AMENDMENT TO THE BYLAWS OF CONSUMER NET MARKETPLACE A CALIFORNIA CORPORATION AUGUST 4, 1998 Article II, Section 4 of the Bylaws of Consumer Net Marketplace is amended to read as follows: NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of Directors shall be between four (4) and seven (7) and shall be set at five (5) until changed by a duly adopted amendment to the Articles of Incorporation or by an amendment to this bylaw adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, as provided in Section 212. EX-3.3 4 EXHIBIT 3.3 AMENDMENT TO ARTICLES OF INCORPORATION OF CONSUMER NET MARKETPLACE, INC. The undersigned, Fredrick Rice, being the President of Consumer Net Marketplace, Inc. (the "Corporation"), and Laura D. Murtagh, being the Secretary of the Corporation, hereby certify that: 1. They are the President and Secretary, respectively, of the Corporation. 2. The Articles of Incorporation of the Corporation are hereby amended as follows: Article THIRD is hereby amended and restated to read as follows: THIRD: The Corporation is authorized to issue two basic classes of shares. One class shall be designated as common stock and one class shall be designated as preferred stock. The total number of common shares which this corporation is authorized to issue is fifty-one million (51,000,000), of which fifty million (50,000,000) shares shall be Class A common stock, no par value, and of which one million (1,000,000) shares shall be Class B common stock, $.001 par value. The total number of preferred shares which this Corporation is authorized to issue is one million (1,000,000), no par value. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article THIRD, to provide for the issuance of shares of Class B common stock in series by filing a certificate pursuant to the applicable law of the State of California, to establish from time-to-time the number of shares for each such series and the qualifications, limitations, or restrictions thereof. The authority of the Board of Directors with respect to each such series of Class B common stock shall include, but not be limited to, determination of the following: a. The number of shares constituting that series and the distinctive designation of that series. b. Whether that series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights. c. Whether that series shall have conversion rights and if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine. d. Any other relative rights, preferences, and limitations of that series. The holders of the preferred stock shall have such rights, preferences, and privileges as may be determined by the Corporation's Board of Directors prior to the issuance of such shares. The preferred stock may be issued in such series as are designated by this Corporation's Board of Directors, and the Board of Directors may fix the number of authorized shares of preferred stock for each series, and the rights, preferences, and privileges of each series of preferred stock. 3. The foregoing Amendment to the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing Amendment to the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of the Corporation is 6,462,500 shares of Common Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than fifty percent (50%). The undersigned further declares under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of his own knowledge. Dated: October 6, 1998 /s/ ------------------------------------------ Fredrick Rice, President /s/ ------------------------------------------ Laura D. Murtagh, Secretary -2- EX-4.2 5 EXHIBIT 4.2 MAY 9, 1996 INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA NUMBER SHARES 3 [LOGO] CONSUMER NET MARKETPLACE AUTHORIZED: 20,000,000 SHARES COMMON STOCK THIS CERTIFIES THAT ______________________________ IS THE REGISTERED HOLDER OF _________________________ SHARES OF THE ABOVE NAMED CORPORATION TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE HEREUNTO AFFIXED THIS _______________ DAY OF ______________ A.D.________________ [SEAL] - ------------------------- ----------------------------- SECRETARY PRESIDENT FOR VALUE RECEIVED, _____ HEREBY SELL, ASSIGN AND TRANSFER UNTO _____________________________________________________________________ _____________________________________________________________________ SHARES REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ____________________________________________________ ATTORNEY TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. DATED _______________________________ IN PRESENCE OF ______________________ __________________________ EX-4.3 6 EXHIBIT 4.3 CONSUMER NET MARKETPLACE, INC. STOCK OPTION PLAN FOR DIRECTORS AND EMPLOYEES OF AND KEY CONSULTANTS TO CONSUMER NET MARKETPLACE, INC. 1. PURPOSE. The purpose of this Stock Option Plan is to promote the interests of Consumer Net Marketplace, Inc. ("Company") and its shareholders by enabling it to offer stock options to better attract, retain, and reward directors and employees of and key consultants to the Company and any other future subsidiaries that may qualify under the terms of this Plan. The goal is to strengthen the mutuality of interests between those persons and the shareholders of the Company by providing those persons with a proprietary interest in pursuing the Company's long term growth and financial success. 2. DEFINITIONS. For purposes of this Plan, the following terms shall have the meanings set forth below. (a) "Board" means the Board of Directors of Consumer Net Marketplace, Inc. (b) "Code" means the Internal Revenue Code of 1986, as amended. Reference to any specific section of the Code shall be deemed to be a reference to any successor provision of the Code. (c) "Committee" means the administrative committee of this Plan that is provided in Section 1 below. (d) "Common Stock" means the common stock of the Company or any security issued in substitution, exchange, or in lieu thereof. (e) "Company" means Consumer Net Marketplace, Inc., a California corporation, or any successor corporation. Except where the context indicates otherwise, the term "Company" shall include its Parent and Subsidiaries. (f) "Director" means any person who serves as a member of the Board of Directors of Consumer Net Marketplace, Inc. "Outside Director" means any person who serves as a member of the Board of Directors of Consumer Net Marketplace, Inc. and is not a full-time employee of Consumer Net Marketplace, Inc. or its subsidiaries. (g) "Disabled" means permanent and total disability, as defined in Code Section 22(e)(3). (h) "Employee" means any person who is employed by Consumer Net Marketplace, Inc. or its subsidiaries on a full or part-time basis, so that they have income taxes withheld and are eligible to participate in employee benefits programs. (i) "Exchange Act" means the Securities Exchange Act of 1934. -1- (j) "Fair Market Value" per share means, on any given date: (i) The last sale price of the Common Stock on the National Association of Securities Dealers Automated Quotation National Market System ("NMS") or in case no such reported sale takes place, the average of the closing bid and ask prices on such date; or (ii) If not quoted on the NMS, the average of the closing bid and ask prices of the Common Stock on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or any comparable system; or (iii) If not quoted on any system, the fair market value indicated by the last appraisal of the Company by a professional appraiser or certified public accounting firm; or (iv) If not quoted on any system or valued by appraisal, the fair market value determined by the Company's Board of Directors in good faith. (k) "Incentive Stock Option" means an option to purchase shares of Common Stock that is intended to be an incentive stock option within the meaning of Section 422 of the Code. (l) "Insider" means a person who is subject to the provisions of Section 16 of the Exchange Act. (m) "Key Consultant" means a person who is engaged by Consumer Net Marketplace, Inc. or its Subsidiaries as a non-employee to perform tasks on a contractual basis over a sufficient period of time that he or she satisfies the eligibility criteria set forth by the Securities and Exchange Commission for a nor-employee to participate in a registered stock option plan. (n) "Non-Qualified Stock Option" means any option to purchase shares of Common Stock that is not an Incentive Stock Option. (o) "Officer" is an employee of Consumer Net Marketplace, Inc. or its Subsidiaries who is granted the authority to commit the corporation to binding agreements and to function as one of the executives of Consumer Net Marketplace, Inc. or its Subsidiaries. (p) "Option" means an Incentive Stock Option or a Non-Qualified Stock Option. (q) "Parent" shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of the corporations (other than the Company) owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, as determined in accordance with the rules of Section 424(e) of the Code. (r) "Participant" means a person who has been granted an Option. (s) "Plan" means this Consumer Net Marketplace, Inc. Stock Option Plan for Directors and Employees of and Key Consultants to Consumer Net Marketplace, Inc. and its -2- Subsidiaries, as it may be amended from time to time. (t) "Severance" means, with respect to a Participant, the termination of the Participant's provision of services to the Company as an employee or director, whether by reason of death, disability, or any other reason. A Participant who is on a leave of absence that exceeds ninety (90) days will be considered to have incurred a Severance on the ninety-first (91st) day of the leave of absence, unless the Participant's rights to reemployment or reappointment are guaranteed by statute or contract. (u) "Subsidiary" means any corporation or entity in which the Company, directly or indirectly, controls fifty percent (50%) or more of the total voting power of all classes of its stock having voting power, as determined in accordance with the rules of Code Section 424(f). (v) "Ten Percent Shareholder" means any person who owns (after taking into account the constructive ownership rules of Section 424(d) of the Code) more than ten percent (10%) of the stock of the Company. 3. ADMINISTRATION. (a) This Plan shall be administered by a Committee appointed by the Board. The Board may remove members from, or add members to, the Committee at any time. (b) The Committee shall be composed of the members of the Compensation Committee of the Company's Board of Directors and any other members that the Board of Directors sees fit to appoint. (c) The Committee may conduct its meetings in person or by telephone. A majority of the members of the Committee shall constitute a quorum, and any action shall constitute action of the Committee if it is authorized by: (i) A majority of the members present at any meeting; or (ii) The unanimous consent of all of the members in writing without a meeting. (d) The Committee is authorized to interpret this Plan and to adopt rules and procedures relating to the administration of this Plan. All actions of the Committee in connection with the interpretation and administration of this Plan shall be binding upon all parties. (e) The Committee may designate persons other than members of the Committee to carry out its responsibilities under such conditions and limitations as it may prescribe, except that the Committee may not delegate its authority with regard to the granting of Options to Insiders. (f) Subject to the limitations of Section 13 below, the Committee is expressly authorized to make such modifications to this Plan as are necessary to effectuate the intent of this Plan as a result of any changes in the tax, accounting, or securities laws treatment of Participants and the Plan. -3- 4. DURATION OF PLAN. (a) This Plan shall be effective as of December 15,1997, the date of its adoption by the Board, provided this Plan is approved by the majority of the Company's shareholders, in accordance with the provisions of Code Section 422, on or prior to twelve (12) months after its adoption. In the event that this Plan is not so approved, this Plan shall terminate and any Options granted under this Plan to an Insider shall be void and have no further effect if the issuance of those Options would result in Section 16(b) liability to the Insider. (b) This Plan shall terminate on December 15, 2007, except with respect to Options then outstanding. 5. NUMBER OF SHARES. (a) The aggregate number of shares of Common Stock which may be issued pursuant to this Plan shall be two million (2,000,000) shares of Class A Common Stock and one hundred thousand (100,000) shares of Class B Common Stock. This aggregate number may be adjusted from time to time as set forth in Section 13 of this Plan. (b) Upon the expiration or termination of an outstanding Option which shall not have been exercised in full, any shares of Common Stock remaining unissued shall again become available for the granting of additional Options. 6. ELIGIBILITY. Persons eligible for Options under this Plan shall be limited to the directors and employees of and key consultants to Consumer Net Marketplace, Inc. and its Subsidiaries. 7. FORM OF OPTIONS. Options granted under this Plan may be Incentive Stock Options or Non-Qualified Stock Options. Options shall be subject to the following terms and conditions: (a) Options may be granted under this Plan on such terms and in such form as the Committee may approve, which conditions shall not be inconsistent with the provisions of this Plan. (b) The exercise price per share of Common Stock purchasable under an Option shall be set forth in the Option. The exercise price of an option, determined on the date of the grant, shall be no less than: (i) One hundred ten percent (110%) of the Fair Market Value of the Common Stock in the case of a Ten Percent Shareholder; or (ii) One hundred percent (100%) of the Fair Market Value of the Common Stock in the case of any other employee. (c) An Option shall be exercisable at such time or times and be subject to such terms and conditions as may be set forth in the Option. (d) The Committee may modify an existing Option, including the right to: (i) Accelerate the right to exercise it; -4- (ii) Extend or renew it; or (iii) Cancel it and issue a new Option. (e) No modification may be made pursuant to Paragraph (d) above to an Option that would impair the rights of the Participant holding the Option without his or her consent. (i) Whether a modification of an existing Incentive Stock Option will be treated as the issuance of a new Incentive Stock Option will be determined in accordance with the rules of Section 424(h) of the Code. (ii) Whether a modification of an existing Option will require shareholder approval will be determined in accordance with Rule 16(b)-3. (f) The aggregate Fair Market Value (determined as of the date' of grant) of the number of shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year shall not exceed one hundred thousand dollars ($100,000) or such other limit as may be required by Code Section 422. Should anyone exercise Incentive Stock Options that exceed this limit, such options will be treated as non-qualified stock options for tax purposes. 8. ISSUANCE OF OPTIONS. (a) The following Incentive Stock Options are hereby granted to the persons and on the terms and conditions set forth in the following table and its footnotes:
NAME OF GRANTEE DATE OF NUMBER OF VESTING EXERCISE EXPIRATION GRANT OPTIONS SCHEDULE PRICE(1) DATE Vicki McLoughlin 12/15/97 300,000 60,000: 12/15/97 $2.00 12/15/2000 60,000: 12/15/98 12/15/2001 60,000: 12/15/99 12/15/2002 60,000: 12/15/2000 12/15/2003 60,000: 12/15/2001 12/15/2004 Randy Greene 12/15/97 200,000 40,000: 12/15/97 $2.00 12/15/2000 40,000: 12/15/98 12/15/2001 40,000: 12/15/99 12/15/2002 40,000: 12/15/2000 12/15/2003 40,000: 12/15/2001 12/15/2004 Olivia Salyer 12/15/97 20,000 4,000: 12/15/97 $2.00 12/15/2000 4,000: 12/15/98 12/15/2001 4,000: 12/15/99 12/15/2002 4,000: 12/15/2000 12/15/2003 4,000: 12/15/2001 I 12/15/2004
____________________ (1) The exercise price is equal to the Fair Market Value of each share of the Company's Common Stock on the date of the issuance of the Options. Each Stock Option for Class A Common Stock will confer upon the holder the right to purchase one share of the company's class A Common Stock for a price of $2.00 per share at any time from the vesting date to the expiration date. -5- (b) The terms and conditions of any other Options granted pursuant to this Plan, and whether or not said Options will be Incentive Stock Options or Nor-Qualified Stock Options, will be determined by the Committee and the full Board of Directors. 9. VESTING REQUIREMENT AND PERFORMANCE THRESHOLD. The vesting requirements, performance thresholds and other terms and conditions of additional Options which may be granted under this Plan from time to time, if any, will be determined and approved by the Committee and the full Board of Directors; provided, that in all cases unvested Options will automatically expire and be canceled on the date of the Severance of an Employee or Insider who holds such Options. 10. TERMINATION OF OPTIONS. (a) Except to the extent the terms of an Option require its prior termination, each Option shall terminate on the earliest of the following dates. (i) The date which is ten (10) years from the date on which the Option is granted or five (5) years from the date of grant in the case of an Incentive Stock Option granted to a Ten Percent Shareholder. (ii) if the Participant was Disabled at the time of Severance, the date of the Severance of the Participant to whom the Option was granted, with respect to unvested Options, and the date which is one (1) year from the date of the Severance, with respect to vested Options. (iii) The date of Severance of the Participant to whom the Option was granted, with respect to unvested Options, and the date which is ninety (90) days from the date of the Severance of the Participant to whom the Option was granted, with respect to vested Options. (iv) The date which is ninety (90) days after the death of the Participant, with respect to vested Options, and the date of death of the Participant, in the case of unvested Options. (v) In the case of any Severance other than one described in Subparagraphs (ii) or (iii) above, the date of the Participant's Severance, with respect to unvested Options, and the date that is ninety (90) days from the date of the Participant's Severance, with respect to vested Options. 11. NON-TRANSFERABILITY OF OPTIONS. (a) During the lifetime of the Participant, each Option is exercisable only by the Participant. (b) No Option under this Plan shall be assignable or transferable, except by will or the laws of descent and distribution. -6- 12. ADJUSTMENTS. x720 (a) In the event of any change in the capitalization of the Company affecting its Common Stock (e.g., a stock split, reverse stock split, stock dividend, combination, recapitalization, or reclassification), the Committee shall authorize such adjustments as it may deem appropriate with respect to: (i) The aggregate number of shares of Common Stock for which Options may be granted under this Plan; (ii) The number of shares of Common Stock covered by each outstanding Option; and (iii) The exercise price per share in respect of each outstanding Option. (b) The Committee may also make such adjustments in the event of a spin-off or other distribution (other than normal cash dividends) of Company assets to shareholders. 13. AMENDMENT AND TERMINATION. The Board may at any time amend or terminate this Plan. The Board may not, however, without the approval of the majority-in-interest of the shareholders of the Company, amend the provisions of this Plan regarding: (a) The class of individuals entitled to receive Incentive Stock Options. (b) The aggregate number of shares of Common Stock that may be issued under the Plan, except as provided in Section 12 of this Plan. (c) To the extent necessary to comply with Rule 16(b) under the Exchange Act, the Board may not make any amendment without approval of the majority-in-interest of the shareholders of the Company that would: (i) Materially increase the aggregate number of shares of Common Stock which may be issued to Insiders (except for adjustments under Section 12 of this Plan); (ii) Materially modify the requirements as to the eligibility of Insiders to participate; or (iii) Materially increase the benefits accruing to Insiders under this Plan. 14. TAX WITHHOLDING. (a) The Company shall have the right to take such actions as may be necessary to satisfy its tax withholding obligations relating to the operation of this Plan. (b) If Common Stock is used to satisfy the Company's tax withholding obligations, the stock shall be valued based on its Fair Market Value when the tax withholding is required to be made. -7- 15. NO ADDITIONAL RIGHTS. (a) The existence of this Plan and the Options granted hereunder shall not affect or restrict in any way the power of the Company to undertake any corporate action otherwise permitted under applicable law. (b) Neither the adoption of this Plan nor the granting of any Option shall confer upon any Participant the right to continue performing services for the Company, nor shall it interfere in any way with the right of the Company to terminate the services of any Participant at any time, with or without cause. (c) No Participant shall have any rights as a shareholder with respect to any shares covered by an Option until the date a certificate for such shares has been issued to the Participant following the exercise of the Option. 16. SECURITIES LAW RESTRICTIONS. (a) No shares of Common Stock shall be issued under this Plan unless the Committee shall be satisfied that the issuance will be in compliance with applicable federal and state securities laws. (b) The Committee may require certain investment or other representations and undertakings by the Participant (or other person acquiring the right to exercise the Option by reason of the death of the Participant) in order to comply with applicable law. (c) Certificates for shares of Common Stock delivered under this Plan may be subject to such restrictions as the Committee may deem advisable. The Committee may cause a legend to be placed on the certificates to refer to these restrictions. 17. INDEMNIFICATION. To the maximum extent permitted by law, the Company shall indemnify each member of the Board and of the Committee, as well as any other Employee of or Key Consultant to the Company with duties under this Plan, against expenses (including any amount paid in settlement) reasonably incurred by him or her in connection with any claims against him or her by reason of the performance of his or her duties under this Plan, unless the losses are due to the individual's gross negligence or lack of good faith. 18. GOVERNING LAW. This Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of California. CONSUMER NET MARKETPLACE, INC. a California Corporation By: FREDRICK RICE, PRESIDENT Date: December 15, 1997 -8- EX-4.4 7 EXHIBIT 4.4 STOCK OPTION AGREEMENT UNDER THE CONSUMER NET MARKETPLACE, INC. STOCK OPTION PLAN This Stock Option Agreement (the "Agreement") is dated as of _______, 1998, by and between Consumer Net Marketplace, Inc., a California corporation (the "Company"), and ___________ (the "Optionee") pursuant to the Company's Stock Option Plan for Directors, Employees and Key Consultants to Consumer Net Marketplace, Inc. and its Subsidiaries (the "Plan"). For purposes of this Agreement, references to "Company" include its Parent and Subsidiaries (as those terms are defined in the Plan). Pursuant to authorization by the Committee of the Plan (the "Committee") appointed by the Board of Directors of the Company, the parties agree as follows: 1. GRANT OF OPTION. The Company hereby grants to the Optionee the right (the "Option") to purchase all or any portion of twenty thousand (20,000) shares (the "Shares") of the Class A Common Stock of the Company (the "Common Stock") at a purchase price of $2.00 per share (the "Option Price"). 2. TERM OF AGREEMENT. This Agreement shall terminate upon the earliest of the following events: (a) Three (3) years from the date of vesting of the last Options to vest pursuant to this Agreement. (b) In the case of the termination of the Optionee's position as a director of the Company which results in a "Severance as defined in Section 2(t) of the Plan, this Agreement shall terminate with respect to all unvested Options on the date of the Severance, and with respect to vested Options, the earlier of (i) three (3) years from the date of vesting or (ii) one (1) year from the date of Severance if the Optionee was disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code) at the time of his or her Severance, or (iii) if the Optionee dies while employed by the Company or during the three (3) month period immediately subsequent to his or her Severance, the Agreement shall terminate one (1) year from the date of the Severance. (c) The Optionee's Severance (whether by reason of death or otherwise) shall not accelerate the number of Shares with respect to which an Option may be exercised. 3. EXERCISABILITY. The Option shall vest and be exercisable in accordance with the following schedule: -1-
- ----------------------------------------------------------------------------------------------- Name of Grantee Date of Number of Vesting Exercise Expiration Grant Options Schedule Price Date - ----------------------------------------------------------------------------------------------- 20,000 4,000: 07/01/98 $2.00 (1) 07/01/2001 4,000: 07/01/99 07/01/2002 4,000: 07/01/2000 07/01/2003 4,000: 07/01/2001 07/01/2004 4,000: 07/01/2002 07/01/2005 - -----------------------------------------------------------------------------------------------
(1) The exercise price is equal to the fair market value on the date of the issuance of the options. Each stock option will confer upon the holder the right to purchase one share of the Company's common stock for a price of $2.00 per share at any time form the vesting date to the expiration date. 4. METHOD OF EXERCISING. This Option may be exercised by the Optionee upon delivery of the following documents to the Company at its principal executive offices: (a) Written notice specifying the number of full Shares to be purchased; (b) Payment of the full purchase price therefor in cash, by check, or in such other form of lawful consideration as the Company may approve from time to time (c) Such agreements or undertakings that are required by the Committee pursuant to the Plan; and (d) Payment of any taxes which may be required. 5. ASSIGNMENTS. (a) This Option shall be exercisable only by the Optionee during the Optionee's lifetime. (b) The rights of the Optionee under this Agreement may not be assigned or transferred except by will or by laws of descent and distribution. 6. NO RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a shareholder of any Shares covered by this Option until the date a certificate for such Shares has been issued to him or her following the exercise of the Option. 7. INTERPRETATION OF AGREEMENT. (a) This Agreement is made under the provisions of the Plan and shall be interpreted in a manner consistent with it. (b) Any provision in this Agreement inconsistent with the Plan shall be superseded and governed by the Plan. A copy of the Plan is attached hereto as Exhibit A. -2- 8. LEGENDS ON CERTIFICATES. The Optionee acknowledges that the certificates representing the Shares issued upon exercise of this Option may bear such legends and be subject to such restrictions on transfer as the Company may deem necessary to comply with all applicable state and federal securities laws and regulations. IN WITNESS WHEREOF, the Company and the Optionee have executed this Agreement as of the date first above written. OPTIONEE CONSUMER NET MARKETPLACE, INC. (signed) By: ----------------------------------- FREDRICK RICE, PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS -3- EX-4.5 8 EXHIBIT 4.5 STOCK OPTION AGREEMENT FOR CONSUMER NET MARKETPLACE, INC. THIS STOCK OPTION AGREEMENT (the "Agreement") is dated as of December 31, 1997, by and between Consumer Net Marketplace, Inc., a California corporation (the "Company"), and Consumer Net Partners, a California general partnership (the "Optionee"). 1. GRANT OF OPTION. The Company hereby grants to the Optionee the right (the "Option") to purchase all or any portion of two hundred and fifty thousand (250,000) shares (the "Shares") of the Class B Common Stock of the Company (the "Common Stock") at a purchase price of $0.50 per share (the "Option Price"). 2. TERM OF AGREEMENT. This Agreement shall terminate three (3) years from the date first above written. 3. EXERCISABILITY. The Option shall vest and be exercisable commencing upon the date first above written and continuing during the entire term of this Agreement as set forth in Section 2 of this Agreement. 4. METHOD OF EXERCISING. This Option may be exercised by the Optionee upon delivery of the following documents to the Company at its principal executive offices: (a) Written notice specifying the number of full Shares to be purchased; (b) Payment of the full purchase price therefor in cash, by check, or in such other form of lawful consideration as the Company may approve from time to time; (c) Payment of any taxes which may be required. 5. ASSIGNMENTS. (a) This Option shall be exercisable only by the Optionee during the Optionee's existence. (b) The rights of the Optionee under this Agreement may not be assigned or transferred without the prior written consent of the Company. -1- 6. NO RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a shareholder of any Shares covered by this Option until the date a certificate for such Shares has been issued to it following the exercise of the Option. 7. INTERPRETATION OF AGREEMENT. This Agreement will be governed by and construed in accordance with the laws of the State of California. 8. LEGENDS ON CERTIFICATES. The Optionee acknowledges that the certificates representing the Shares issued upon exercise of this Option may bear such legends and be subject to such restrictions on transfer as the Company may deem necessary to comply with all applicable state and federal securities laws and regulations. IN WITNESS WHEREOF, the Company and the Optionee have executed this Agreement as of the date first above written. CONSUMER NET PARTNERS, A CALIFORNIA CONSUMER NET MARKETPLACE, INC. GENERAL PARTNERSHIP BY: BY: -------------------------------- ---------------------------------- FREDRICK RICE FREDRICK RICE, PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS -2- EX-5.1 9 EXHIBIT 5.1 EXHIBIT 5.1 [RICHARDSON & ASSOCIATES LETTERHEAD] October , 1998 Consumer Net Marketplace, Inc. 1900 Los Angeles Avenue, Second Floor Simi Valley, California 93065 RE: CONSUMER NET MARKETPLACE, INC--VALIDITY OF ISSUANCE OF SHARES Ladies and Gentlemen: We have acted as special counsel to you in connection with the registration on Form S-1 under the Securities Act of 1933, as amended ("Registration Statement"), of a total of 4,000,000 shares of the Common Stock of Consumer Net Marketplace, Inc. no par value, comprised of (i) 3,596,577 shares of Common Stock to be issued (the "Shares") and (ii) 403,423 outstanding shares of Common Stock (the "Outstanding Shares"). You have requested our opinion in connection with the registration of the Shares and the Outstanding Shares covered by the Prospectus, dated October 8, 1998 (the "Prospectus"). In connection with our acting as counsel, we have examined the laws of the State of California together with certain other documents and instruments prepared on behalf of Consumer Net Marketplace, Inc. as we have deemed necessary and relevant in the preparation of our opinion as hereinafter set forth. In our examination, we have assumed the genuineness of all signatures on original documents and the authenticity of all documents submitted to us as originals, the conformity to original documents to all documents submitted to us as certified, conformed or photostatic copies of originals, the authenticity of such latter documents, and the proper execution, delivery and filing of the documents referred to in this opinion. Based upon the foregoing, we are of the opinion that the Shares and the Outstanding Shares and the Shares sold by Consumer Net Marketplace, Inc. pursuant to the terms of the Prospectus have been and will be duly created and have been and will be validly issued shares of the Common Stock, no par value, of Consumer Net Marketplace, Inc. Upon payment for the Shares and the Outstanding Shares and full compliance with all of the terms and conditions relating to the issuance of the Shares and the sale of the Outstanding Shares set forth in the Prospectus, the Shares and the Outstanding Shares will be fully paid and nonassessable. For the purposes of this opinion, we are assuming the that the appropriate certificates are duly filed and recorded in every jurisdiction in which such filing and recordation is required in accordance with the laws of such jurisdictions. We express no opinion as to the laws of any state or jurisdiction other than California. We consent to the use of this opinion as an exhibit to the Registration Statement, and we further consent to the use of our name in the Registration Statement and the Prospectus which is a part of said Registration Statement. Respectfully submitted, Mark J. Richardson MJR:csc EX-10.1 10 EXHIBIT 10.1 CONTRACT FOR OUTDOOR POSTER ADVERTISING STANDARD TERMS 1.0 RELATIONSHIP OF PARTIES 1.1 Agency is acting as agent for a disclosed principal, the Advertise named on the face hereof ("Advertiser"). (a) Agency will be liable for the payment of sums due hereunder and Company will look solely to Agency for the payment thereof, unless and until Agency becomes delinquent in its payments to Company, or insolvent, at which time, without relieving the Agency of liability until Company is paid in full, Advertiser will be liable jointly and severally to Company on all unpaid billings (excluding advertising Agency commissions). (b) Nothing herein contained relating to the payment of billings by Agency will be construed so as to relieve Advertiser of, or diminish Advertiser's liability for, breach of its obligations hereunder. 1.2 If this contract is with a media buying service, all references herein to Agency will apply to the media buying service. If this contract is made directly with Advertiser, reference herein to Agency will apply to Advertiser except in such case no commission will be allowed or payable. 1.3 In consideration of the services performed by the Agency hereunder, a commission of 15% will be allowed to it on contracts billed on a gross basis (excluding special charges), provided Company's bills are paid when due. 1.4 Agency may not assign this contract except to another Agency which succeeds to its business of representing Advertiser and provided the successor Agency assumes all Agency's obligations hereunder. 2.0 DELIVERY OF POSTER MATERIALS 2.1 Agency will deliver to Company, poster materials in sufficient quantity to meet the needs hereunder (plus 10% for reposting or repair purposes) at places designated by Company, shipping charges prepaid, at least fifteen (15) calendar days prior to scheduled posting date(s) unless otherwise mutually agreed. 2.2 Posters will have weight, tensile strength, capacity, size and sort in conformance with the standards currently specified by the Outdoor Advertising Association of America ("OAAA"). 3.0 OBLIGATIONS OF THE COMPANY 3.1 (a) Except as hereinafter provided, the posters furnished by the Agency will be posted by Company in the markets and on the dates specified on the face of this contract. (b) Posters will be kept in good condition throughout the terms of this contract. Posters will be promptly repaired or reposted, provided sufficient additional posters are supplied by the Agency. (c) Poster panels will be maintained in accordance with the standards of OAAA. (d) Poster panels designated as illuminated in this contract will be equipped to provide adequate illumination according to current OAAA industry standards. 3.2 (a) If posters are timely delivered, Company will complete posting no later than five (5) working days after the scheduled posting date. Advertiser will have the benefit of the full term of display from the average date of posting, unless the posters are not timely delivered. (b) If posters are timely delivered but cannot be posted in accordance with par 3.2(a), Agency will be informed immediately and any available substitute dates will be submitted for its approval. (c) If Company is unable to post on the date or dates desired, the posting will occur on the closest available date or dates subject to approval of the Agency. 3.3 (a) Company retains exclusive control of the posting and the poster panels on which they are displayed. Any changes made in the approved location of the posters, for any reason, must be reported to the Agency. (b) Company will not make any alteration in advertising materials without the consent of the Agency. 3.4 Company may reject any advertising material, art, or copy, submitted by Agency which the Company deems to be in bad taste or to be in violation of existing laws, offensive to the moral standards of the community, false, misleading or deceptive, or in any way reflects upon the character, integrity or standing of any organization or individual. 3.5 Company retains exclusive control of the painting and posting of the displays and the poster structure on which they are displayed. 3.6 Unless written instructions are received from Agency, unused posters may be disposed of by the Company upon the completion of the schedule called for herein. 4.0 GENERAL 4.1 Termination and Loss of Service (a) Any delay or failure by Company to perform hereunder as a result of force majeur, labor dispute, law, government action or order, or similar causes beyond the Company's reasonable control, will not constitute a breach of contract, but Agency will be notified immediately and will be entitled, at its election, to either an extension of service or additional services having a value based on circulation reasonably equivalent to lost service. In the event of a failure to provide illumination as required herein, Agency will only receive an extension of service or additional services equivalent in value to the value of lost circulation, but not to exceed 25% of the total price for the period of illumination not provided. (b) When a poster location specified in this contract is no longer available due to loss of the structure for any reason, Company will offer Agency a location of approximately equal advertising value, which location will be subject to the prompt, reasonable approval of the Agency. In event that Agency approves the location, the term of this contract will be extended after the expiration date of this contract for a period equal to the time during which Advertiser copy was not on display. (c) Company may upon notice to Agency, terminate this contract at any time (i) upon material breach by Agency or Advertiser, or (ii) if Company does not receive timely payment on billings. Upon such termination all unpaid, accrued charges hereunder will immediately become due and payable and Agency or Advertiser will pay, as liquidated damages, a sum equal to 75% of the amount which would have been payable hereunder. Agency may, upon notice to Company, terminate this contract at any time upon material breach by Company. Upon such termination, Company will pay as liquidated damages a sum equal to the actual non-cancelable out-of-pocket cost necessarily incurred by Agency prior to the date of termination for production and delivery of artwork hereunder which was not displayed. Neither party will have any liability to the other upon breach or termination, except as provided in this Paragraph 4.1 (c) and Paragraph 4.4. 4.2 Terms of Payment. Company will, from time to time at intervals following announcement of service, bill Agency at the address on the face hereof. Agency will pay Company within thirty (30) days after the date of invoice. Agency or Advertiser fails to pay any invoice when due, in addition to amounts payable hereunder, Company will be promptly reimbursed for its collection costs, including reasonable attorneys' fees, plus a monthly service charge at a rate of 1.5% of the outstanding balance of the invoice to the extent permitted by applicable law. Any commissions payable to the Agency under this contract, or deductible by it from amounts paid to Company hereunder, may be offset by Company against any amounts due to Company under this Paragraph 4.2. 4.3 Taxes. Company will pay all property taxes attributable to the ownership or control of the poster structures and Agency will be responsible of all other taxes in respect of the services provided under this contract, including, without limitation, sales and use taxes which may be applicable to the advertising services rendered hereunder. 4.4 Indemnification. Company will hold Agency Advertiser harmless against all liability including claims, demands, debts, obligations or charges, together with reasonable attorneys' fees and disbursements (all hereinafter referred to as "Liability"), arising out of the installations, maintenance or removal of posters, including all such liability arising out of Company's failure to remove posters within thirty (30) working days after the expiration of this contract provided (a) such removal is requested by Agency and (b) such failure is not due to force majeur as defined in Paragraph 4.1 (a). Agency and Advertiser will similarly hold Company harmless against all Liability arising out of the content of the posters, including, without limitation, artwork, furnished by Agency or Advertiser. 4.5 Compliance. (a) Company's obligations hereunder are subject to the terms and conditions of any licenses and permits held by it and to applicable federal, state and local laws and regulations. (b) All copy and artwork furnished by Agency or Advertiser hereunder will at all times comply with all applicable federal, state and local laws and regulations. 4.6 Entire Agreement. This contract contains the entire understanding between the parties and cannot be changed or terminated orally. When there is any inconsistency between these standard conditions and a provision on the face hereof, the latter will govern. Failure of either party to enforce any of the provisions hereof will not be construed as general relinquishment or waiver of that or any other provision. All notice hereunder will be in writing, deemed given on the date of dispatch, and addressed to Agency and the Company at the addresses on the face thereof. ELLER MEDIA COMPANY CONTRACT FOR OUTDOOR POSTER ADVERTISING CONTRACTED FOR AGENCY: ON BEHALF OF ADVERTISER: Agency# Advertiser # ---------------------------- -------------------------- Name Name Consumer Net Marketplace, Inc. ------------------------------- ------------------------------------ Address Address 1900 Los Angeles Ave., 2nd Floor ---------------------------- ---------------------------------- City/State/Zip City/State/Zip Simi Valley, CA 93065 -------------------- ---------------------------- Contact Contact Mr. Fredrick Rice ---------------------------- ---------------------------------- Phone # Phone # (805) 520-7170 ---------------------------- ---------------------------------- Advertise/Product Product Internet ------------------ ----------------------------------
- -------------------------------------------------------------------------------------------------- Market Name/ Size No. of Posters Term in 4- Posting Unit Rate Rate Contract Location Showing -------------- week periods Dates per 4- Total Illlum Reg wk Pd. - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- DISPLAY COMMENCES GROSS TOTAL CONTRACT PRICE ----------------------------- -------- TOTAL NET AMOUNT -------- -------- SPECIAL INSTRUCTIONS: Terms: Net 30 Days ADDITIONAL CHARGES:
Agency/Advertiser hereby contracts for the outdoor advertising services ("service") described above upon the terms set forth above AND ON THE BACK HEREOF. This contract must be signed by both parties to be effective. Signed by Fredrick Rice Signed by Eller Media ELLER MEDIA COMPANY CONTRACT FOR OUTDOOR POSTER ADVERTISING CONTRACTED FOR AGENCY: ON BEHALF OF ADVERTISER: Agency# Advertiser # ---------------------------- -------------------------- Name Name Consumer Net Marketplace, Inc. ------------------------------- ------------------------------------ Address Address 1900 Los Angeles Ave., 2nd Floor ---------------------------- ---------------------------------- City/State/Zip City/State/Zip Simi Valley, CA 93065 -------------------- ---------------------------- Contact Contact Mr. Fredrick Rice ---------------------------- ---------------------------------- Phone # Phone # (805) 520-7170 ---------------------------- ---------------------------------- Advertise/Product Product Internet ------------------ ----------------------------------
- ------------------------------------------------------------------------------------------------------------ Market Name/ Size No. of Posters Term in 4- Posting Unit Rate Rate Contract Location Showing -------------- week periods Dates per 4- Total Illlum Reg wk Pd. - ------------------------------------------------------------------------------------------------------------ Burbank Airport Special 10 6 7/6/98 $350 $3,500 $21,000 (Transit Shelter); amends previous Burbank Airport Agreement - ------------------------------------------------------------------------------------------------------------ DISPLAY COMMENCES GROSS TOTAL CONTRACT PRICE ------------------------ ------- TOTAL NET AMOUNT ------- $21,000 ------- SPECIAL INSTRUCTIONS: Terms: Net 30 Days Guaranteed
ADDITIONAL CHARGES: Agency/Advertiser hereby contracts for the outdoor advertising services ("service") described above upon the terms set forth above AND ON THE BACK HEREOF. This contract must be signed by both parties to be effective. Signed by Fredrick Rice Signed by Eller Media ELLER MEDIA COMPANY CONTRACT FOR OUTDOOR POSTER ADVERTISING CONTRACTED FOR AGENCY: ON BEHALF OF ADVERTISER: Agency# Advertiser # ---------------------------- -------------------------- Name Name Consumer Net Marketplace, Inc. ------------------------------- ------------------------------------ Address Address 1900 Los Angeles Ave., 2nd Floor ---------------------------- ---------------------------------- City/State/Zip City/State/Zip Simi Valley, CA 93065 -------------------- ---------------------------- Contact Contact Mr. Fredrick Rice ---------------------------- ---------------------------------- Phone # Phone # (805) 520-7170 ---------------------------- ---------------------------------- Advertise/Product Product Internet ------------------ ---------------------------------- [caad 214]
- ------------------------------------------------------------------------------------------------------------ Market Name/ Size No. of Posters Term in 4- Posting Unit Rate Rate Contract Location Showing -------------- week periods Dates per 4- Total Illlum Reg wk Pd. - ------------------------------------------------------------------------------------------------------------ Los Angeles / 25 120 5 8/3/98 $460 $55,200 $276,000 Ventura (Poster Panels) - ------------------------------------------------------------------------------------------------------------ DISPLAY COMMENCES GROSS TOTAL CONTRACT PRICE ------------------------ --------- TOTAL NET AMOUNT --------- $276,000 --------- SPECIAL INSTRUCTIONS: Terms: Net 30 Days Guaranteed override through January 1, 1999
ADDITIONAL CHARGES: Agency/Advertiser hereby contracts for the outdoor advertising services ("service") described above upon the terms set forth above AND ON THE BACK HEREOF. This contract must be signed by both parties to be effective. Signed by Fredrick Rice Signed by Eller Media ELLER MEDIA COMPANY CONTRACT FOR OUTDOOR POSTER ADVERTISING CONTRACTED FOR AGENCY: ON BEHALF OF ADVERTISER: Agency# Advertiser # ---------------------------- -------------------------- Name Name Consumer Net Marketplace, Inc. ------------------------------- ------------------------------------ Address Address 1900 Los Angeles Ave., 2nd Floor ---------------------------- ---------------------------------- City/State/Zip City/State/Zip Simi Valley, CA 93065 -------------------- ---------------------------- Contact Contact Mr. Fredrick Rice ---------------------------- ---------------------------------- Phone # Phone # (805) 520-7170 ---------------------------- ---------------------------------- Advertise/Product Product Internet ------------------ ----------------------------------
- ------------------------------------------------------------------------------------------------------------ Market Name/ Size No. of Posters Term in 4- Posting Unit Rate Rate Contract Location Showing -------------- week periods Dates per 4- Total Illlum Reg wk Pd. - ------------------------------------------------------------------------------------------------------------ Oxnard (Transit Special 50 5 8/3/98 $350 $17,500 $87,500 Panels) - ------------------------------------------------------------------------------------------------------------ DISPLAY COMMENCES GROSS TOTAL CONTRACT PRICE $87,500 -------------------------- --------- TOTAL NET AMOUNT --------- $87,500 --------- SPECIAL INSTRUCTIONS: Terms: Net 30 Days Guaranteed override through January 1, 1999
ADDITIONAL CHARGES: Agency/Advertiser hereby contracts for the outdoor advertising services ("service") described above upon the terms set forth above AND ON THE BACK HEREOF. This contract must be signed by both parties to be effective. Signed by Fredrick Rice Signed by Eller Media EX-10.2 11 EXHIBIT 10.2 ELLER MEDIA COMPANY COMMITMENT FOR PRODUCTION OF PAPER Agency: ------------------------------------------------------------ For Advertiser: Consumer Net Marketplace, Inc. ------------------------------------------------------------ Your outdoor program with ELLER MEDIA COMPANY, INC. requires printing by an outside printed of the following detailed items. SPECIFICATIONS: MARKET (S): Los Angeles, Ventura County ----------------------------------------------------------------- TYPE OF PAPER PRODUCED: Transit Shelter ------------------------------------------------------- NUMBER OF UNITS: two hundred twenty (220) -------------------------------------------------------------- ESTIMATED COST PER UNIT: $45 ------------------------------------------------------ ESTIMATED TOTAL COST: $9,900 --------------------------------------------------------- *Total is subject to any applicable sales tax and/or/ shipping/freight charges. Comments: ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- All prices are NET amounts and are NOT subject to Agency Commission. Production of paper will not begin until we have received your signed approval. Your signature on this document authorizes the above charges. Approved by: Signed by Fredrick J. Rice ---------------------------------- Company: Consumer Net Marketplace, Inc. ---------------------------------- Address: 1900 Los Angeles Avenue, 2nd Floor ---------------------------------- Simi Valley, CA 93065 ---------------------------------- Date: ---------------------------------- ELLER MEDIA COMPANY COMMITMENT FOR PRODUCTION OF PAPER Agency: ------------------------------------------------------------ For Advertiser: Consumer Net Marketplace, Inc. ------------------------------------------------------------ Your outdoor program with ELLER MEDIA COMPANY, INC. requires printing by an outside printed of the following detailed items. SPECIFICATIONS: MARKET (S): Southern California ----------------------------------------------------------------- TYPE OF PAPER PRODUCED: 30 Sheet ------------------------------------------------------- NUMBER OF UNITS: 1242 -------------------------------------------------------------- ESTIMATED COST PER UNIT: $35 ------------------------------------------------------ ESTIMATED TOTAL COST: $43,470 --------------------------------------------------------- *Total is subject to any applicable sales tax and/or/ shipping/freight charges. Comments: ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- All prices are NET amounts and are NOT subject to Agency Commission. Production of paper will not begin until we have received your signed approval. Your signature on this document authorizes the above charges. Approved by: Signed by Fredrick J. Rice ---------------------------------- Company: Consumer Net Marketplace, Inc. ---------------------------------- Address: 1900 Los Angeles Avenue, 2nd Floor ---------------------------------- Simi Valley, CA 93065 ---------------------------------- Date: 7/10/98 ---------------------------------- ELLER MEDIA COMPANY CONTRACT FOR OUTDOOR POSTER ADVERTISING CONTRACTED FOR AGENCY: ON BEHALF OF ADVERTISER: Agency# Advertiser # ---------------------------- -------------------------- Name Name Consumer Net Marketplace, Inc. ------------------------------- ------------------------------------ Address Address 1900 Los Angeles Ave., 2nd Floor ---------------------------- ---------------------------------- City/State/Zip City/State/Zip Simi Valley, CA 93065 -------------------- ---------------------------- Contact Contact Mr. Fredrick Rice ---------------------------- ---------------------------------- Phone # Phone # (805) 520-7170 ---------------------------- ---------------------------------- Advertise/Product Product Internet ------------------ ----------------------------------
- ------------------------------------------------------------------------------------------------------------ Market Name/ Size No. of Posters Term in 4- Posting Unit Rate Rate Contract Location Showing -------------- week periods Dates per 4- Total Illlum Reg wk Pd. - ------------------------------------------------------------------------------------------------------------ Santa Clarita Special 5 5 8/3/98 $400 $2,000 $10,000 (Transit Panels) - ------------------------------------------------------------------------------------------------------------ DISPLAY COMMENCES GROSS TOTAL CONTRACT PRICE $10,000 ---------------------------- -------- TOTAL NET AMOUNT -------- $10,000 -------- SPECIAL INSTRUCTIONS: Terms: Net 30 Days Guaranteed override through January 1, 1999
ADDITIONAL CHARGES: Agency/Advertiser hereby contracts for the outdoor advertising services ("service") described above upon the terms set forth above AND ON THE BACK HEREOF. This contract must be signed by both parties to be effective. Signed by Fredrick Rice Signed by Eller Media ELLER MEDIA COMPANY CONTRACT FOR OUTDOOR POSTER ADVERTISING CONTRACTED FOR AGENCY: ON BEHALF OF ADVERTISER: Agency# Advertiser # ---------------------------- -------------------------- Name Name Consumer Net Marketplace, Inc. ------------------------------- ------------------------------------ Address Address 1900 Los Angeles Ave., 2nd Floor ---------------------------- ---------------------------------- City/State/Zip City/State/Zip Simi Valley, CA 93065 -------------------- ---------------------------- Contact Contact Mr. Fredrick Rice ---------------------------- ---------------------------------- Phone # Phone # (805) 520-7170 ---------------------------- ---------------------------------- Advertise/Product Product Internet ------------------ ----------------------------------
- ------------------------------------------------------------------------------------------------------------ Market Name/ Size No. of Posters Term in 4- Posting Unit Rate Rate Contract Location Showing -------------- week periods Dates per 4- Total Illlum Reg wk Pd. - ------------------------------------------------------------------------------------------------------------ Simi Valley Special 10 5 8/10/98 $300 $3,000 $15,000 (Transit Panels) - ------------------------------------------------------------------------------------------------------------ DISPLAY COMMENCES GROSS TOTAL CONTRACT PRICE $15,000 ---------------------------- -------- TOTAL NET AMOUNT -------- $15,000 -------- SPECIAL INSTRUCTIONS: Terms: Net 30 Days Guaranteed override through January 1, 1999
ADDITIONAL CHARGES: Agency/Advertiser hereby contracts for the outdoor advertising services ("service") described above upon the terms set forth above AND ON THE BACK HEREOF. This contract must be signed by both parties to be effective. Signed by Fredrick Rice Signed by Eller Media ELLER MEDIA COMPANY CONTRACT FOR OUTDOOR POSTER ADVERTISING CONTRACTED FOR AGENCY: ON BEHALF OF ADVERTISER: Agency# Advertiser # ---------------------------- -------------------------- Name Name Consumer Net Marketplace, Inc. ------------------------------- ------------------------------------ Address Address 1900 Los Angeles Ave., 2nd Floor ---------------------------- ---------------------------------- City/State/Zip City/State/Zip Simi Valley, CA 93065 -------------------- ---------------------------- Contact Contact Mr. Fredrick Rice ---------------------------- ---------------------------------- Phone # Phone # (805) 520-7170 ---------------------------- ---------------------------------- Advertise/Product Product Internet ------------------ ----------------------------------
- ------------------------------------------------------------------------------------------------------------ Market Name/ Size No. of Posters Term in 4- Posting Unit Rate Rate Contract Location Showing -------------- week periods Dates per 4- Total Illlum Reg wk Pd. - ------------------------------------------------------------------------------------------------------------ Simi Valley Special 50 1 7/6/98 $300 $15,000 $15,000 (Transit Panels) - ------------------------------------------------------------------------------------------------------------ DISPLAY COMMENCES GROSS TOTAL CONTRACT PRICE $15,000 ---------------------------- -------- TOTAL NET AMOUNT -------- $15,000 -------- SPECIAL INSTRUCTIONS: Terms: Net 30 Days Guaranteed override through January 1, 1999
ADDITIONAL CHARGES: Agency/Advertiser hereby contracts for the outdoor advertising services ("service") described above upon the terms set forth above AND ON THE BACK HEREOF. This contract must be signed by both parties to be effective. Signed by Fredrick Rice Signed by Eller Media ELLER MEDIA COMPANY CONTRACT FOR OUTDOOR POSTER ADVERTISING CONTRACTED FOR AGENCY: ON BEHALF OF ADVERTISER: Agency# Advertiser # ---------------------------- -------------------------- Name Name Consumer Net Marketplace, Inc. ------------------------------- ------------------------------------ Address Address 1900 Los Angeles Ave., 2nd Floor ---------------------------- ---------------------------------- City/State/Zip City/State/Zip Simi Valley, CA 93065 -------------------- ---------------------------- Contact Contact Mr. Fredrick Rice ---------------------------- ---------------------------------- Phone # Phone # (805) 520-7170 ---------------------------- ---------------------------------- Advertise/Product Product Internet ------------------ ----------------------------------
- ------------------------------------------------------------------------------------------------------------ Market Name/ Size No. of Posters Term in 4- Posting Unit Rate Rate Contract Location Showing -------------- week periods Dates per 4- Total Illlum Reg wk Pd. - ------------------------------------------------------------------------------------------------------------ Simi Valley Special 50 5 7/3/98 $300 $15,000 $75,000 (Transit Panels) - ------------------------------------------------------------------------------------------------------------ DISPLAY COMMENCES GROSS TOTAL CONTRACT PRICE $75,000 ---------------------------- -------- TOTAL NET AMOUNT -------- $75,000 -------- SPECIAL INSTRUCTIONS: Terms: Net 30 Days Guaranteed override through January 1, 1999
ADDITIONAL CHARGES: Agency/Advertiser hereby contracts for the outdoor advertising services ("service") described above upon the terms set forth above AND ON THE BACK HEREOF. This contract must be signed by both parties to be effective. Signed by Fredrick Rice Signed by Eller Media EX-10.3 12 EXHIBIT 10.3 July 30, 1998 Eller Media Company Orange Country Division 1539 W. Orangewood Ave. Orange, California 92668 Mr. Fred Rice Consumer Net Marketplace 1900 Los Angeles Ave. 2nd Floor Simi Valley, CA 93065 Dear Fred: The following will outline our conversation of July 28, 1998. Eller Media is interested in discussing a partnership/participation with CNM Network for stock. This partnership would be over and above the current outdoor you are currently purchasing. Possibly the best way to outline the program would be to relate it to the schedule you are running in Southern California. Your current expenditure is approximately one million dollars. We would sell CNM Network additional space at fifty percent of the negotiated rate you are paying on a space available basis. This remnant space (production not included) would be preemptable. In lieu of cash payment for this space, CNM Network will supply to Eller Media stock in CNM Network. As you explained you have to declare that amount now prior to your offering. We would take two million dollars in stock (at $2 per share) for the above program. The stock issued to Eller would be kept in an escrow account and released to us as we delivered the space. The space for stock program could be run in any Eller market based on the above formula. I hope this gives you enough information to go ahead. Again, thank you for the business we enjoy from CNM Network. If the above is acceptable to you please sign below and return. Sincerely, Signed by Bruce K. Seidel, President of Eller Media Company's Southern California Division. CC: Karl Eller Paul Thompson Accepted and signed by Fredrick J. Rice, President of Consumer Net Marketplace, Inc. subject to a more definitive agreement. ELLER MEDIA COMPANY CONTRACT FOR OUTDOOR POSTER ADVERTISING CONTRACTED FOR AGENCY: ON BEHALF OF ADVERTISER: Agency# Advertiser # ---------------------------- -------------------------- Name Name Consumer Net Marketplace, Inc. ------------------------------- ------------------------------------ Address Address 1900 Los Angeles Ave., 2nd Floor ---------------------------- ---------------------------------- City/State/Zip City/State/Zip Simi Valley, CA 93065 -------------------- ---------------------------- Contact Contact Mr. Fredrick Rice ---------------------------- ---------------------------------- Phone # Phone # (805) 520-7170 ---------------------------- ---------------------------------- Advertise/Product Product Internet ------------------ ----------------------------------
- ------------------------------------------------------------------------------------------------------------ Market Name/ Size No. of Posters Term in 4- Posting Unit Rate Rate Contract Location Showing -------------- week periods Dates per 4- Total Illlum Reg wk Pd. - ------------------------------------------------------------------------------------------------------------ Ventura Special 10 6 7/6/98 $350 $3,500 $21,000 (Transit Panels) - ------------------------------------------------------------------------------------------------------------ DISPLAY COMMENCES GROSS TOTAL CONTRACT PRICE $21,000 --------------------------- --------- TOTAL NET AMOUNT --------- $21,000 --------- SPECIAL INSTRUCTIONS: Terms: Net 30 Days Guaranteed override through January 1, 1999
ADDITIONAL CHARGES: Agency/Advertiser hereby contracts for the outdoor advertising services ("service") described above upon the terms set forth above AND ON THE BACK HEREOF. This contract must be signed by both parties to be effective. Signed by Fredrick Rice Signed by Eller Media EX-10.4 13 EXHIBIT 10.4 CONSULTING AGREEMENT AN AGREEMENT BETWEEN Comat System Solutions Private Limited, India having its office at 1-1/8, 2nd Main, 11th Cross, Vyalikaval, INDIA, AND CNM Network, 1900 Los Angeles Avenue, 2nd Floor, Simi Valley, CA 93605 to produce a work tentatively Provisioning System Whereas, CNM wishes to engage Comat's services as specified herein, and Comat is ready, willing and able to undertake the rendition of services. Now, Therefore, in consideration of the mutual agreements herein contained, the parties agree as follows: 1 OWNERSHIP 1.1 CNM will copyright the Provisioning System in its own name in conformity with copyright law and with the laws of other countries as necessary. CNM will have complete and exclusive right of ownership of the product and all the associated programs, source code, and the data developed for the purpose. 1.2 Comat agrees to assign and does hereby assign CNM the entire right, title and interest in and to all software, inventions and designs made by Comat, alone or with others, which arise out of or pertain to the services rendered under this agreement, together with any patents and/or copyrights as may be obtained on the software, inventions and designs. 1.3 It is understood by CNM that Comat may perform consulting services for others; providing however, Comat shall not, during the term of this agreement and a period of six (6) months thereafter, aid any individual or organization competing with CNM regarding matters related to this agreement. 2 DESCRIPTION OF WORK 2.1 CNM shall retain Comat and Comat shall do work in the field of software development. Comat will use its best efforts in the accomplishment of the software engineering task and goals in building and refining software for CNM. 2.2 Work will be done in accordance with the Systems Specifications Document as attached, 3 RESPONSIBILITIES OF COMAT 3.1 Comat will be responsible for developing software with no known bugs. 3.2 The main responsibilities of Comat, carried out in consultation with CNM include project management, detailed design, programming, testing, and production of a portable source code. The main tasks are to design, implement, deliver the final product with complete source code and documentation to CNM. 4 DURATION 4.1 The duration of the contract is estimated to be a period of four (4) months beginning May 12, 1998. During this period Comat will assign resources necessary to complete its responsibilities as described earlier. 5 CHARGES AND EXPENSES 5.1 For this project, CNM will pay Comat a fee not to exceed $37,900 and the actual cost will be determined at the completion of the project. 6 PAYMENT TERMS The total cost of the software development performed by Comat shall be funded by CNM as follows: 6.1 Comat will invoice CNM on a deliverable basis. The final invoice will be paid within 10 days of CNM approving final product. 7 DATA SAFEGUARDS 7.1 Comat agrees to make a prompt and full disclosure to CNM, the details of all inventions, discoveries and improvements made or conceived by Comat, alone or with others, which relate to the subject of matter of agreement with CNM. 7.2 Nothing in this agreement shall be construed or implied to create a relationship of partners, agency, joint venture, or of employee and employer. As an independent contractor, the commitment on CNM under this agreement is the performance and fees limited to paragraph 2. 7.3 This agreement cannot be modified in any way except in writing signed by both parties. 8. TERMINATION This agreement may be terminated immediately by a written notice if: 8.1 Having given notice of a breach of this Agreement, whereby either party has failed to provide the services to continue full and active duties under this Agreement, and whereas the other party fails to remedy the breach within a reasonable period (and in any event no longer than 30 days after the notification). -------------------------------- ------------------------------------- Fred Rice S.R. Rangan CNM Network Comat System Solution Private Limited 1900 Los Angeles, 2nd Floor 1-1/8, 2nd Main, 11th Cross, Simi Valley, CA 93065 Vyalikaval, Bangalore INDIA 1 INTRODUCTION 3 - -------------------------------------------------------------------------------- 2 MODULES 4 - -------------------------------------------------------------------------------- 2.1 SERVER INTERFACE 4 2.2 REQUEST SERVERS 4 2.3 FAILED TASK QUEUE 4 2.4 SUPPORT MODULES 4 3 TRANSPORT MECHANISM 5 - -------------------------------------------------------------------------------- 4 MODULE FUNCTIONALITY 6 - -------------------------------------------------------------------------------- 4.1 SERVER INTERFACE 6 4.1.1 Virtual Web Inteface 6 4.1.2 DNS Interface 6 4.1.3 Incoming Mail Interface 6 4.2 REQUEST SERVERS 6 4.3 FAILED TASK QUEUE 7 4.4 SUPPORT MODULES 7 4.4.1 Machine allocation for new/ altered domain. 7 4.4.2 Domain is available 7 4.4.3 Domain registration confirmation by InterNIC 7 4.4.4 Check user info for Empty fields 7 4.4.5 Check user info for invalid data 7 4.4.6 Saving and retrieving demographic information. 8 4.4.7 Making billing entries. 8 4.4.8 Administration Interface 8 5 INTERFACES 9 - -------------------------------------------------------------------------------- 5.1 PERL INTERFACE 9 5.1.1 Domain Interface 11 5.1.2 Virtual Web Interface 15 5.1.3 Mail Interface 16 5.1.4 FTP User Interface 17 5.1.5 Mail user Interface 18 5.2 INTERFACE WITH SERVERS 19 5.3 SQL INTERFACE 20 5.3.1 Table Domain 21 6 DATA STRUCTURES 24 - -------------------------------------------------------------------------------- 7 CLASS STRUCTURES AND PSEUDOCODE 26 - -------------------------------------------------------------------------------- 7.1 SERVERINTERFACE (BASE CLASS) 26 7.2 USERNAMEINTERFACE (DERIVED CLASS) 28 7.3 DOMAININTERFACE (DERIVED CLASS) 28 7.4 DNS_INTERFACE (DERIVED CLASS) 28 7.5 VIRTUALWEBINTERFACE (DERIVED CLASS) 28 7.6 INCOMINGMAILINTERFACE (DERIVED CLASS) 28 7.7 REQUESTSERVER (BASE CLASS) 29 7.8 USERNAMESERVER (DERIVED CLASS) 30 7.9 DOMAINSERVER (DERIVED CLASS) 30 7.10 DNS_SERVER (DERIVED CLASS) 31 7.11 VIRTUALWEBSERVER (DERIVED CLASS) 31 7.12 INCOMINGMAILSERVER (DERIVED CLASS) 32 7.13 FAILED TASK QUEUE 32 7.14 MACHINE ALLOCATION FOR NEW/ ALTERED DOMAIN. 32 7.15 DOMAIN IS AVAILABLE 32 7.16 DOMAIN REGISTRATION CONFIRMATION BY INTERNIC 33 7.17 CHECK USER INFO FOR EMPTY FIELDS 33 7.18 CHECK USER INFO FOR INVALID DATA 33 7.19 SAVING AND RETRIEVING DEMOGRAPHIC INFORMATION. 33 7.20 MAKING BILLING ENTRIES. 33 7.21 ADMINISTRATION INTERFACE 33 8 TERMINOLOGY 34 - -------------------------------------------------------------------------------- 8.1 TRANSACTION 34 8.2 TASKS 34 8.3 PROVISIONING SERVER 34 8.4 SERVERS 34 8.5 USER 34 2 PROVISIONING SYSTEM 1 INTRODUCTION Provisioning system will be a software that will permit users to set up Web, FTP, mail servers and manage them through web pages. Provisioning system is being currently viewed as a service to be provided by CNM where users will pay CNM for services like Web Server, FTP Server etc that would be set up on CNM infrastructure. The aspect of this system we are working on starts with a PERL interface calling up the system with information provided by user. This information is used for creating, editing or terminating various services. The system will interpret the requirements and send messages to various servers which actually provide the service required. As these servers can only be configured from a process on the same machine, the provisioning system will run a process each on these servers to pick up the requests and configure the server on basis of the request. The requests fall in two broad categories first deal with setting up and managing domains and the second category deals with setting up and managing users on a domain. As any interaction between the user and provisioning system can involve more than one computers, there is a strong requirement to have a error handling mechanism in the system which will let a task be completed later if it fails on the first run. This would require some sort of extensive logging of all transactions and maintaining information on current state of each of these transactions. All services provided to the customer will be billed. The provisioning system will have to inform another software about the services demanded by the customer so that appropriate billing can be done. System administration and Maintenance of the software will require facilities to provide command line inputs to the software and some method of controlling the monitoring information provided by the system. The system can be visualised as a set of set of server management functions which are called either in a predefined sequence (while executing a specific user request) or individually at random (while executing previously failed tasks. As all tasks (I believe) originate with user requests, the user request appears to be the correct starting point at first glance. However, if we take task execution failures into account and want to build in an ability to complete failed tasks at a later time, the server management routines become the central focus of the design. 3 2 MODULES 2.1 SERVER INTERFACE The server interface routines will broadly belong to these categories: 1. Domain Name 2. User name 3. Virtual Web Server 4. DNS 5. Incoming mail server Of these routines, the first two do not involve communication with other machines, and the final execution will happen on the provisioning system machine itself. The balance requests will be forwarded to the respective servers (for create requests, only the destination machine type is specified). To maintain uniformity and expandability, even the first two requests will use the same mechanism, except for the fact that the sending and the receiving machines will be the same. The specific transport mechanism used will be restricted to small piece of code and all other routines will simply submit data for transfer without bothering about the transport mechanism used. 2.2 REQUEST SERVERS This module is a separate process, which will run on a different machine and will receive requests from the provisioning server. The requests will be interpreted and then passed on to the server being hosted by the machine. The result will be converted into a data packet and transmitted back to the server. This module also has transport mechanism dependency, which will also be restricted to a small piece of code. These servers will need the added capability of being able to work with different versions of the client software at the same time. 2.3 FAILED TASK QUEUE Any non-critical tasks that fail during the first run will be left in a database to be re-attempted at specified intervals. This is essentially a thread, which will look for failed tasks and try to complete them. If the thread succeeds to complete the task, then it will mark the record as completed. This thread adds the feature of graceful and selective degradation of the performance to the system. As a result, even if some servers are not able to process user requests, these requests can be left in a queue for later handling. 2.4 SUPPORT MODULES 1. Domain is available 2. Domain registered confirmation from INTERNIC. 3. Check user info for - Empty fields - Invalid values 4. Saving and retrieving demographic information. 5. Retrieving billing rates. 6. Making billing entries. 7. Machine allocation for new/altered domain. 4 3 TRANSPORT MECHANISM The term Transport mechanism has been used to refer to the complete data interchange/handshake mechanism between two processes. The transport mechanism to be used will have to be capable of supporting the following features: - - Version control - - Version negotiation - - Multiple result values The transport mechanism being considered is DATA STRUCTURE WITH VERSION INFORMATION. Here, all data structures passed around will have major and minor version numbers. Additionally, the data structures will carry the total data size as one of the fields. The structure can hold integers, real numbers, fixed sized strings etc, but for variable size array, the technique used will be to store the array size and its offset from the beginning of the data structure. The Data structures used will have a hierarchical growth in structure, with all related structures having the same common basic fields. This will permit a data structure pointer to be type cast as a higher level data structured and read or written to without bothering about its actual format. 5 4 MODULE FUNCTIONALITY 4.1 SERVER INTERFACE The server interface will be a set of classes inheriting from a common base that provides the basic functionality and interface format. The base class will have stubs and generic code for 1. Create, Edit and Delete functions. 2. Logging - Basic functionality of writing logs with time stamp and incomplete flags raised and upgrading logs to indicate safe completion of the request. Logs will be written and flags set before any transmissions are made to protect the system from irrecoverable failure during call execution. 3. Data Transfer. 4. Error Handling For almost all inherited classes, the following functionality will have to be upgraded 1. Create, Edit and Delete Functions. 2. Logging 3. Data Transfer The classes that will derive form Server Interface and the additional functionality they will provide are 4.1.1 VIRTUAL WEB INTERFACE Space required. 4.1.2 DNS INTERFACE Domain Names, IP Addresses of machines hosting various services. 4.1.3 INCOMING MAIL INTERFACE Number of users, User accounts, account resources. 4.2 REQUEST SERVERS Request servers will follow the general framework of Server Interface classes. The base class will hold the stubs and transport functionality while the inherited classes will complete the stubs and upgrade functionality of the transport mechanism. Additionally, the request servers will support version negotiation and version checking of the data received. The way data is actually handled will be decided by the derived classes and the derived classes are free to limit the version ranges supported. Care will need to be taken so that exceptions are properly caught and suitable message is transmitted to the calling interface. 6 4.3 FAILED TASK QUEUE The failed task queue depends on the logging mechanism of request servers for input. All calls that fail during initial execution are flagged as incomplete and will be left for this queue to complete later. This queue will scan the database for incomplete tasks and verify that their dependency conditions have been fulfilled (if any). It will then try to execute that task and if successful, flag the task as completed. This queue can run on the provisioning system as a thread on the process. The system will have functionality to send alarm to administrators on exceeding predefined failure limits. Functionality may be added here to send message to the user about completion of the account setup if any of the setup tasks were left for the queue. 4.4 SUPPORT MODULES 4.4.1 MACHINE ALLOCATION FOR NEW/ALTERED DOMAIN. Multiple machines will host each service. When a new domain is registered, the services required for that domain will have to be allocated to one of the machines hosting that service. This module will decide which server will host each of the services, reserve capacity and make suitable log entries. If a domain's requirements are altered to the extent that one or more of the servers' capacity is exceeded, the server for that particular service will have to be reallocated. This module will also handle these reallocations. 4.4.2 DOMAIN IS AVAILABLE This module will check the local and the InterNIC database for availability of a domain. The InterNIC check is a simple whois function call to find out whether the domain name is in use. The domain could be registered with a third party or with CNM servers (The DNS servers might be more than the regular primary and secondary DNS servers). The additional local check is done for two reasons 1. If the domain name is being processed for another user, then it will definitely not be available for the current user. 2. As the local login names are domain dependent, letting two users apply for the same domain can cause login clashes that will be very hard to resolve. The local check will involve checking the list of local domains (a domain here may still be under process by InterNIC) and list of pending domain requests. 4.4.3 DOMAIN REGISTRATION CONFIRMATION BY InterNIC Domain registration is an asynchronous and slow process. The confirmation is expected some hours after the request has been sent to InterNIC. The confirmation is in the form of an email. This e-mail will have to be parsed to interpret the domain name actually registered and the time by which it will become operational. Subsequently, this function will set the necessary flags to indicate the new status of the domain registration request. 4.4.4 CHECK USER INFO FOR EMPTY FIELDS Although the front end will do a data validity check to make sure that all necessary data is present, this level would also run a check on the data that is vital for the transaction to complete. This level will not bother with data that is needed only for demographic information. The primary reason for running this check here is that once this check has been completed, the data availability for the transaction completion is assured. Another aspect of check at this level is the check on data validity. 4.4.5 CHECK USER INFO FOR INVALID DATA This check tries to locate invalid data like wrong or invalid credit card details, unacceptable numbers supplied for resources like disc space, bandwidth requirements, number of users etc. A lot of decisions taken at this level will depend on the system policy. 7 4.4.6 SAVING AND RETRIEVING DEMOGRAPHIC INFORMATION. The demographic information collected will be written to a database and possibly associated to the domain. Demographic information, for display, processing and updates, will be retrieved by this module. 4.4.7 MAKING BILLING ENTRIES. Non financial billing information will be handled by this module. All purchases/ purchase alterations demanded by the customer will result in a record being generated by this module. The billing module will use these entries to generate the financial impact information. 4.4.8 ADMINISTRATION INTERFACE 8 5 INTERFACES The provisioning system that we will be working on will have three interfaces. The program will primarily interact with the outside world across these interfaces. These are: 1. Perl program interface. 2. Interface with servers. 3. Interface with SQL server and tables. These interfaces constitute the most rigid aspect of the design. Any alteration of these interfaces requires proper coordination with the team in Simi Valley. Each of these interfaces has a different communication mechanism and they are explained below. 5.1 PERL INTERFACE The Perl interface is a programming interface. Here, the Perl program (to be developed and maintained at Simi Valley) connects to the provisioning system and issues commands in the form of Data Blocks. These commands are very similar to the commands issued by the provisioning system to the server side modules. Consequently, large parts of data structure will be reused between Perl/Provisioning system interface and Provisioning system/Servers interfaces. The Perl interfaces will call up provisioning system on IP port 48000. The data structures that will be passed are struct T_PERL_INTF{ int nVersion; long lBufferSize; int nCommand; int eServerType; char szDomainName[32]; char szAdminUserName[32]; char szAdminPassword[16]; char szUserName[32]; char szUserPassword[16]; int nReturnValue; char szErrorMsg[128]; }; This is the primary building block for all communication structures. This structure contains Version information, full command description, Domain name, Admin user name and password. All subsequent structures are more specific and are described along with interface functionality description. A few fields whose behavior remains constant are explained here and will normally not be described in other sections. They will have further description in other sections only if their immediate behavior differs from the description provided here or values to be used are specified. nVERSION: Holds the version number of the data block. This version number permits clients with different version numbers to communicate with the same server. This field is filled on input. lBUFFERSIZE: Holds the size of the complete buffer. This field will become critical when the data passed will contain variable length fields. This field is filled on input and output. nCOMMAND: Holds the actual command to be executed. This field is filled on input. The permissible values are: - - CMD_CREATE - - CMD_QUERY - - CMD_ALTER - - CMD_DELETE - - CMD_CHECKAVAILABLE nSERVERTYPE: Holds the type of server that the command is meant for. This field is filled on input. The permissible values are: - - SERVER_DOMAIN - - SERVER_VIRTUALWEB - - SERVER_MAIL - - SERVER_USER_FTP 9 - - SERVER_USER_MAIL szDOMAINNAME: Holds the domain name. For all commands except domain creation, this holds the domain name being referred to. For domain creation, this holds the domain to be created. This field is filled on input. szADMINUSERNAME: Holds the administrator user name. This field is filled on input. szADMINPASSWORD: Holds the administrator user password. This field is filled on input. szUSERNAME: Holds the user name when individual user accounts are being manipulated. For server level commands, this value is not used. This value is filled on input. szUSERPASSWORD: Holds the user password for the user account. For server level commands, this value is not used. This value is filled on input. nrETURNVALUE: Holds the return value. This field is filled on output. The following values are common return values - - SUCCESS: Call successful. - - UNKNOWN_ERROR: Error text is returned in szErrorMsg. szERRORMSG: This field holds error message if the Return Value does not sufficiently describe the error condition. If this field is not used, it will be set to a zero length string. 10 5.1.1 DOMAIN INTERFACE When the user creates a domain or alters/queries/deletes an existing domain, these interfaces are used. The data structure T_DOMAIN applies to Create, Query and Edit interfaces for a domain. The structure needs to be further extended for Create and Edit interfaces, but is suitable, without changes, for Domain Query interface. struct T_DOMAIN { struct T_PERL_INTF PerlIntf; // Name of the preson registering the domain. char szLastName[64]; char szFirstName[64]; char cMiddleInit; // Residential address char szResAddress[64]; char szResAddressTwo[64]; char szResCity[32]; char szResState[2]; char szResZip[12]; char szResPhone[32]; // Business Address char szBusName[64]; char szBusAddress[64]; char szBusAddressTwo[64]; char szBusCity[32]; char szBusState[2]; char szBusZip[12]; char szBusPhone[32]; char szEmail[64]; // Other details int nSex; int nAge; int nMarStatus; // Marital Status int nNumChild; // Number of Children int nAnIncome; // Annual Income int nInetFreq; // Frequency of accessing the internet. int nInetUse; // Internet utility. char szInetUse[64]; // Other Internet utility int nWhereHear; // Source of Information about CNM char szWhereHear[64]; // Other sources of information. }; All fields are filled on input for create and alter operations. The fields are filled for output in a Query operation. The values stored these variables have importance only for the Perl program and the Web pages. The complete provisioning module and other modules will merely treat this information as basic data types and treat them as such. No validations/checks will be carried out on demographic data at this side of the Perl/Provisioning interface. 11 5.1.1.1 DOMAIN AVAILABLE This structure will be used to query the availability of a particular domain name. struct T_DOMAIN_AVAILABLE{ struct T_PERL_INTF PerlIntf; BYTE yDNSAddress[4]; }; The usage of the fields is explained below. nCOMMAND: CMD_CHECKAVAILABLE. eSERVERTYPE: SERVER_DOMAIN. szADMINUSERNAME: Not used. szADMINPASSWORD: Not used. nRETURNVALUE: The return status of the domain name query. This field is filled on return. The permitted return values are: - - SUCCESS: The domain name is not registered and an attempt can be made to register the same. - - DOMAIN_WITH_THIRD_PARTY: The domain has been registered with InterNIC. The DNS server pointed to by InterNIC is not owned by CNM. The actual IP Address of the DNS server returned by InterNIC is returned in the yDNSAddress field. - - DOMAIN_WITH_OUR_DNS: The domain has been registered with InterNIC. The DNS server registered with InterNIC belongs to CNM. The actual IP Address of the DNS server returned by InterNIC is returned in the yDNSAddress field. - - DOMAIN_BEING_PROCESSED: The domain has not been registered with InterNIC, but our local queue is processing this domain for some other user. yDNSADDRESS: The IP Address of the DNS server. Check the description of nReturnValue for validity of this value. 12 5.1.1.2 CREATE DOMAIN This structure will be used to initiate domain creation. It is necessary that the user be made to check domain name availability before coming to this stage. struct T_DOMAIN_CREATE { struct T_DOMAIN Domain; char szDomainChoiceTwo[32]; char szDomainChoiceThree[32]; int nCreateMode; int nBillingMethod; int nCardType; char szCardHolder[64]; char szCardNumber[16]; time_t tmExpDate; }; The usage of the fields is explained below. nCOMMAND: CMD_CREATE. esERVERTYPE: SERVER_DOMAIN. szDOMAINNAME: Hold the first preference for domain name. This field is filled on input. szADMINUSERNAME: Admin user to be created. szADMINPASSWORD: Admin user password. szDOMAINCHOICETWO: Holds the second preference for domain name. This field is filled on input. szDOMAINCHOICETHREE: Holds the third preference for domain name. This field is filled on input. ncREATEMODE: Hold the domain name creation mode. This field is filled on input. This field can have the following values: - - DOMAIN_CREATE_REGISTERNEW: Register the domain name specified. If name cannot be registered, the call fails. - - DOMAIN_CREATE_TRANSFEROLD: Do not register the domain name. The domain is owned by the user. CNM has to initiate process to shift the domain name from the current DNS to CNM DNS server. - - DOMAIN_CREATE_NOACTION: Do not register the domain name. The user will get the DNS for the domain transferred to CNM DNS server. nBILLINGMETHOD: Holds the billing method to be used. This field is filled on input. The permissible values are: - - BILLING_CREDITCARD - - BILLING_RAISEINVOICE nCARDTYPE: Holds the credit card type. This field is filled on input. This value is valid only if nBillingMethod is BILLING_CREDITCARD. The permissible values are: - - CREDITCARD_VISA - - CREDITCARD_MASTERCARD - - CREDITCARD_AMEX - - CREDITCARD_DISCOVER szCARDHOLDER: Holds the credit card owner name. This field is filled on input. This value is valid only if nBillingMethod is BILLING_CREDITCARD. szCARDNUMBER: Holds the credit card number. This field is filled on input. This value is valid only if nBillingMethod is BILLING_CREDITCARD. tmEXPDATE: Holds the credit card expiry date. This field is filled on input. This value is valid only if nBillingMethod is BILLING_CREDITCARD. 13 5.1.1.3 QUERY DOMAIN This call will be used to query a domain for information. The structure used for this call is T_DOMAIN structure. Only necessary T_PERL_INTF members of the data structure need to be filled for making this call. All demography related members will be filled on return. The usage of the fields is explained below. nCOMMAND: CMD_QUERY. eSERVERTYPE: SERVER_DOMAIN. 5.1.1.4 ALTER DOMAIN This data structure will be used to make changes to the domain information. All fields, including the domain name itself, can be changed by the user. All demographic fields will be overwritten with the new values, so care must be taken to fill fields with all values, even the ones that have not changed. struct T_DOMAIN_EDIT{ struct T_DOMAIN Domain; char szNewDomainName[32]; int bRegisterDomain; char szNewUserName[32]; int bPasswordChanged; char szNewPassword[16]; }; The usage of the fields is as follows. nCOMMAND: CMD_ALTER. eSERVERTYPE: SERVER_DOMAIN. szDOMAINNAME: Old domain name. szUSERNAME: Old user name. szPASSWORD: Old password. szNEWDOMAINNAME: New domain name. If old and new domain names are the same, no domain name changes are made. This field is filled on input. bREGISTERDOMAIN: Defines whether domain should be registered or not. This permits users to move the account to a domain registered through some other means. No DNS server checks will be made while changing the domain name. This field is filled on input. szNEWUSERNAME: New Admin user name. If old and new admin user names are the same, no user account changes are made. This field is filled on input. szNEWPASSWORD: Holds the new password for the admin user account. This field is filled on input. 5.1.1.5 DELETE DOMAIN This call will be used to delete a domain from CNM servers. The T_PERL_INTF structure will be used for this call. This command will recursively delete all underlying Virtual Web, Mail servers and all registered users. The usage of the fields is as follows. nCOMMAND: CMD_DELETE. eSERVERTYPE: SERVER_DOMAIN. 14 5.1.2 VIRTUAL WEB INTERFACE The management of Virtual Web and FTP servers will require the use of structure T_VIRTUALWEB. This structure will be used for the commands Create, Query and Alter. struct T_VIRTUALWEB{ struct T_PERL_INTF PrelIntf; long lDiskQuota; long lBandWidth; BOOL bCGI; BOOL bFrontPage; BOOL bAnonymousFTP; BOOL bSecureKey; BOOL bPersonalSecureKey; BOOL bLogs; BOOL bBackups; BOOL bStatistics; }; The usage of the fields is as follows. eSERVERTYPE: SERVER_VIRTUALWEB. lDISKQUOTA: Holds the hard disk space demanded by the user. The unit for the space is Mbytes. lBANDWIDTH: Holds the bandwidth required for the domain. The unit for this field is KBits/Sec. bCGI: Enable/Disable CGI. bFRONTPAGE: Enable/Disable Frontpage. bANANYMOUSFTP: Enable/Disable Anonymous FTP. bSECUREKEY: Enable/Disable Secure Key. bPERSONALSECUREKEY: Enable/Disable Personal Secure Key. bLOGS: Enable/Disable logs. bBACKUPS: Enable/Disable backups. bSTATISTICS: Enable/Disable site statistics. 5.1.2.1 CREATE VIRTUAL WEB SERVER This call will be used to create a Virtual Web server. The T_VIRTUALWEB structure will be used for this call. The T_VIRTUALWEB specific fields are filled on input. The usage of the fields is as follows. nCOMMAND: CMD_CREATE. 5.1.2.2 QUERY VIRTUAL WEB SERVER This call will be used to find out information about Virtual Web server. The T_VIRTUALWEB structure will be used for this call. The T_VIRTUALWEB specific fields are filled on output. The usage of the fields is as follows. nCOMMAND: CMD_QUERY. 5.1.2.3 ALTER VIRTUAL WEB SERVER This call will be used to alter a Virtual Web server. The T_VIRTUALWEB structure will be used for this call. The T_VIRTUALWEB specific fields are filled on input. The usage of the fields is as follows. nCOMMAND: CMD_ALTER. 5.1.2.4 DELETE VIRTUAL WEB SERVER This call will be used to delete a Virtual Web server. The T_PERL_INTF structure will be used for this call. All FTP users for the domain will be deleted by this call and need not be deleted separately. The usage of the fields is as follows. nCOMMAND: CMD_DELETE. 15 5.1.3 MAIL INTERFACE The management of Incoming mail and POP servers will require the use of structure T_MAIL. This structure will be used for the commands Create, Query and Alter. struct T_MAIL{ struct T_PERL_INTF PerlIntf; int nNumMailboxes; }; The usage of the fields is as follows. eSERVERTYPE: SERVER_MAIL. nNUMMAILBOXES: Holds the number of mail boxes requested by the user. 5.1.3.1 CREATE MAIL SERVER This call will be used to create a Mail server. The T_MAIL structure will be used for this call. The T_MAIL specific fields are filled on input. The usage of the fields is as follows. nCOMMAND: CMD_CREATE. 5.1.3.2 QUERY MAIL SERVER This call will be used to find out information about Mail server. The T_MAIL structure will be used for this call. The T_MAIL specific fields are filled on output. The usage of the fields is as follows. nCOMMAND: CMD_QUERY. 5.1.3.3 ALTER MAIL SERVER This call will be used to alter a Mail server. The T_MAIL structure will be used for this call. The T_MAIL specific fields are filled on input. The usage of the fields is as follows. nCOMMAND: CMD_ALTER. 5.1.3.4 DELETE MAIL SERVER This call will be used to delete a Mail server. The T_PERL_INTF structure will be used for this call. All Mail users for the domain will be deleted by this call and need not be deleted separately. The usage of the fields is as follows. nCOMMAND: CMD_DELETE. 16 5.1.4 FTP USER INTERFACE The management of FTP users will require the use of structure T_FTP_USER. Although the admin user can be setup and altered by altering the domain information, it is recommended that this channel be used to alter information about admin user as well. This structure will be used for the commands Create, Query and Alter. struct T_FTP_USER{ struct T_PERL_INTF PerlIntf; int nAccessLevel; }; The usage of the fields is as follows. eSERVERTYPE: SERVER_USER_FTP. szUSERNAME: Holds the account user name. nACCESSLEVEL: Holds the access level of the user. 5.1.4.1 CREATE FTP USER This call will be used to create a FTP user account. The T_FTP_USER structure will be used for this call. The T_FTP_USER specific fields are filled on input. The usage of the fields is as follows. nCOMMAND: CMD_CREATE. szUSERPASSWORD: Holds the account user password. This value is filled on input. 5.1.4.2 QUERY FTP USER This call will be used to find out information about a FTP user account. The T_FTP_USER structure will be used for this call. The T_FTP_USER specific fields are filled on output. The usage of the fields is as follows. nCOMMAND: CMD_QUERY. 5.1.4.3 ALTER FTP USER This call will be used to alter a FTP user definition. The T_FTP_USER_ALTER structure will be used for this call. The T_FTP_USER_ALTER specific fields are filled on input. struct T_FTP_USER_ALTER{ struct T_FTP_USER FtpUser; char szNewUserName[128]; BOOL bPasswordChanged; }; The usage of the fields is as follows. nCOMMAND: CMD_ALTER. szUSERPASSWORD: The new password for the user. Valid if bPasswordChanged is True. This value is filled on input. szNEWUSERNAME: Holds the new user name for the FTP account. This value is filled on input. bPASSWORDCHANGED: Defines whether password has been changed or not. This value is filled on input. 5.1.4.4 DELETE FTP USER This call will be used to delete a FTP User. The T_PERL_INTF structure will be used for this call. The usage of the fields is as follows. nCOMMAND: CMD_DELETE. 17 5.1.5 MAIL USER INTERFACE The management of Mail users will require the use of structure T_MAIL_USER. Although the admin user can be setup and altered by altering the domain information, it is recommended that this channel be used to alter information about admin user as well. This structure will be used for the commands Create, Query and Alter. struct T_MAIL_USER{ struct T_PERL_INTF PerlIntf; BOOL bForwarding; BOOL bAutorespond; char szAutoMessage[256]; char szForwardList[1024]; }; The usage of the fields is as follows. eSERVERTYPE: SERVER_USER_FTP. bFORWARDING: bAUTORESPOND: Enables/Disables auto respond for the given user. szAUTORESPOND: Holds the auto respond message. The value is valid if the field bAutorespond is True, szFORWARDLIST: Holds the forwarding list. 5.1.5.1 CREATE FTP USER This call will be used to create a FTP user account. The T_FTP_USER structure will be used for this call. The T_FTP_USER specific fields are filled on input. The usage of the fields is as follows. nCOMMAND: CMD_CREATE. 5.1.5.2 QUERY FTP USER This call will be used to find out information about a FTP user account. The T_FTP_USER structure will be used for this call. The T_FTP_USER specific fields are filled on output. The usage of the fields is as follows. nCOMMAND: CMD_QUERY. 5.1.5.3 ALTER FTP USER This call will be used to alter a FTP user definition. The T_FTP_USER_ALTER structure will be used for this call. The T_FTP_USER_ALTER specific fields are filled on input. struct T_MAIL_USER_EDIT{ struct T_MAIL_USER MailUser; char szNewUserName[128]; int bPasswordChanged; }; The usage of the fields is as follows. nCOMMAND: CMD_ALTER. szUSERPASSWORD: The new password for the user. Valid if bPasswordChanged is True. This value is filled on input. szNEWUSERNAME: Holds the new user name for the FTP account. This value is filled on input. bPASSWORDCHANGED: Defines whether password has been changed or not. This value is filled on input. 5.1.5.4 DELETE FTP USER This call will be used to delete a FTP User. The T_PERL_INTF structure will be used for this call. The usage of the fields is as follows. nCOMMAND: CMD_DELETE. 18 5.2 INTERFACE WITH SERVERS The interface with servers is primarily in the form of updating files. The authorisation for changing files must be checked separately as the process will run as the root user process and will not need any further authorisation to make the changes. To this effect, all data structures will carry the admin user password (account user password in certain cases) to ascertain the validity of each request. Once the request has been password checked, the request will be handed to a root level process which will make the necessary changes. Another issue which is critical here and will require a lot of effort is that certain processes will need to be reinitialised. The restart process itself may fail and would need a separate arrangement to ensure restart. An alarm will have to be raised if the system is unable to restart a server properly within a specified amount of time. Finally, a separate thread will be set up to constantly monitor the configuration files. This will guard against a user manually editing the files. If the file is manually edited, this thread will notice the change to file and restart the necessary servers. 19 5.3 SQL INTERFACE The SQL table structures along with the changes of field values will constitute the SQL interface. Any other program that needs to coordinate with the provisioning system will monitor these tables and use them. Aside from the common tables, which form the interface with other programs, some private tables will also be used. Their structures will not be discussed in this section. The tables will be designed and maintained with the following requirements in mind. - - Any changes to a record should not merely overwrite old data, but the old data must get backed up before being overwritten. - - There should be minimum possible data duplication. This means that one piece of information should be stored at one place only (This does not include data mirroring). - - Full time stamp and user information should be maintained for all changes made to the configuration. User information may be redundant in some cases. - - Auto-increment integers are to be used as keys. - - The database will be mirrored and this might become an important factor in table design. 5.3.1 CURRENT DESIGN AND IMPORTANT CONCEPTS A preliminary design has been made with these guidelines in mind. This design has been explained over the next few sections. The design has certain common features, which help all tables behave in a similar manner and allow the developer to achieve the same functionality from all tables. Two important concepts that need to be explained before looking at table design are record updates and record backups. RECORD UPDATES refer to a change made to a record by the user. Once the user has demanded a change, the actual change will involve backing up the existing record (explained next) and writing the new values to the database. The updates to the new record do not end with this process. Beyond this point, various flags will be maintained and altered as individual tasks are performed and marked as completed. The alterations to flags are changes to record, but will not be included when we refer to record updates. BACKUP PROCEDURE for a record involves creating a new record and copying all values of the old record to the new record (except the key). The new record key is then copied to the old record's PREVIOUS_RECORD field. The new values can now be written to the old record. At this stage, we have all references pointing to the altered version of the record and proper listing of the previous state of the record. 5.3.2 FIELD USAGE The usage of common fields is explained below. DOMAIN_KEY: Holds the primary key of the domain. For all server level records, this will be the only candidate for primary key. ALTER_TIME: This is time stamp of time when the record was created or updated. PREVIOUS_RECORD: Holds the key of the previous amendment to this record. If no previous amendment exists, then this field is NULL. STATUS: Value ranges -1: Record Deleted. 1-49: Setup under progress. 50: Setup completed. 51-99: Billing under progress. 100: Billing completed. 20 5.3.3 TABLES 5.3.3.1 TABLE DOMAIN This table will hold the current status of each domain. The table creation SQL is
CREATE TABLE DOMAIN ( DOMAIN_KEY INT NOT NULL, // Primary Key PREVIOUS_RECORD INT NOT NULL, ALTER_TIME TIMESTAMP NOT NULL, STATUS INT NOT NULL, DOMAIN_NAME CHAR(32) NOT NULL, // BILLING_INFO CREATE_MODE INT NOT NULL, BILLING_MODE INT NOT NULL, CARD_OWNER CHAR(64) NULL, CARD_TYPE INT NULL, CARD_NUMBER CHAR(16) NULL, CARD_EXPIRY_DATE DATE NULL, // DEMOGRAPHIC_INFO LAST_NAME CHAR(64) NULL, FIRST_NAME CHAR(64) NULL, MIDDLE_NAME CHAR(64) NULL, RES_ADDRESS_1 CHAR(64) NULL, RES_ADDRESS_2 CHAR(64) NULL, RES_CITY CHAR(32) NULL, RES_STATE CHAR(4) NULL, RES_ZIP CHAR(12) NULL, RES_PHONE CHAR(32) NULL, COMPANY_NAME CHAR(64) NULL, BUS_ADDRESS_1 CHAR(64) NULL, BUS_ADDRESS_2 CHAR(64) NULL, BUS_CITY CHAR(32) NULL, BUS_STATE CHAR(4) NULL, BUS_ZIP CHAR(12) NULL, BUS_PHONE CHAR(32) NULL, BUS_EMAIL CHAR(64) NULL, SEX INT NULL, AGE INT NULL, MARITAL_STATUS INT NULL, NUM_CHILDREN INT NULL, ANNUAL_INCOME INT NULL, INET_FREQ INT NULL, INET_USE INT NULL, INET_USE_TEXT CHAR(64) NULL, WHERE_HEAR INT NULL, WHERE_HEAR_TEXT CHAR(64) NULL, // TEMPORARY INFO DOMAIN_CHOICE_TWO CHAR(32) NULL, DOMAIN_CHOICE_THREE CHAR(32) NULL)
21 5.3.3.2 TABLE VIRTUAL WEB SERVER This table will hold the current status of domain Virtual web server. The table creation SQL is
CREATE TABLE VIRTUAL_WEB ( DOMAIN_KEY INT NOT NULL, // Primary Key PREVIOUS_RECORD INT NOT NULL, ALTER_TIME TIMESTAMP NOT NULL, STATUS INT NOT NULL, DISK_SPACE INT NOT NULL, BANDWIDTH INT NOT NULL, CGI INT NOT NULL, FRONTPAGE INT NOT NULL, ANONYMOUS_FTP INT NOT NULL, SECURE_KEY INT NOT NULL, PERSONAL_SECURE_KEY INT NOT NULL, WRITE_LOG INT NOT NULL, BACKUPS INT NOT NULL, STATISTICS INT NOT NULL)
5.3.3.3 TABLE MAIL SERVER
CREATE TABLE MAIL_SERVER ( DOMAIN_KEY INT NOT NULL, // Primary Key PREVIOUS_RECORD INT NOT NULL, ALTER_TIME TIMESTAMP NOT NULL, STATUS INT NOT NULL, MAIL_BOXES INT NOT NULL)
22 5.3.3.4 TABLE USER The table User registers a user for the domain. This is the common place to register users both for FTP and mail servers. A user registered here can then have accounts defined for FTP and Mail servers.
CREATE TABLE USER ( DOMAIN_KEY INT NOT NULL, // Primary Key USER_KEY INT NOT NULL, // Primary Key PREVIOUS_RECORD INT NOT NULL, ALTER_TIME TIMESTAMP NOT NULL, STATUS INT NOT NULL, NAME CHAR(32) NOT NULL, PASSWORD CHAR(16) NOT NULL)
5.3.3.5 TABLE FTP USER This table defines a FTP account for the user specified by the primary keys.
CREATE TABLE FTP_USER ( DOMAIN_KEY INT NOT NULL, // Primary Key USER_KEY INT NOT NULL, // Primary Key PREVIOUS_RECORD INT NOT NULL, ALTER_TIME TIMESTAMP NOT NULL, STATUS INT NOT NULL, ACCESS_LEVEL INT NOT NULL)
5.3.3.6 TABLE MAIL USER This table defines the mail account for the user specified by the primary keys.
CREATE TABLE MAIL_USER ( DOMAIN_KEY INT NOT NULL, // Primary Key USER_KEY INT NOT NULL, // Primary Key PREVIOUS_RECORD INT NOT NULL, ALTER_TIME TIMESTAMP NOT NULL, STATUS INT NOT NULL, FORWARDING INT NOT NULL, AUTORESPOND INT NOT NULL, AUTORESPOND_MESSAGE CHAR(256) NULL, FORWARDING_LIST CHAR(1024) NULL)
23 6 DATA STRUCTURES typedef T_Cmd { word wVersion; int nSize; char szDomainName[32]; int nCommand; }; typedef T_UserNameCmd { word wVersion; int nSize; char szDomainName[32]; int nCommand; char szUserName[32]; char szPassword[16]; char szOldUserName[32]; char szOldPassword[16]; }; typedef T_DomainNameCmd { word wVersion; int nSize; char szDomainName[32]; int nCommand; char szNewDomainName[32]; BOOL bRegisterName; }; typedef T_DNS_Cmd { word wVersion; int nSize; char szDomainName[32]; int nCommand; char szPrimaryNameServer[64]; char szSecondaryNameServer[64]; BYTE pWebServerAddress[4]; }; 24 Virtual Web server needs to send additional data only when information about a user has changed. The following structure is used only for user level calls, typedef T_VirtualWebServerCmd { word wVersion; int nSize; char szDomainName[32]; int nCommand; char szUserName[32]; char szPassword[16]; //Filled only when password has changed. }; Incoming mail server needs to send additional data only when information about a user has changed. The following structure is used only for user level calls, typedef T_IncomingMailServerCmd { word wVersion; int nSize; char szDomainName[32]; int nCommand; char szOldUserName[32]; char szNewUserName[32]; BOOL bEnableAutorespond; BOOL bEnableForwarding; }; 25 7 CLASS STRUCTURES AND PSEUDOCODE Note: Both ServerInteface and RequestServer classes will need the ability to open and manage sockets. Although provisioning servers do not need to open server sockets, but once the sockets are open, the data transmission code will be the same. It may be felt necessary to join these two classes at a higher level (or provide a friend class) to handle sockets. 7.1 SERVERINTERFACE (BASE CLASS) class ServerInterface { private: void WriteLog(LPSTR szDomainName); LPBYTE LocateMachine(LPSTR szDomainName); LPVOID InitBuffer(int nBufSize); int CreateRequest(LPBYTE IPAddress); int EditRequest(LPBYTE IPAddress); int DeleteRequest(LPBYTE IPAddress); protected: // These variables are dependent on the derived classes and will be initialised in their constructors. ServerType eType; // The type of server this instance will call. int nCreateSize; // Data block size for Create Buffer. int nEditSize; // Data block size for Edit Buffer. int nDeleteSize; // Data block size for Delete Buffer. // All of these functions will be upgraded in derived classes. void WriteCreateLog(LPSTR szDomainName); void WriteEditLog(LPSTR szDomainName); void WriteDeleteLog(LPSTR szDomainName); int UpdateCreateBuffer(LPVOID pBuffer); int UpdateEditBuffer(LPVOID pBuffer); int UpdateDeleteBuffer(LPVOID pBuffer); public: ServerInterface(void); ~ServerInterface(void); int CreateEntry(LPSTR szDomainName); int EditEntry(LPSTR szDomainName); int DeleteEntry(LPSTR szDomainName); } The calling order for functions of this class will be as follows. 1. Construct class. 2. Write Create/Edit/Delete Log. (Complete this write log operation for all tasks in the current transaction). 3. Create/Edit/Delete Entry. 4. Destroy. It is important to write all logs before making any server call so that data provided by user does not get lost due to some glitch and in the worst case will get processed by the failed task queue. ServerInterface::ServerInterface(void) Default Constructor. ServerInterface::~ServerInterface(void) Default Destructor. 26 void ServerInterface::WriteLog(LPSTR szDomainName) This common routine is called by all logging functions. This function creates a logging record, assigns the time stamp. LPBYTE ServerInterface::LocateMachine(LPSTR szDomainName) Locates IP Address of machine hosting the service for given Domain. LPVOID ServerInterface::InitBuffer(int nBufSize) Allocates memory for data buffer and initialises memory with basic information like data block size, version number etc. int ServerInterface::CreateRequest(LPBYTE IPAddress) Calls InitBuffer, UpdateCreateBuffer and transmits to specified address. int ServerInterface::EditRequest(LPBYTE IPAddress) Calls InitBuffer, UpdateEditBuffer and transmits to specified address. int ServerInterface::DeleteRequest(LPBYTE IPAddress) Calls InitBuffer, UpdateDeleteBuffer and transmits to specified address. void ServerInterface::WriteCreateLog(LPSTR szDomainName) Calls WriteLog and marks log as Create log. void ServerInterface::WriteEditLog(LPSTR szDomainName) Calls WriteLog and marks log as Edit log. void ServerInterface::WriteDeleteLog(LPSTR szDomainName) Calls WriteLog and marks log as Delete log. int ServerInterface::UpdateCreateBuffer(LPVOID pBuffer) Called by CreateRequest to update transmit buffer with Create command. Derived classes will add more details to the structure. int ServerInterface::UpdateEditBuffer(LPVOID pBuffer) Called by EditRequest to update transmit buffer with Edit command. Derived classes will add more details to the structure. int ServerInterface::UpdateDeleteBuffer(LPVOID pBuffer) Called by DeleteRequest to update transmit buffer with Delete command. Derived classes will add more details to the structure. int ServerInterface::CreateEntry(LPSTR szDomainName) This is the generic create routine. It performs all common tasks for new domain to be registered with a server. These tasks will include - Locating task on queue. - Checking dependencies. - Connect to server. - Negotiate Version. - Making a create call to server. - Close Connection. - Flagging task as completed. Returns zero on success. Negative values on error. Positive values indicate success, and also some associated condition. int ServerInterface::EditEntry(LPSTR szDomainName) This is the generic edit routine. It performs all common tasks to edit a service parameters associated with a domain. These tasks will include - Locating task on queue. - Making sure that the domain to be altered exists on this server. 27 - Ensuring that there are no previous edits pending for the domain. - Connect to server. - Negotiate Version. - Making a edit call to server. - Close Connection. - Flagging task as completed. Returns zero on success. Negative values on error. Positive values indicate success, and also some associated condition. int ServerInterface::DeleteEntry(LPSTR szDomainName) This is the generic delete routine. It performs all common tasks to delete a service for the specified domain. These tasks include - Locating task on queue. - Making sure that the domain to be altered exists on this server. - Connect to server. - Negotiate Version. - Making a edit call to server. - Close Connection. - Flagging task as completed. Returns zero on success. Negative values on error. Positive values indicate success, and also some associated condition. 7.2 USERNAMEINTERFACE (DERIVED CLASS) class UserNameInterface: public ServerInterface 7.3 DOMAININTERFACE (DERIVED CLASS) class DomainInterface: public ServerInterface 7.4 DNS_INTERFACE (DERIVED CLASS) class DNS_Interface: public ServerInterface 7.5 VIRTUALWEBINTERFACE (DERIVED CLASS) class VirtualWebInterface: public ServerInterface 7.6 INCOMINGMAILINTERFACE (DERIVED CLASS) class IncomingMailInterface: public ServerInterface 28 7.7 REQUESTSERVER (BASE CLASS) class RequestServer { private: int CheckVersion(LPVOID pBuffer); int InterpretCommand(LPVOID pBuffer); protected: // These variables are dependent on the derived classes and will be initialised in their constructors. ServerType eType; // The type of server this instance will call. int nMaxMajorVersion; //Maximum version number supported. int nMaxMinorVersion; //Maximum version number supported. int nMinMajorVersion; //Minimum version number supported. int nMinMinorVersion; //Minimum version number supported. int CreateCommand(LPVOID pBuffer) = 0; int EditCommand(LPVOID pBuffer) = 0; int DeleteCommand(LPVOID pBuffer) = 0; void UpdateServerPriority(void) = 0; public: RequestServer(void); ~RequestServer(void); }; RequestServer::RequestServer(void) Constructor starts the socket to listen for incoming requests. RequestServer::~RequestServer(void) Shuts down the listening socket. int CheckVersion(LPVOID pBuffer) Check the major and minor version numbers of the data in the buffer. Returns a negative number in case of error. int InterpretCommand(LPVOID pBuffer) Forks to appropriate function (Create/Edit/Delete Command) depending on the command in the buffer. On successful completion, calls UpdateServerPriority. int CreateCommand(LPVOID pBuffer) A function stub that will be implement as the actual Create command. int EditCommand(LPVOID pBuffer) A function stub that will be implement as the actual Edit command. int DeleteCommand(LPVOID pBuffer) A function stub that will be implement as the actual Delete command. 29 7.8 USERNAMESERVER (DERIVED CLASS) class UserNameServer: public RequestServer { protected: int CreateCommand(LPVOID pBuffer); int EditCommand(LPVOID pBuffer); int DeleteCommand(LPVOID pBuffer); void UpdateServerPriority(void); public: UserNameServer(void); }; UserNameServer::UserNameServer(void) - Calls base class handler. - Sets up base class protected variables. int UserNameServer::CreateCommand(LPVOID pBuffer) - Create an internal user name using the name provided and the domain name. - Create a login with the generated user name and the password. int UserNameServer::EditCommand(LPVOID pBuffer) - Reconstruct internal user name. - Make necessary account changes. int UserNameServer::DeleteCommand(LPVOID pBuffer) - Reconstruct internal user name. - Delete the login. 7.9 DOMAINSERVER (DERIVED CLASS) class DomainServer: public RequestServer { protected: int CreateCommand(LPVOID pBuffer); int EditCommand(LPVOID pBuffer); int DeleteCommand(LPVOID pBuffer); void UpdateServerPriority(void); public: DomainServer(void); }; DomainServer::DomainServer(void) - Calls base class handler. - Sets up base class protected variables. int DomainServer::CreateCommand(LPVOID pBuffer) - Check for availability of the domain name (should be available). - Prepare the mail message. - Send the message with one copy sent to a local address for record. - Associate the domain name with the current account. int DomainServer::EditCommand(LPVOID pBuffer) - Check for availability of domain name (should not be available) - Call create command to register doamin name. - Associate new domain name with current record. - Return warning if the domain points to some other DNS server. int DomainServer::DeleteCommand(LPVOID pBuffer) - Remove domain name association with account. 30 7.10 DNS_SERVER (DERIVED CLASS) class DNS_Server: public RequestServer { protected: int CreateCommand(LPVOID pBuffer); int EditCommand(LPVOID pBuffer); int DeleteCommand(LPVOID pBuffer); void UpdateServerPriority(void); public: DNS_Server(void); }; DNS_Server::DNS_Server(void) - Calls base class handler. - Sets up base class protected variables. int DNS_Server::CreateCommand(LPVOID pBuffer) - Append a primary entry to the file /var/named/named.boot - Create a directory named DO on the path "/var/named" if the directory is not present. - Create a file named DOMAIN.COM on this path. - Fill up the file with the basic information. int DNS_Server::EditCommand(LPVOID pBuffer) - If : domain name has changed, run the delete and create commands. - Else: Make changes to DOMAIN.COM file and increment the count. int DNS_Server::DeleteCommand(LPVOID pBuffer) - Delete old entry from "named.boot" file. - Delete DOMAIN.COM file. 7.11 VIRTUALWEBSERVER (DERIVED CLASS) class VirtualWebServer: public RequestServer { protected: int CreateCommand(LPVOID pBuffer); int EditCommand(LPVOID pBuffer); int DeleteCommand(LPVOID pBuffer); int AddUser(LPVOID pBuffer); void UpdateServerPriority(void); public: VirtualWebServer(void); }; VirtualWebServer:: VirtualWebServer (void) - Calls base class handler. - Sets up base class protected variables. int VirtualWebServer::CreateCommand(LPVOID pBuffer) - int VirtualWebServer::EditCommand(LPVOID pBuffer) - int VirtualWebServer::DeleteCommand(LPVOID pBuffer) - int VirtualWebServer::AddUser(LPVOID pBuffer) - 31 7.12 INCOMINGMAILSERVER (DERIVED CLASS) class IncomingMailServer: public RequestServer { protected: int CreateCommand(LPVOID pBuffer); int EditCommand(LPVOID pBuffer); int DeleteCommand(LPVOID pBuffer); int AddUser(LPVOID pBuffer); void UpdateServerPriority(void); public: IncomingMailServer(void); }; IncomingMailServer:: IncomingMailServer (void) - Calls base class handler. - Sets up base class protected variables. int IncomingMailServer::CreateCommand(LPVOID pBuffer) - Create the directories. - Setup the links - Create necessary files - Make additions to mailer_table and sendmail.cR files. - Run makemap and HUP sendmail. int IncomingMailServer::EditCommand(LPVOID pBuffer) - Make changes to files .forward, .autorespond and .deliver. - Run makemap and HUP sendmail. int IncomingMailServer::DeleteCommand(LPVOID pBuffer) - Delete the directory /path_to_toaster/domain_name. int VirtualWebServer::AddUser(LPVOID pBuffer) 7.13 FAILED TASK QUEUE This is a separate process which may or may not run on the provisioning computer. This process will cycle through the list of failed tasks and do the following steps - - Identify the server to be contacted. - - Send request to the server. - - Update log if request succeeds. This process will run a separate thread to manage server prioritisation. A server's priority is decided by server rating (calculated as a weighted sum of all resources on the server) and a multiplier. This multiplier is set to 10 for a normal functioning server. When a task on a server fails, this multiplier is set to 0. The server prioritisation thread is a thread which sleeps most of the time and at regular intervals wakes up to increment the priorities which are less than 10. 7.14 MACHINE ALLOCATION FOR NEW/ALTERED DOMAIN. A simple function. Accesses the server priority information for the given server type and returns the highest priority server. 7.15 DOMAIN IS AVAILABLE Returns true if domain registration can be attempted. The registration id not guaranteed to succeed. - - Run "whois" to find out whether the domain is already registered by InterNIC. - - Check local database to confirm that the domain name is not being processed for some other user. 32 7.16 DOMAIN REGISTRATION CONFIRMATION BY INTERNIC The actual mail will be read manually. The information coming to this module will be used to flag the log as either completed or failed. 7.17 CHECK USER INFO FOR EMPTY FIELDS This module will check all critical fields (like password, user name etc.) for completeness. 7.18 CHECK USER INFO FOR INVALID DATA This module will check user data for validity eg. Both passwords must match, user name size limits etc. 7.19 SAVING AND RETRIEVING DEMOGRAPHIC INFORMATION. Write demographic information to database and retrieve from database on basis of user key. 7.20 MAKING BILLING ENTRIES. This function will be called by provisioning server after a transaction is logged. This module will make non-accounting entries only. 7.21 ADMINISTRATION INTERFACE This is a low priority module which will give the administrators a way to send commands to the provisioning system. This will have added features to show administrators the current status of the system, failed task queue etc. 33 8 TERMINOLOGY 8.1 TRANSACTION A transaction is a user request where a user provides a form load of data and asks for the data to be processed. A example of a transaction is User filling up a form providing his login name, password, address, name, credit card number, type of service he needs etc on form and sending it for processing. 8.2 TASKS The transaction described above can be broken down into one or more tasks like - - Creating the user login - - Setting up the POP mail account. - - Setting up the Web page In the system, the tasks will be broken down into critical tasks (eg. Creating user login) which must be completed for the transaction to be considered successful and other tasks that can fail at the time of running the transaction, but can be completed later. 8.3 PROVISIONING SERVER Provisioning server is the server that will support domain setup and management utilities. Ideally it will be one or more machines running the provisioning software. This server will talk to other servers viz. DNS, FTP, POP etc and set them up as per the user requirements. 8.4 SERVERS The term "servers" has been used to refer to servers other than the provisioning server. These servers will be DNS, Incoming mail and Virtual Web Server. Actually, there will be multiple machines providing each of these services. The provisioning machines not only need to decide which type of server to talk to, but also which specific machine to talk to. The provisioning servers will then pass on the user requests to these machines which in turn will actually process them. 8.5 USER The user here is a person or entity who interacts with the system and initiates a transaction. For example, someone who wants to set up a domain with FTP facility and fills up the form necessary and presents is a user in this context. POP : No action FTP : Same to all machines mail: same to all machines virtual web : Number of virtuals in the confs. 34 EX-10.5 14 EXHIBIT 10.5 LEASE-TO-OWN SCHEDULE NO. This Schedule and its supplements incorporate by this reference the terms and conditions of the Master Lease Agreement, Number 9286 between Ascend Credit Corporation (Lessor) and Consumer Net Marketplace, Inc. (Lessee). 1. SUPPLIER: Ascend Communications, Inc. 2. LOCATION OF EQUIPMENT: See Attachment A 3. EQUIPMENT VALUE: $ 373,917.00 (exclusive of sales and/or use taxes). 4. LEASE TERM: The Lease Term of the Equipment described in this Schedule shall begin on the Rent Commencement Date referenced below in Paragraph 5 and its expiration date shall be 36 months after such Rent Commencement Date. 5. RENT: $ 12,739.35 per month (exclusive of sales and/or use taxes) due and payable on the first day of the calender month following the Rent Commencement Date on a prorated basis from the Rent Commencement Date to the end of the initial calender month, and thereafter in full on the first day of each succeeding month of the Lease Term. The advance Rent payment shall be $12,739.35 This amount includes $ for the first month, and $ n/a for the last 1 month(s) of the Lease Term. 6. RENT COMMENCEMENT DATE: July 1,1998 ---------------- 7. PURCHASE OPTION: Lessee shall be required to purchase the Equipment for one dollar ($1.00). The purchase price shall be payable upon the expiration date of the Lease Term. Lessee shall be responsible for all applicable sales and/or use taxes on the Equipment. Upon payment of the purchase price, Lessor shall execute and deliver to Lessee such documents as Lessee may reasonably request in order to vest in Lessee all right, title and interest in the Equipment. S. DESCRIPTION OF EQUIPMENT: See Attachment A which is attached hereto and made a part hereof by this reference. The person executing this Schedule on behalf of Lessee hereby certifies that he or she has read and is duly authorized to execute this Schedule Accepted by: Ascend Credit Corporation LESSEE Consumer Net Marketplace, Inc BY ------------------ NAME: NAME: Frederick Rice Mark E. Alman TITLE: Corporate Finance Manager TITLE: President Date: 7/1/98 Date: 6/23/98 ADDENDUM This Addendum is to Schedule No. 01 (the 'Schedule") to Master Lease Agreement No.9285 by and between Ascend Credit Corporation ("Lessor) and Consumer Net Marketplace, Inc. ("Lessee"). Paragraph 5 Paragraph 5 is deleted and replaced by the following: - "RENT: $12,739.35 per month (exclusive of sales and/or taxes) due and payable at the rent Commencement Date and on the same date of each succeeding month of the Lease Term. The advance rent payment shall be $12,739.35. This amount includes $12,739.35 for the last month of the lease term (exclusive of sales and/or use taxes)." Except as modified by this Addendum the terms and conditions of the Schedule shall remain in full force and Effect. Accepted by: Ascend Credit Corporation Lessee: Consumer Net Marketplace, Inc. By: By: Name: Mark E. Alman Name: Frederick Rice Title: Corporate Finance Manager Title: President Date: 7/1/98 Date: 6/23/98 MLA# 9286 REVISED LESSEE: Consumer Net Marketplace, Inc. 1919 Williams Street, #220 Simi Valley, CA 93065
Sch# Location Address Equipment Value Rent Deposit - ---- ---------------- --------------- ---- ------- 1-01 Consumer Net Marketplace, Inc. 296,447.00 10,099.95 10,099.95 1900 Los Angles Ave. Simi Valley, CA 93065 1-02 Consumer Net Marketplace, Inc. 77,470.00 2,639.40 2,639.40 1900 Los Angles Ave. Simi Valley, CA 93065 GRAND TOTALS 373,917.00 12,739.35 12,739.35
LOCATION: SCHEDULE # 928-O1-O1 Consumer Net Marketplace, Inc 1900 Los Angeles Ave Simi Valley, CA 93065
QTY PART # DESCRIPTION EXTENDED 4 TNT-2AC TNT DUAL AC BASE CHASSIS 52,250 4 TNT-SL-HA192 HYBRID ACCESS 192 SIW ENABLE $21,120 4 TNT-SR-STD STANDARD S~W RELEASE FOR TNT $0 4 POW-CORD-DOM DOME~C POWER CORD $0 4 TNT-SP-RM19 19" RACK MOUNT KIT $0 4 TNT-SO-ISDN ISDN SIGNALLING SIW ENABLE $8,800 3 TNT-SL-E100 100 BASE-T ETHERNET CARD $12,375 1 TNT-SL-CT3 CHANNELIZED T3 MODULE $11,000 2 TNT-SL-CTl OCTAL CTI TI/PRI MODULE $10,120 9 TNT-SL-DM48-556 SERIES 5648 PORT DIGITAL MODEM CARDS $118,800 2 TNT-SL-FLSB FMO MODULE PLUS FRAME RELAY $15,400 3 TNT-SP-SHIELD SHIELD TO ROUTE EXHAUST TO REAR $0 1 GRE-I 6-AC GRE 1600 IP SWITCH BASE SYSTEM $1 7,60 1 GRE-ACI6 INSTALLED GRE POWER SUPPLY $0 1 GRE-CBl6 INSTALLED GRE CONTROL BOARD $0 1 GRF-SR-16-STD INSTALLED SIW FOR GRE 1600 $0 1 GRE-SW-6 INSTALLED GRF IP SWITCH BOARD $0 1 GRE-MC-HSSI HSSI IP FORWARD MEDIA CARD $9,625 1 GRE-MC-EN4 101100 BASE-T IP FORWARD MEDIA CARD $7,700 1 GRE-AC-ACI6 REDUNDANT AC POWER SUPPLY $3,685 1 GRE-MEM-128 128 MB DRAM $2,475 1 ANC-SU-NT NAVISACCESS SIW, WIN NT $5,497 Total: $296,447
LOCATION: SCHEDULE # 9286-01-02 Consumer Net Marketplace, Inc. 1900 Los Angeles Ave. Simi Valley, CA 93065
QTY PART# DESCRIPTION EXTENDED 7 MXHP-2T1-48-NA MAX 4048 WI 2T1/PRl & 56-K MODEMS $66,500 10 P130-BRUI-FFI PIPELINE 130W/TI & BRI $10,970 Total: $77,470
EX-10.6 15 EXHIBIT 10.6 CNM NETWORK 1900 LOS ANGELES AVENUE, 2ND FLOOR SIMI VALLEY, CA 93065 DATE 8/12/98 - ------------------------------ -------------------------- VENDOR SHIP TO - ------------------------------ -------------------------- ASCEND CNM NETWORK 1750 HARBOR BAY PARKWAY 1900 LOS ANGELES AVENUE, ALTADENA, CA 94502 2ND FLOOR SIMI VALLEY, CA 93065 - ------------------------------ -------------------------- ------------------- EXPECTED FOB ------------------- 8/12/98 -------------------
- -------------------------------------------------------------------------------------------------------------------------- ITEM NUMBER DESCRIPTION QTY RATE AMOUNT - -------------------------------------------------------------------------------------------------------------------------- TNT-2AC Base AC MAX TNT System (2 pwr supp. & I 9" rack kit) 20 11,875.00 237,500.00 - -------------------------------------------------------------------------------------------------------------------------- TNT-SO-HA 192 HDLC Slot Card 20 4,800.00 96,000.00 - -------------------------------------------------------------------------------------------------------------------------- TNT-SR ISDN Signaling Software 20 2,000.00 40,000.00 - -------------------------------------------------------------------------------------------------------------------------- TNT-SL-E100-TX 4 port/ 10 mbps + 1 100 mbps Ethernet module 20 3,750.00 75.000.00 - -------------------------------------------------------------------------------------------------------------------------- TNT-SL-CT1 8-port Channelized T1 Slot Card 20 4,600.00 92,000.00 - -------------------------------------------------------------------------------------------------------------------------- TNT-SL-DM48-S56 48 port/ Digital Modern Card (this card takes 2 slots)-56K 80 12,000.00 960,000.00 - -------------------------------------------------------------------------------------------------------------------------- TNT-SL-FLSB I 0-port unchannelized T-1 Slot card with Frame s/w 20 7,000.00 140,000.00 - -------------------------------------------------------------------------------------------------------------------------- TNT-SL-UDS3-A ATM Unchannelized DS3 card 5 6,498.00 32,490.00 - -------------------------------------------------------------------------------------------------------------------------- GRF-4-AC GRF 400 IP Switch Base System with AC Power 4 7,825.00 31,300.00 - -------------------------------------------------------------------------------------------------------------------------- GRF-MC-HSSI GRF-2-Port HSSI Forwarding Media Card 5 8,750.00 43,750.00 - -------------------------------------------------------------------------------------------------------------------------- GRF-MC-EN4 10/100 Base-T IP Forward1ng Card (10/1 00 Base-T/Q) 5 7,000.00 3 5,000.00 - -------------------------------------------------------------------------------------------------------------------------- GRF-AC-Ac16 Second AC Power Supply for GRP 400 4 2,750.00 11,000.00 - -------------------------------------------------------------------------------------------------------------------------- GRF-MEM-128 128 MB DRAM 4 2,250.00 9,000.00 - -------------------------------------------------------------------------------------------------------------------------- MXV-GWT-48 Max 6000 w/48 ports DSP Multivoice slot cards 11 18,000.00 198,000.00 - -------------------------------------------------------------------------------------------------------------------------- MV-AMNT-32 Windows NT v.4.0 Application Software for 32 Gateways 1 7,500.00 7,500.00 - -------------------------------------------------------------------------------------------------------------------------- DSLTNT-AC DSL TNT with AC Power 4 4,450.00 17,800.00 - -------------------------------------------------------------------------------------------------------------------------- TNT-SP-AC Redundant AC power for DSL TNT 4 2,500.00 10,000.00 - -------------------------------------------------------------------------------------------------------------------------- TNT-SL-SDSLH24 24-Port SDSL high performance line cared for TNT 4 5,000.00 20,000 00 - -------------------------------------------------------------------------------------------------------------------------- DSL-SO-SDSL Adds Support for SDSL cards and includes ISDN Signaling OP 4 2,000.00 8,000.00 - -------------------------------------------------------------------------------------------------------------------------- TNT-SL-FL1 0 I 0-Port Unchannelized T-1 slot card 4 5,000.00 20,000 00 - -------------------------------------------------------------------------------------------------------------------------- DSL-S DSLPipe for SDSL48 48 575.00 27,600.00 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- 11014A CBX 500 Bare Chassis - N + 1 5 7,500.00 37,500.00 - -------------------------------------------------------------------------------------------------------------------------- 11411 CBX 500 Model 40 IP Enabled Switch Processor 5 23,500.00 117,500 00 - -------------------------------------------------------------------------------------------------------------------------- 11013A CBX 500 Power N + 1 Supply 5 3,375.00 16,875.00 - -------------------------------------------------------------------------------------------------------------------------- 11023M CBX 500 Switch Processor Adapter 5 4,000.00 20,000 00 - -------------------------------------------------------------------------------------------------------------------------- 80011 Installation Guide 1 38.00 38.00 - -------------------------------------------------------------------------------------------------------------------------- 11030 8-Port DS3/E3 ATM Processor Card 5 22,000.00 1 10,000 00 - -------------------------------------------------------------------------------------------------------------------------- 11031 8-Port DS3/E3 Atm Connection Panel 5 2,O00.00 10,000.00 - -------------------------------------------------------------------------------------------------------------------------- 11107 4-Port 10/100 Ethernet Processor Card 5 23,500.00 117,500.00 - -------------------------------------------------------------------------------------------------------------------------- 11108 4-Port 10/100 Ethernet Connector Panel 5 1,500.00 7,500.00 - -------------------------------------------------------------------------------------------------------------------------- 70038 Software License - IP Navigator License for CBX 500 5 7,500.00 37,500.00 - -------------------------------------------------------------------------------------------------------------------------- 70030A Navis Core Support for 1-10 switches 1 10,000.00 10,000 00 - -------------------------------------------------------------------------------------------------------------------------- TOTAL $2,596,353.00 - --------------------------------------------------------------------------------------------------------------------------
EX-10.7 16 EXHIBIT 10.7 SALES AGREEMENT This Agreement ("Agreement"), effective 3/4/98, is between PACIFIC BELL INTERNET SERVICES, a California corporation ("PBI") and CNM NETWORK ("CUSTOMER"). This Agreement sets forth the terms and conditions under which PBI shall provide Internet Access Services (hereinafter "Services") to Customer. SECTION I 1. TERMS OF THE SERVICE A. Service will commence on the Service Activation Date and will continue for the term specified in the applicable Sale Order. The term of the Service shall automatically renew on a month to month basis on the terms and conditions set forth herein, unless the terminating party delivers to the other party sixty days advance written notice of termination. Upon renewal under this provision, the price to Customer will be as stated in PBI's price list in effect at the time of renewal for month to month Service. B. The Service Activation Date shall be the date Customer has connectivity over the transport network to PBI's Internet Access Network. In the case of connectivity via ISDN, Frame Relay, SMDS, or ATM, connectivity shall have occurred when a physical connection has been installed and a Private Virtual Circuit (PVC) has been established to permit routing of traffic from Customer's equipment to PBI's Internet Access Network. The Activation Date shall not be dependent on correct configuration of Customer's computer equipment, applications (e.g. Domain Name Service, Electronic Mail Service), Local Area Network or Wide Area Network. 2. SALES ORDERS A. Customer may issue Sales Orders from time to time. Each Sales Order shall be substantially in the form of Exhibit A. Each Sales Order shall (i) be deemed to be a separate and independent Agreement between the parties; (ii) incorporate all provisions of this Agreement as it may from time to time be amended and agreed to be the parties, including any appendices, exhibits and other documents attached hereto, and (iii) be required initially, with each new feature package, and with each new location thereafter. B. Acceptance of this Agreement by PBI, and the provisions of Services and/or Equipment (if the Equipment option is chosen), under this Agreement, and any applicable Sales Orders, is conditioned on completion of the Credit Verification Form, Exhibit B, and verification of the credit information provided therein. PBI will, at its discretion, check the credit history of the Customer prior to acceptance of any Sales Order. PBI reserves the right to reject any Sales Order based on the results of the credit check, or to impose additional terms and conditions, in accordance with its credit policies. In the event additional terms and conditions are needed, such additional terms and conditions shall be set forth in an amendment to this Agreement, or in a Sales Order issued under this Agreement. C. PBI may require an advance payment, progress payments, or other form of security as a condition of acceptance of any Sales Order. 3. BILLING AND COLLECTIONS A. For all charges, including installation charges and taxes, if applicable, PBI will (i) send Customer an invoice, (ii) bill Customer on the Customer's monthly Pacific Bell telephone bill, or (iii) bill the Customer's credit card. The first invoice for Service will include: (1) the pro-rated charges for the remainder of the current month; (2) the total charges for the following month; (3) the usage charges for the previous month, and (4) the installation charges, as applicable. Monthly recurring Service charges shall commence on the Service Activation Date, and shall be billed in advance of Service for months following the first month of Service. Invoices are due and payable in full upon receipt. If any portion of payment is received after the late payment date, a monthly late charge may be charged to Customer as liquidated damages. The monthly late charge will be 1.5% of the entire outstanding balance for each month or portion thereof (18% per annum) for which the balance remains. B. In the event Customer fails to pay charges billed by PBI or its billing agent is unable to bill Customer, PBI reserves the right to bill outstanding sums in any of the alternative methods identified in paragraph 3.A. PBI may assign unpaid late balances to a collection agency for appropriate action, in the event legal action is necessary to collect on balances due, Customer agrees to reimburse PBI for all expenses incurred to recover sums due, including attorneys fees and other legal expenses. C. Customer's basic telephone Services -- such as Contrax Measured Business Service, or ISDN -- will not be disconnected for nonpayment of charges for Services provided under this Agreement. However, PBI may suspend or discontinue Services if charges for these Services are not paid. 4. INTERRUPTION OF SERVICE Customer understands and agrees that temporary interruptions may occur as normal and reasonable events in the provision of the Service. PBI agrees to exercise reasonable care to prevent such occurrences. Customer further understands and agrees that PBI has no control over third party networks Customer may access in the use of the Service and therefore, delays and disruptions of other network transmissions are completely beyond the control of PBI. 5. LIMITATION OF LIABILITY A. PBI shall make reasonable efforts to provide continuous uninterrupted, expedient and error-free Service to Customer. In no event shall PBI be liable to Customer or any other person for any special, incidental, consequential or punitive damages of any kind, including without limitation, loss of profits, loss of income or cost of replacement Services. B. PBI's liability for damages for interruption of Service, or for mistakes, omissions, delays, errors and defects in the provision of the Service, shall in no event exceed an amount equal to the prorata charges to Customer for the period during which the Services are affected. C. Any software provided hereunder is provided on an as is basis. PBI makes no express or implied warranties (including those of merchantibility or fitness for a particular purpose) with respect to the software provided. D. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, PBI HEREBY DISCLAIMS ANY AND ALL WARRANTIES INCLUDING IMPLIED WARRANTIES OF FITNESS, MERCHANTIBILITY AND PERFORMANCE. E. PBI MAKES NO WARRANTY THAT THE SERVICE WILL MEET CUSTOMER'S REQUIREMENTS, OR THAT THE SERVICE WILL BE UNINTERRUPTED, TIMELY, SECURE, OR ERROR FREE; NOR DOES PBI MAKE ANY WARRANTY AS TO THE ACCURACY OR RELIABILITY OF ANY INFORMATION OBTAINED THROUGH THE SERVICE. CUSTOMER UNDERSTANDS AND AGREES THAT ANY MATERIAL AND/OR DATA DOWNLOADED OR OTHERWISE OBTAINED, THROUGH THE USE OF THE SERVICE, IS DONE AT CUSTOMER'S OWN RISK, AND THAT CUSTOMER WILL BE SOLELY RESPONSIBLE FOR ANY DAMAGE TO CUSTOMER'S COMPUTER SYSTEM OR LOSS OF DATA WHICH RESULTS FROM THE DOWNLOAD OF SUCH MATERIAL AND/OR DATA. F. PBI MAKES NO WARRANTY REGARDING ANY TRANSACTIONS EXECUTED THROUGH THE SERVICE, AND CUSTOMER UNDERSTANDS AND AGREES THAT SUCH TRANSACTIONS ARE CONDUCTED ENTIRELY AT CUSTOMER'S OWN RISK. 6. CANCELLATION AND TERMINATION A. In the event a ruling, regulation or order issued by a judicial, legislative or regulatory body causes PBI to believe that this Agreement may be in conflict with such rules, regulations or orders, the Customer shall either agree to modify this Agreement to conform to the terms of such rules, regulations or orders, or PBI may terminate this Agreement without liability. B. Customer may terminate any Sales Order upon thirty days prior notice to PBI. However, upon termination, Customer shall pay any applicable cancellation charge as set forth in subpart D of this paragraph. C. If Customer fails to pay any charge when due, including but not limited to installation charges or taxes, and such condition continues unremedied for a period of thirty days, or if Customer fails to perform or observe any other material term or condition of this Agreement, or if Customer provides false or inaccurate information which is required for the provisions of the Service or that which is necessary to allow PBI to bill Customer for the Service, and such condition continues unremedied for thirty days, Customer shall be in default and PBI may terminate this Agreement. Upon such termination by PBI, Customer shall be liable for any applicable charges, including a Cancellation Charge. D. A Cancellation Charge for early termination of Services will be applied to the final bill. The Cancellation Charge shall be in a sum equal to the installation charges waived, plus any recurring charge(s) for the remaining balance of the term of the Agreement. 7. ASSIGNMENT AND SUBCONTRACTING A. Either party may, at any time, assign its rights and delegate its duties under this Agreement to any present or future affiliate of such party; or PBI may assign to any other company if such assignment will, in PBI's opinion, provide consistent Services to Customer, or assist in the implementation of any law or ruling issued by any judicial or other governmental authority. The assigning party shall give written notice of any such assignment B. PBI may subcontract any or all of the work and duties to be performed by it under this Agreement, but shall retain responsibility for the work subcontracted. 8. GOVERNING LAW This Agreement shall be construed in accordance with the laws of the State of California. 9. MODIFICATION OF TERMS AND CONDITIONS This Agreement may be amended by mutual Agreement of the parties at any time during the term of this Agreement. No amendment of this Agreement shall be valid unless in writing and duly executed by both parties. 10. FORCE MAJEURE Neither PBI nor Customer shall be responsible for damages or for delays or failures in performance resulting from acts or occurrences beyond their reasonable control, including, without limitation: fire, lightning, explosion, power surge or failure, water, acts of God, war, revolution, civil commotion or acts of civil or military authorities or public enemies, any law, order, regulation, ordinance, or requirement of any government or legal body or any representative of any such government or legal body; or labor unrest, including without limitation, strikes, slowdowns, picketing or boycotts; inability to secure raw materials, transportation facilities, fuel or energy shortages, or acts or omissions of other common carriers. 11. USE LIMITATIONS A. Customer agrees to comply with the rules, regulations and policies, including but not limited to, PBI's Acceptable Use Policy (located at HTTP://PUBLIC.PACBELL.NET/DIALUP/USEPOLICY.HTML), all policies applicable to PBI and all policies applicable to any network that is accessed through PBI. Violation of any such rules, regulations and policies, or any attempts to break security or to access an account which does not belong to Customer, shall be considered a material breach of contract, and PBI may terminate this Agreement without liability. Upon such termination by PBI, Customer shall be liable for any applicable charges, including cancellation charges. B. Nothing contained in this Agreement may be construed to convey to Customer any interest, title, or license in the user ID, electronic mail address, Universal Resource Locator or domain name used by Customer in connection with the Service. C. PBI reserves the right to suspend or terminate Service to the Customer, or suspend or terminate any user ID, electronic mail address. Universal Resource Locator or domain name used by Customer in the event it is used in a manner which (i) constitutes violation of any law, regulation or tariff (including, without limitation, copyright and intellectual property laws); (ii) is defamatory, fraudulent, obscene or deceptive; (iii) is intended to threaten, harass or intimidate; (iv) tends to damage the name or reputation of PBI, its parents, affiliates and subsidiaries; or (v) interferes with other Customers' use and enjoyment of the Services provided by PBI. D. Customer understands and agrees that any attempt to break security, or to access an account which does not belong to Customer, shall be considered a material breach of this Agreement, and such breach may result in suspension or termination of the Service. Customer further agrees to immediately notify PBI of (i) any unauthorized use of Customer's account and/or (ii) any breach, or attempted breach, of security known to Customer. 12. CUSTOMER RESPONSIBILITIES A. Unless specified in an accepted Sales Order, which is executed pursuant to this Agreement, Customer is solely responsible for provisioning, configuration and maintenance of all Customer premises equipment (hardware and software), including without limitation: TCP/IP routers, CSU/DSU line interface units, primary domain name servers, electronic mail servers, netnews servers and firewall or proxy servers. PBI shall not be responsible for delays in the provision of Service resulting form incompatibility of such equipment, or resulting from improper provisioning, configuration or maintenance of such equipment. B. PBI may provide configuration files for certain routers, at its sole discretion, and only as a convenience to Customer. PBI recommends that Customer obtain RFC compliance information from the manufacturer of their routers. C. Customer is responsible for choosing a domain name and submitting an application for address assignment or transfer to PBI. PBI makes no warranties with respect to the availability of any domain name. Nothing contained in this Agreement may be construed to convey to Customer any interest, title, or license in the user ID, electronic mail address, Universal Resource Locator or domain name used by Customer in connection with the Service. 13. TRANSPORT SERVICES A. Customer must obtain local transport services from Pacific Bell for Dedicated Internet Access. Rates, terms and conditions applicable to Pacific Bell transport services are set forth in tariff schedules filed with the California Public Utilities Commission, and are not in any way affected by the terms of this Agreement. Customer is responsible for payments of tariffed network services needed for use of the Service. ANY LONG DISTANCE MEASURED SERVICE OR TOLL CHARGES INCURRED BY CUSTOMER TO ACCESS THE SERVICE DURING CUSTOMER'S USE OF THE SERVICE SHALL BE CUSTOMER'S SOLE RESPONSIBILITY. B. Customer must select a complementary Global Service Provider for interconnection services. Rates, terms and conditions applicable to complementary Global Service Provider interconnection services are not in any way affected by the terms of this Agreement. 14. SOFTWARE PBI will provide Customer with the Service software ("Client Software" or "Software") as specified in the Sales Order, together with necessary user guides and other documentation. Use of the Client Software is subject to the Software licensing provisions set forth in this Agreement enclosed in the Client Software Package. 15. GENERAL A. If any portion of this Agreement is found to be invalid or unenforceable, the parties agree that the remaining portions shall remain in effect. The parties further agree that in the event such invalid or unenforceable portion is an essential part of this Agreement, they will immediately begin negotiations for a replacement. B. If either party ever fails to enforce any right or remedy available to it under this Agreement, that failure shall not be construed as a waiver of any right or remedy with respect to any other breach or failure by the other party. C. Any legal action brought by Customer against PBI with respect to this Agreement must begin within two years after the cause of action arises. D. Any terms which by their sense and context are intended to survive expiration or termination of this Agreement shall survive. E. This Agreement constitutes the entire agreement between the parties, and consists of the foregoing terms and conditions and the terms and conditions on the attachments to this Agreement, which are incorporated herein by this reference. F. Notices and other communications shall be transmitted in writing by U.S. Mail postage prepaid and shall be effective four days after the sending date. To PBI: PBI, 303 Second street, North Tower, 6th Floor, Suite 650, San Francisco, CA 94107, Attn: Vice President, Sales. To Customer: As set forth below, or as indicated in the Sales Order. SECTION II. The terms and conditions of this Section II shall not apply if Equipment is not being purchased pursuant to this Agreement. 1. SALE OF EQUIPMENT A. Title to Equipment provided by PBI under this Agreement shall pass to the Customer when all charges have been paid in full. B. Equipment provided by PBI under this Agreement, PBI shall have: (1) A purchase money security interest in the Equipment to secure the purchase price of the Equipment until the purchase price is paid in full; and (2) a security interest in the Equipment to secure all installation, sales taxes and Service charges until the charges are paid in full. Customer agrees to execute and deliver all documents requested by PBI to protect and maintain these security interests. C. Risk of loss for Equipment provided to Customer under this Agreement shall pass to Customer on delivery. D. PBI shall transfer to Customer the warranty provided by the original manufacturer of the software or Equipment provided pursuant to this Agreement. PBI makes no express or implied warranties (including those of merchantibility or fitness for a particular purpose) with respect to the software or Equipment provided. 2. INSTALLATION OF EQUIPMENT A. In the event PBI provides on site installation of Equipment provided pursuant to this Agreement, Customer shall provide reasonable access to Customer's premises, and adequate communications facilities and work space, to enable PBI to perform its obligations under this Agreement. Customer shall make premises free from all hazardous material (e.g. asbestos) and dangerous conditions prior to performance of work by PBI. B. Installation is complete when: - Equipment is configured per manufacturer specifications, or other Customer-specified configuration provided to PBI prior to installation. - Equipment is connected to network service, as applicable to the type of units to be installed. - Equipment has been tested with network service provided by Pacific Bell, which is ordered by Customer, outside this Agreement. - Equipment operates as per manufacturer specifications. C. Installation does not include: - Installation or other work related to inside wire. - LAN configurations and testing of applications. - Additional site visits for Customer missed appointments, site not ready, or additional testing or configuration requested by Customer. Additional site visits will be billed on a time and materials charge at the then current rate, at a minimum of two hours per site visit. - Fine tuning of application related communication. - Administration of installed units, or configuration changes requested after installation. - Site visits to determine circuit or jack demarcation or termination, or to determine equipment placement. 3. MAINTENANCE OF EQUIPMENT A. PBI will provide onsite repairs or maintenance ("Maintenance Services") for Equipment provided pursuant to this Agreement. In the event Customer purchases Maintenance Service from PBI, Customer shall provide reasonable access to Customer's premises, and adequate communications facilities and work space, to enable PBI to perform its obligations under this Agreement. Customer shall make premises from all hazardous material (e.g. asbestos) and dangerous conditions prior to performance of work by PBI. B. If the Equipment provided pursuant to this Agreement has been altered or repaired by any other party than PBI, without PBI's written consent, or a malfunction is the result of mishandling, abuse, misuse or improper storage, installation, maintenance or operation by other than PBI (including use in conjunction with equipment electronically or mechanically compatible) or if the Equipment has been damaged by fire, explosion, power failure, any act of God, or by any other cause whatsoever other than PBI, then PBI has no obligation to provide Maintenance Service. C. If PBI dispatches to the Customer's site and is not able to perform Maintenance Service on Equipment provided pursuant to this Agreement due to lack of access or other acts or omissions on the part of the Customer, PBI will bill and the Customer will reimburse PBI at PBI's then applicable and then current time and material rates. D. If PBI dispatches to the Customer's site to perform Maintenance Services on Equipment provided pursuant to this Agreement and the trouble is not found or the trouble is related to Equipment not covered by this Agreement, PBI will bill and the Customer will reimburse PBI at PBI's then applicable and then current rates for travel and time spent. E. Title to parts installed on Equipment provided pursuant to this agreement during the Maintenance Services process will pass to Customer upon installation. Title to parts removed during the rendering of the Maintenance Services will pass to PBI upon removal. F. For Maintenance Services of any Equipment provided pursuant to this Agreement under a manufacturer's warranty, PBI may, at its option, repair or replace such Equipment at Customer's location or at another location specified by PBI. G. Customer is responsible for the costs of shipping Equipment provided pursuant to this Agreement for services under manufacturer's warranty. Should equipment received for service prove to be in good working order, such Equipment shall be returned to Customer at Customer's expense. SECTION III. The terms and conditions of this Section III shall not apply if Web Hosting Service is not purchased pursuant to this Agreement. 1. CUSTOMER RESPONSIBILITY. A. Customer will furnish PBI with the pre-developed web site that is to be hosted by PBI. Any change to this web site will be provided by the Customer to PBI in the form of "ready to implement" HTML pages. B. Customer shall allow PBI continuous access to Customer's web site to the extent necessary for the purpose of providing security, maintenance and repair of system software, facilities, and operational support systems. C. Customer shall be liable for any damage to PBI equipment, hardware, software, facilities and systems which may be caused by or result from: (1) negligent or willful acts of omissions of Customer or its personnel; or (2) malfunction or failure of equipment or software caused by Customer by its agents, employees or suppliers. 2. INSTALLATION Installation is complete then (1) Customer's web site is configured per PBI's specifications, (2) Customer's web site has been tested with network service, (3) Customer has received domain name from the InterNIC, or agrees to use a PBI designated URL and (4) Customer's web site is connected to the Internet. 3. ADDITIONAL CHARGES A. Additional charges for Web Hosting shall apply if one or more of the following is required: (1) installation or other work related to custom web sites; (2) LAN configurations and testing of applications; (3) additional testing or configuration requested by Customer; (4) alterations or configuration changes requested after installation has been completed. B. PBI's invoice will clearly state any excise, sales, use or other taxes applicable to Customer's purchase of Web Hosting Service(s) from PBI. If Customer presents PBI with a valid exemption certificate (in the form of Exhibit D) in advance of billing, taxes will not be collected. In addition to the foregoing, PBI shall not be responsible for any assessment, billing or collection of any taxes or fees applicable to the goods or services provided by Customer in connection with the Web Hosting Service. 4. DISCLAIMERS, LIMITATIONS OF LIABILITY AND INDEMNITY A. PBI IS NOT RESPONSIBLE FOR PROVIDING SECURITY SYSTEMS OR FIRE WALLS FOR CUSTOMER'S WEB SITE, AND SHALL NOT BE LIABLE IN ANY WAY FOR ANY DIRECT OR CONSEQUENTIAL LOSS, DAMAGE, EXPENSE, COST OR CLAIM WHATSOEVER IN THE EVENT CUSTOMER'S WEB SITE IS MODIFIED, TAMPERED WITH, BLOCKED, OR OTHERWISE AFFECTED BY ANY ACTIONS OF ANY THIRD PARTY USERS OF THE SITE OR BY THE THIRD PARTY ACCESS TO THE SITE OR BY REASON OF ITS CONNECTION TO THE INTERNET. B. Customer's web site will be maintained on a server deemed adequate for purposes of access to its third parties. Customer acknowledges that the server on which its site will be maintained may also be used to maintain the sites of other customers of PBI and that such shared use may affect the speed of access, downloading speed, and capacity for simultaneous access to Customer's site. PBI SHALL IN NO EVENT BE LIABLE FOR ANY DIRECT OR CONSEQUENTIAL LOSS, DAMAGE, EXPENSE, COST OR CLAIM WHATSOEVER RESULTING FROM DELAYS IN ACCESS, BLOCKAGE, DOWNTIME, OR OTHER SERVICE PROBLEMS CAUSED BY USE OF THE SITE IN EXCESS OF THAT SPECIFIED BY CUSTOMER. C. PBI shall have the right, but not the obligation, to terminate all access to the site without prior notice in the event PBI determines that the site contains material which is in violation of the Use Limitations of this Agreement or PBI's Acceptable Use Policy (located at "http://public.pacbell.net/dialup/usepolicy.html'). PBI SHALL IN NO EVENT BE LIABLE FOR ANY DIRECT OR CONSEQUENTIAL LOSS, DAMAGE, EXPENSE, COST, OR CLAIM WHATSOEVER RESULTING FROM THE UPLOADING OF CONTENT OR MATERIAL TO THE WEB SITE BY CUSTOMER OR BY ANY THIRD PARTY. D. Customer agrees to indemnify and save PBI harmless from all claims, losses, expenses, suite and attorney's fees (collectively "Liabilities") for damages to or loss of any property and for liability, or loss resulting for the assessment of any taxes, penalties, interest, additions to tax surcharges or other charges (including reasonable attorney fees), which may in any way arise out of or result from or in connection with this Agreement, Customer's use of the Web Hosting Service, except to the full extent that such liabilities arise from the active negligence or willful misconduct of the other. Customer further agrees to indemnify and save PBI harmless from all claims, losses, taxes, fees, liens, expenses, suits and attorney's fees (collectively "Tax Liabilities") resulting from or in connection with Customer's delay or failure to pay any tax, fee or assessment, or Customer's failure to file any tax return or other tax information as required by law. 5. PBI OBLIGATIONS For the Web Hosting service PBI shall (1) provide Internet web site hosting for the Customer, (2) work with the Customer for the first thirty days after installation to answer any unresolved issues, and (3) provide Customer 24x7 Network Operations Center (NOC) support The NOC monitors PBI's network and server facility. 6. INSTALLATION DATE The estimated available installation date is in two weeks after PBI has received a signed Sales Order. Changes to the web site will be installed by PBI within an estimated two (2) business days after receipt by PBI of the changes. These time periods may vary based on scope of the desired installation and upon the current availability of equipment and service. PACIFIC BELL INTERNET SERVICES COMPANY NAME: CNM Network Signed: Signed: Fred Rice Print Name: Liz Gallagher Print Name: Fred Rice Title: Sales Representative Title: President Date: 3/4/98 Date: 3/4/98 (Customer must initial only one applicable option) XX Option A. Customer hereby certifies that more than ten percent of the use of the Service is interstate in nature. Option B. Customer hereby certifies that less than ten percent of the use of the Services is interstate in nature. *Offer expires thirty (30) days from this date Exhibits attached: (A) Sales Order Form (B) Credit Verification Form (C) Customer Price Quote Sheet (D) Tax Exemption Certificate EX-10.8 17 EXHIBIT 10.8 COVAD COMMUNICATIONS COMPANY ISP CUSTOMER AGREEMENT FOR TELESPEED SERVICES Covad Communications Company ("Covad") is pleased to bring to __________________ ("Customer") this offer for Covad's TeleSpeed-TM- service. TeleSpeed service is a high-speed telecommunication service for Customer's small business Internet access client ("Clients"). The terms of this agreement are as follows: - - Customer hereby contracts for Covad's TeleSpeed service to the premises of each Customer Clients ("Client TeleSpeed Circuits") for one year commencing on the Covad billing date of each Client TeleSpeed Circuit. Customer shall pay for, and Covad shall install, Covad's TeleSpeed service in accordance with and subject to the terms of this offer, as well as the terms and conditions set forth herein, which are incorporated by reference ("Terms and Conditions"). - - Customer shall provide Covad with addresses, direct telephone numbers, work e-mail address and other information required for successful installation of Customer's Clients designated to receive Covad TeleSpeed service under the terms of this agreement ("Agreement"). Covad shall target installation dates of the service for each of the Customer Clients and the Customer Wide Area Network Circuits ("Customer TeleSpeed Circuits") requested by Customer. Covad shall keep all Client information confidential. - - Customer understands and agrees that the installation and monthly charges for Covad's Customer TeleSpeed Circuits and Client TeleSpeed Circuits and related charges shall be as set forth in List Pricing Schedule A, attached. 1. DESCRIPTION AND USE OF COVAD'S TELESPEED SERVICE: Covad's TeleSpeed service is a digital service that provides upstream and downstream maximum throughput rates that range from up to 144Kbps to 1.5Mbps to a Client's premises from a Covad serving center. The maximum throughput rate depends on such factors as the distance of the Client's premises from a Covad serving center and the quality of the copper telephone line serving the premise. Covad's TeleSpeed service does not include any Internet access service. The parties shall undertake commercially reasonable efforts to work with each other to meet Customer's needs for Covad's services. 2. DESCRIPTION OF CHARGES AND PAYMENT TERMS: The rates and charges set forth in List Pricing Schedule A, are for the point-to-point Client TeleSpeed Circuits between a Customer Client and a Covad Regional Data Center. Separate additional charges also apply for the Customer TeleSpeed Circuit, which connects a Covad's Regional Data Center to the Customer and are set forth in the List Pricing Schedule A. In addition, Covad shall bill all applicable federal, state, and local mandated surcharges, fees, user's fees, universal service contributions and taxes to Customer. Covad shall mail an invoice to Customer by the first day of the month, prior to the month of service at ________________________. Customer shall pay all charges within 30 calendar days of the date that Covad's monthly invoices are mailed. Unless otherwise specified in writing by Covad all payments shall be made to Covad Communications Company and mailed to Accounts Receivable Dept., Covad Communications Company, 3560 Bassett Street, Santa Clara, CA 95054. 3. LIMITED WARRANTY. COVAD TELESPEED SERVICE: Covad warrants to Customer, subject to the limitations set forth below, that Covad's TeleSpeed Service shall operate in substantial accordance with the terms of this Agreement during the contract period of one year. A. Customer understands and acknowledges that the actual transmission speeds delivered by Covad may vary from the transmission speeds otherwise expected by Customer or its Clients based on such factors as the length and gauge of the line serving the Client, and other operational characteristics of the facilities and equipment used by Covad (see Client TeleSpeed Circuit Matrix Schedule D). B. Covad shall use commercially reasonable efforts to provide installation, repair and maintenance functions for its TeleSpeed services. In the event that a Client experiences ad promptly notifies Covad of a substantial reduction in transmission speed or significant interruption of service, Covad will undertake, at no charge to Customer, commercially reasonable efforts to restore Client's TeleSpeed service. Covad shall not be responsible for service issues concerning a Client's computer or software. C. Customer understands and acknowledges and represents and warrants that it will inform its Clients that Covad's TeleSpeed does not provide 911 or other emergency and ancillary services conventionally available from incumbent local phone companies. D. Customer shall provide first level support for all of its Clients. Covad shall provide commercially reasonable second level support. E. Customer understands and acknowledges that Covad's service is limited to certain regions in the United States. Covad reserves the sole and exclusive right to determine the expansion of its service area, and the right to maintain and reconfigure its service. F. Customer acknowledges and understands that the lack of facilities or other operational impediments may preclude or delay Covad's actual installation, repair and maintenance of Covad's TeleSpeed service. G. Covad will make reasonable efforts to provide 5-day notification to Customer on Scheduled Maintenance. Covad may interrupts its provision of service for maintenance and other operational reasons, without any compensation or notice to Customer other than any commercially reasonable refund from Covad. Covad also reserves the sole and exclusive right to terminate its service in any area or cease operations with 60-day notice to Customer. H. This limited warranty shall not apply if: (1) the Client's equipment has been subjected to unusual physical or electrical stress, misuse, neglect, accident or abuse, or damaged by any other external causes; (2) Covad's TeleSpeed service or equipment has been repaired or altered by anyone other than Covad or Covad's subcontractors or affiliates, without Covad's express and prior written approval; (3) Covad's TeleSpeed service or equipment has been improperly installed by someone other than Covad or Covad's subcontractors or affiliates; or (4) Covad's TeleSpeed service is used in violation of applicable law or in violation of instructions furnished by Covad. I. Warranty: Inside Wire Customer TeleSpeed Circuit & Client TeleSpeed Circuit. All Covad-installed or repaired premise wiring is warranted to be free from defects for a period of 30 calendar days from the date of work completion. Covad may outsource inside wire installations. J. Warranty: Equipment Client Premise Equipment. If the Customer purchases client premise equipment directly from Covad, the equipment will carry a manufacturer's warranty beginning on the billing start date for the Covad service. In the event that the equipment is determined to be faulty within this warranty period, Covad will mail the replacement equipment to the Customer to arrive within 3 business days. - THE FOREGOING LIMITED WARRANTIES SHALL BE IN LIEU OF AND EXCLUDE ALL OTHER EXPRESS OR IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATIONS, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR USE OR PURPOSE. 4. LIMITATION OF LIABILITY: In no case shall Covad's liability exceed the amount of fees due to Covad in the last Customer invoice for services associated with any circuit or circuits that give rise to the liability for the preceding billing period. Neither party shall have any liability to the other party for any direct, indirect, special, incidental, or consequential damages of any kind, regardless of whether such damages are foreseeable by either or both parties. 5. QUALIFICATION. 5.1 CUSTOMER TELESPEED CIRCUIT. A Covad System Engineer (SE) will qualify that a Customer TeleSpeed Circuit can be ordered from Covad prior to the Customer ordering the circuit from Covad. 5.2 CLIENT TELESPEED CIRCUIT. Customers complete the on-line Service Availability form made available on Covad's web site to receive the estimated TeleSpeed services available for a Client site. If the client address is not recognized by Covad's database, the Customer should follow the directions on the web page. 5.3 CUSTOMER AND CLIENT PREMISE EQUIPMENT. Covad will publish a list of "Covad Qualified" equipment. "Covad Qualified" equipment will be supported as defined by Covad Product Management. Covad will not support equipment that is not "Covad Qualified." 6. ORDERING. 6.1 CUSTOMER TELESPEED CIRCUIT. Covad currently offers two Customer TeleSpeed Circuit options. The options are a DS-3/ATM circuit and a DS-1/Frame Relay circuit. Customers should complete the Customer TeleSpeed Circuit order form and fax or e-mail the form to their Covad Account Executive (AE). Covad will send an order acknowledgment e-mail to the Customer within one business day after receipt of an e-mailed or faxed order. The Customer will receive an ID and password to access Covad's on-line Customer Care Center within five business days of entering the Customer TeleSpeed Circuit order. This will enable the Customer to place Client TeleSpeed Circuit orders on-line and to access the other services made available on-line by Covad. 6.2 CLIENT TELESPEED CIRCUIT. Covad offers a range of Client TeleSpeed Circuit options with various maximum throughput rates. These options currently include TeleSpeed 144, TeleSpeed 384, TeleSpeed 1.1 and TeleSpeed 1.5. Customers complete the on-line order form and receive immediate order acknowledgment via the web. If an acknowledgment is not received, the Customer should notify Covad Customer Care immediately. Covad will only accept Client TeleSpeed Circuit orders within 30 calendar days of the published COMMITTED service available date from given central office. All orders entered in Covad's system will be treated equally. Covad is unable to prioritize the installation of one order over another. 6.3 CUSTOMER PREMISE EQUIPMENT. Covad does not sell Customer premise equipment. Covad currently provides a CSU/DSU with installation of a DS-1/Frame Relay Customer TeleSpeed Circuit. The DSU/CSU remains the property of Covad. When an order is placed for a DS-1 circuit, Covad will provide a Covad Qualified CSU/DSUs. Covad does not currently provide any customer premise equipment with installation of a DS-3/ATM Customer TeleSpeed Circuit. 6.4 CLIENT PREMISE EQUIPMENT. Covad offers a range of Client premise equipment options. These options currently include the Flowpoint 144 (four user and unlimited user) and Ascend Pipeline 50 (for use with TeleSpeed 144 and provides for 128 Kbps symmetric throughput) and the Diamond Lane 2000 (for use with TeleSpeed 384, TeleSpeed 1.1 and TeleSpeed 1.5). Customers select the appropriate client premise equipment on the on-line order form and receive immediate order acknowledgment via the web. 7. PROVISIONING & INSTALLATION: LEAD TIMES. 7.1 CUSTOMER TELESPEED CIRCUIT - DS1: 30 calendar days After Receipt of Order (ARO) - DS3: 45 calendar days ARO NOTE: Facility problems may push the installation date past the ARO date. 7.2 CLIENT TELESPEED CIRCUIT - 30 calendar days ARO NOTE: Facility problems may push installation date past the ARO date. Incorrect Customer supplied information may push installation date past the ARO date. 8. PROVISIONING & INSTALLATION: SCHEDULING. 8.1 CUSTOMER TELESPEED CIRCUIT. Covad will schedule the installation by appointment with the Customer. 8.2 CLIENT TELESPEED CIRCUIT. Monday - Friday; appointments begin at 8:00 am and the last appointment will begin at 5:00 pm local time. A Covad Field Service Technician (FST) will arrive within an assigned 2-hour window. The Client should plan for the installation to take 2 hours to complete after the arrival of the FST. The Customer or Client must confirm the installation date and time by 12:00 noon the day before the installation is scheduled or the installation will be rescheduled. 8.3 INSIDE WIRE. The Customer should notify Covad if extensive (> 1 hour labor) inside wire is required by providing information on the on-line order form. Extensive inside wire installations may be scheduled separately, and will be scheduled as closely as possible to the Covad installation date. If Covad is not notified of extensive inside wire requirements, Covad may need to reschedule the installation. 9. PROVISIONING & INSTALLATION: RESCHEDULING 9.1 CUSTOMER TELESPEED CIRCUIT. There is no charge to reschedule a Customer TeleSpeed Circuit appointment. 9.2 CLIENT TELESPEED CIRCUIT. Covad will not charge the Customer for rescheduling a client installation if the cancellation occurs before 12:00 noon on the business day preceding the client installation. If cancellation occurs after 12:00 noon, and for client no-shows, Covad will charge the Customer 50% of installation price (even if a promotion to waive installation is in effect). The Covad FST will wait for a minimum of 15 minutes after arrival (arrival time within the installation window) before the appointment is considered a no-show. 10. PROVISIONING & INSTALLATION: ACCEPTANCE. 10.1 CUSTOMER TELESPEED CIRCUIT. Covad requires a written "Confirmation of Acceptance" from the Customer. A Covad System Engineer (SE) will obtain this "Confirmation of Acceptance" from the Customer upon successful installation. 10.2 CLIENT TELESPEED CIRCUIT. Covad considers an installation successful if the maximum throughput rate is equal to or greater than 80% of ordered service. See Schedule C for Acceptable Maximum Throughout Levels. If 80% or greater is achieved, Covad will Close the installation ticket and will not require verification of acceptance from the Customer. When less than 80% of either the up or downstream maximum throughput rates for the Client TeleSpeed Circuit is installed, refer to schedule C for additional actions. An e-mail will be sent to Customer with the installed maximum throughput rates and the Client TeleSpeed Circuit to be billed. The Customer has a 3-business day acceptance period to cancel or change the installed service. If the Customer does not respond to cancel or change the service, Covad will assume the installation is successful. When TeleSpeed 144 is not ordered, but it is the fastest circuit that can be installed, the Customer may elect to keep the Covad supplied and installed client premise equipment n place (no additional installation required). The Customer may also elect to replace the equipment (Covad or Customer supplied) which may require a new installation (no charge to Customer). 10.3 CLIENT PREMISE EQUIPMENT. The Customer has a 3-business day acceptance period to cancel or change the client premise equipment. The Customer is responsible for changes to the client premise equipment, software & configuration after the Covad installation is completed. Covad provides on-line information to Customers about software and configuration upgrades to facilitate Customer responsible upgrades. 11. BILLING. 11.1 CUSTOMER TELESPEED CIRCUIT. The Customer TeleSpeed Circuit billing will start upon Covad's acceptance of the DS1 or DS3 from Covad's Customer TeleSpeed WAN Circuit provider. 11.2 CLIENT TELESPEED CIRCUIT. The Client TeleSpeed Circuit billing will start on the date that the service is successfully installed, unless the TeleSpeed service is rejected within the 3-day Acceptance period as defined herein. 12. CHANGE OF SERVICE: LEAD-TIME. 12.1 CHANGE OF EXISTING CUSTOMER TELESPEED CIRCUIT. As quoted. 12.2 CHANGE OF EXISTING CLIENT TELESPEED CIRCUIT. Change to or from TeleSpeed 144: 30 calendar days ARO. To change to or from TeleSpeed 144, the Customer may need to purchase new client premise equipment and installation. All other TeleSpeed Service Changes: 2 business days ARO. 13. CHANGE OF SERVICE: SCHEDULE, RESCHEDULE, ACCEPTANCE & PRICING. 13.1 CUSTOMER TELESPEED CIRCUIT. Scheduling, Rescheduling, Acceptance: same as for a new Customer TeleSpeed Circuit. A. Covad will not charge a cancellation fee for an upgrade of a Customer TeleSpeed Circuit from a DS-1/Frame Relay to a DS-3/ATM. Installation charges for the new circuit still apply. Customer will be charged for both of the circuits if they are used simultaneously. B. Covad will charge a cancellation fee for a downgrade of a Customer TeleSpeed Circuit from a DS-3/ATM to a DS-1/Frame Relay. Installation charges for the new circuits also apply. 13.2 CLIENT TELESPEED CIRCUIT. Scheduling, Rescheduling, Acceptance: same as for a new Client TeleSpeed Circuit. A. Covad will charge a fee for a Client TeleSpeed Circuit change as stated in the current price list. 14. DISCONNECTION: LEAD TIME. 14.1 CUSTOMER TELESPEED CIRCUIT. The Customer is required to give 30 calendar days notice to Covad to disconnect the Customer TeleSpeed Circuit. All Client TeleSpeed Circuits must be canceled prior to disconnecting the Customer TeleSpeed Circuit. 14. CLIENT TELESPEED CIRCUIT. Covad will cancel the Client TeleSpeed Circuit within one business day after receipt of cancellation. 15. MOVE-CLIENT CHANGING CUSTOMER: SCHEDULING & PRICING. 15.1 CLIENT TELESPEED CIRCUIT. If a client served by Covad wishes to move service from an existing Customer to a new Customer, Covad must receive a cancellation order from the existing Customer and a new order from the new Customer. Cancellation fees will be waived for the existing Customer when the new order is received by Covad from the new Customer that: - Has the exact same client location information - References the existing Customer order to be canceled NOTE: The price for a Client move that does not involve a truck roll is the same as the price for a change of service from TeleSpeed 1.1 to TeleSpeed 384. The price for a Client move that involves a truck roll to configure the CPE only will be priced to Customer at dispatch pricing. 16. TERM OF CONTRACT & CANCELLATION: CIRCUITS 16.1 CUSTOMER TELESPEED CIRCUIT. The term of the contract is one year. Cancellation of the circuit requires 30 calendar days' notice to Covad. The circuit will be billed up to end of service date. Customer have 60 days after the billing start date to notify Covad of cancellation of the circuit without cancellation fees. Customers must pay installation and monthly charges for the term of contract if Covad receives notice of cancellation AFTER 60 days, unless Covad is notified in writing of service inadequacies and fails to rectify these inadequacies within 60 days of the notification date. Covad will NOT refund installation and monthly Customer TeleSpeed Circuit charges incurred within the 60-day cancellation period. Contract becomes a month to month contract after one year. 16.2 CLIENT TELESPEED CIRCUIT. The term of the contract is one year. Customer have 60 days after the billing start date to notify Covad of cancellation of the circuit without cancellation fees. Customers must pay a $250 cancellation fee if Covad receives notice of cancellation AFTER 60 days, unless Covad is notified in writing of service inadequacies and fails to rectify these inadequacies within 60 days after receipt of the notification date. Covad will NOT refund installation and monthly Customer circuit charges incurred within the 60-day cancellation period. The contract becomes a month to month contract after one year with no cancellation charge. If the Customer cancels within the 3-day Installation Acceptance Period, Covad will charge the Customer for installation only. 17. TERM OF CONTRACT & CANCELLATION: EQUIPMENT 17.1 CLIENT PREMISE EQUIPMENT. Covad will issue a credit to the Customer for the first 20 client premise equipment purchased if notification of cancellation of Client TeleSpeed Circuits is received by Covad before the 60-day cancellation period. Covad will NOT issue a credit for any other client premise equipment past the initial 20 purchased. 18. RETURN: EQUIPMENT 18.1 CLIENT PREMISE EQUIPMENT. Client premise equipment purchased directly from Covad can be returned to Covad if it is unused and in its original packing within 30 days from Covad's original shipment date. A 25% equipment handling and restocking charge will be charged to the Customer by Covad. Customer should call Covad Customer Care/Order Administration to receive a Return Materials Authorization (RMA) number and to ship the equipment back t Covad (the Customer shall pay all shipping charges associated with this return). 19. INSIDE WIRING: PRICING 19.1 CUSTOMER TELESPEED CIRCUIT. Installation charge includes inside wire. 19.2 CLIENT TELESPEED CIRCUIT. First Hour/Minimum Charge = $88 (includes charge for one wall jack). Each additional 15 minutes: $20. Extensive inside wiring may require a single quoted price. 20. DISPATCH SUPPORT: PRICING 20.1 CUSTOMER TELESPEED CIRCUIT & CLIENT TELESPEED CIRCUIT. The following charges apply when a Covad Field Service Technician is dispatched to a Customer or Client location AT THE REQUEST AND AUTHORIZATION of the Customer when it is determined that the fault for the problem does not lie with Covad. Standard Hours: 1st Hour/Min. Charge = $88; Each Additional 15 minutes; $20 Other Hours (After hours, Weekends, Holidays): 1st Hour/Min. Charge - $110; Each Additional 15 minutes: $25 21. COMMUNICATION: The Customer should refer to Covad's on-line Customer Care Center for the majority of community to and from Covad. All communication from Covad will be directed to the Customer. Scheduling of visits to the Client site will be done by the Customer in conjunction with Covad Customer Care. All information discussed and agreed to with the Customer will be available to the Customer in the on-line Customer Care Center. 22. CONFIDENTIAL INFORMATION: Each party shall limit disclosure of the other party's confidential information to employees and contractors with a need to know. Neither party shall disclose confidential information of the other party to any third party. Nothing herein shall supersede the terms of any nondisclosure agreement signed by the parties. 23. CUSTOMER REPRESENTATION: Customer represents and warrants that it shall no, in the ordinary course of its business, when using Covad's network services, be able to identify, and distinguish between, packet data transmissions that originate and terminate within the same state (intrastate transmissions), and those packet data transmissions that originate and terminate in different states (interstate transmissions), and states that it is impractical to identify, distinguish and measure its intrastate and interstate transmissions on Covad's network. Further, Customer estimates (on a good faith, rough-guess basis) that more than ten percent of all data packets transmitted on Covad's network, including those to and from the Internet, will consist of interstate transmissions. 24. FORCE MAJEURE AND DISPUTE RESOLUTIONS: Covad shall not be responsible for any failure to perform any obligation or provide service hereunder because of any Act of God, strikes, work stoppage, equipment or facilities shortages, governmental acts or directives, war, riot or civil commotion, or any other force beyond Covad's reasonable control. The parties shall attempt to resolve any disputes between them without resort to litigation in court. Customer's remedies are limited as set forth herein. 25. ENTIRE AGREEMENT; AMENDMENTS IN WRITING: This Agreement, which shall include the Attachments and Schedules referenced herein, constitutes the entire Agreement between the parties concerning the subject matter hereof and supersedes any prior agreements, representations, statements, negotiations, understandings, proposals or undertakings, oral or written, with respect to the subject matter expressly set forth herein. Any amendment or supplement to these Terms and Conditions shall be in writing. COVAD COMMUNICATIONS COMPANY CUSTOMER ---------------------------------- ----------------------------------- Name Date Name Date ---------------------------------- ----------------------------------- Title Title LIST PRICING SCHEDULE A - -------------------------------------------------------------------------------- Client TeleSpeed Monthly Charges
MAXIMUM THROUGHPUT SERVICE NAME MONTHLY CHARGES DOWNSTREAM/UPSTREAM - -------------------------------------------------------------------------------- TeleSpeed 144 $ 90.00 144Kbps/144Kbps TeleSpeed 384 $125.00 384Kbps/384Kbps TeleSpeed 1.1 $195.00 1.1Mbps/1.1Mbps TeleSpeed 1.5 $195.00 1.5Mbps/384Kbps
Client TeleSpeed Circuit One-time Charges
INSTALLATION CHARGE - ------------------------------------------------------------------ EQUIPMENT Digital Model and RJ45 Wall Jack TeleSpeed 384 $550.00 TeleSpeed 1.1 $550.00 TeleSpeed 1.5 $550.00 TeleSpeed 144 $399.00*/$499** SERVICE Service installation including provisioning of one PVC $325.00 Inside wiring from RJ45 Wall Jack to NID (optional). $ 88.00***
* Supports 4 Ethernet devices/MAC addresses ** Supports more than 4 Ethernet devices/MAC addresses *** First Hour/Minimum Charge. For each additional 15 minutes: $20 Client TeleSpeed Circuit Upgrade of Service One-time Charge
DESCRIPTION CHARGE - ------------------------------------------------------------------ Upgrade TeleSpeed 144 to TeleSpeed 384/1.5/1.1 $199.00 Upgrades and changes from all other TeleSpeed services $ 99.00
Client TeleSpeed Circuit Monthly Charges
SERVICE NAME MONTHLY CHARGE - ------------------------------------------------------------------ DS1/Frame Relay $ 975.00 DS3/ATM $4,000.00
Customer TeleSpeed Circuit One-time Charges
DESCRIPTION CHARGE - ------------------------------------------------------------------ EQUIPMENT & INSTALLATION DS1/Frame Relay (includes SEU/CSU) $2,500.00 DS3/ATM $7,500.00
Volume Discount Schedule B - -------------------------------------------------------------------------------- The following Volume Discount Schedule applies to the monthly charges for specified Client TeleSpeed Circuits only. This schedule does not apply to any other Covad services. - - All Client TeleSpeed Circuits invoiced are counted in determining the volume discount percentage. - - All Client TeleSpeed Circuits with the exception of TeleSpeed 144 will be eligible to be discounted. The discount will be reflected on each monthly Customer invoice. The applicable discount will be applied to ALL Client TeleSpeed Circuits, other than TeleSpeed 144, that are invoiced at the end of the month. The Customer receives the next level of discount in the first month that the volume of Client TeleSpeed Circuits increases to the next volume level. If the number of Client TeleSpeed Circuits invoiced in a given month decreases (due to circuit disconnects, etc.) to a lower volume level than obtained in the prior month, the discount rate for all Client TeleSpeed Circuits will also decrease. The Customer must be current on all invoices to be eligible for the Volume Discount Program.
CLIENT TELESPEED CIRCUITS INVOICED EACH MONTH DISCOUNT PERCENTAGE APPLIED TO EACH INVOICE 1-99 0% 100-499 4% 500-999 6% 1,000-2,499 8% 2,500+ 10%
Market Development Fund Schedule C - -------------------------------------------------------------------------------- PROGRAM DETAILS - -------------------------------------------------------------------------------- PROCESS - - Covad allocates MDF based on the volume of Client TeleSpeed Circuits ordered, installed and billed by Covad. - - Once the MDF has been allocated, it must be spent within ninety (90) days of allocation. The process for spending the funds is as follows: 1) Channel Partner is informed monthly of MDF balance 2) Channel Partner develops market development plan and submits to Covad for approval. Approval will require that one of the following service marks are included in all marketing collateral: Covad Connected-TM- or Covad Communications-TM- 3) Covad approves plan (or sends back to step 2 for revisions) and notifies partner 4) Partner then has three choices for implementation: A) have Covad execute/develop/produce the market development plan details B) execute/develop/produce the market development plan and submit the invoice for payment to Covad (only if the entire invoice will be covered by MDF) C) execute/develop/produce the market development plan, pay the invoice and submit an invoice to Covad for reimbursement (with copies of paid invoice) MDF USE The Channel Partner can use their MDF towards: - Service Description Data Sheets - Educational Materials, Tutorial, Customer Support Documentation - Web/Electronic Collateral - Direct Marketing/Lead Generation - Trade Shows and Raffles - Print or Radio Advertising - Billboards - Press Releases - Welcome Kit Development Market Development Fund Schedule C - -------------------------------------------------------------------------------- MARKET DEVELOPMENT FUND SCHEDULE: - --------------------------------------------------------------------------------
CLIENT TELESPEED CIRCUITS INVOICED EACH MONTH DISCOUNT PERCENTAGE APPLIED TO EACH FOR EACH BILLING LOCATION INVOICE 1-99 0% 100-499 4% 500-999 6% 1,000-2,499 8% 2,500+ 10%
EXAMPLE - -------------------------------------------------------------------------------- MONTHLY INVOICE
Client Circuit Type Price Per Circuit Number of Circuits Price - ------------------- ---------------- ------------------ ----- TeleSpeed 144 $ 90 160 $14,400 TeleSpeed 384 $125 400 $50,000 TeleSpeed 1.1 $195 50 $ 9,750 --- ------- Total 610 $74,150
MONTHLY INVOICE AFTER VOLUME DISCOUNT
Client Circuit Type Price Discount % Discount Price - ------------------- ----- ---------- -------------- TeleSpeed 144 $14,400 0% $14,400 TeleSpeed 384 $50,000 6% $47,000 TeleSpeed 1.1 $ 9,750 6% $ 9,165 ------- -- ------- TOTAL $74,150 $70,565
MDF Number of Client TeleSpeed Circuits: 610 Total Client TeleSpeed Circuit invoice: $70,565 MDF%: 6% MDF accrued for the moth: $70,565 x .06 = $4,234 Covad places this $4,234 in the customer's MDF account upon payment receipt for the monthly invoice. Client TeleSpeed Circuit Matrix Schedule D - -------------------------------------------------------------------------------- Table A: Client TeleSpeed Circuit Acceptable Maximum Throughput Levels TELESPEED ACCEPTABLE SERVICES TeleSpeed 144 TeleSpeed 384 TeleSpeed 1.1 TeleSpeed 1.5 Table B: Client TeleSpeed Circuit Installation Matrix
CUSTOMER MAXIMUM AVAILABLE INSTALLED THROUGHPUT INSTALLED ADDITIONAL ORDER ORDERED THROUGHPUT AT AT INSTALLATION & BILLED CUSTOMER STATUS SERVICE INSTALLATION ACTION (1) CODE TELESPEED DOWNSTREAM UPSTREAM DOWNSTREAM UPSTREAM TELESPEED NOTES 144 Any Any Cap at 144 Cap at 144 144 None. Some CLOSED(2) client equip. will only sup- port 128 Kbps. 384 > 300 Kbps > 300 Kbps Cap at 384 Cap at 384 384 None. CLOSED 384 > 300 Kbps > 300 Kbps Cap at 384 Maximum 384 Customer may CLOSED- elect to CUSTOMER schedule a new VERIFY installation of TeleSpeed 144. 384 < 300 Kbps < 300 Kbps Maximum Cap at 384 384 Customer may CLOSED- elect to CUSTOMER schedule a new VERIFY installation of TeleSpeed 144. 1.1 > 880 Kbps > 880 Kbps Cap at 1.1 Cap at 1.1 1.1 None. CLOSED 1.1 > 880 Kbps 1.1 Cap at 1.1 Maximum 1.1 Customer may CLOSED- elect to CUSTOMER change ser- VERIFY vice to Tele- Speed 1.5 or 384, or to schedule a new installation of TS 144. 1.1 < 880 Kbps > 880 Kbps Maximum Cap at 1.1 1.1 Customer may CLOSED- elect to CUSTOMER change ser- VERIFY vice to Tele- Speed 384 or
____________ (1)Covad Customer Care will always e-mail the Customer with installation detail. (2) A status of CLOSED indicates that service is installed at acceptable levels. A status of CLOSED - CUSTOMER VERIFY gives the Customer the opportunity to change the order before billing begins. to schedule a new installa- tion of TS 144. 1.5 > 1.2 Mbps > 300 Kbps Cap at 1.5 Cap at 384 1.5 None. CLOSED 1.5 > 1.2 Mbps < 300 Kbps Cap at 1.5 Maximum 1.5 Customer may CLOSED- elect to CUSTOMER change ser- VERIFY vice to Tele- Speed 384 or to schedule a new installa- tion of TS 144. 1.5 < 1.2 Mbps > 300 Kbps Maximum Cap at 384 1.5 Customer may CLOSED- elect to CUSTOMER change ser- VERIFY vice to Tele- Speed 1.1 or 384 or to schedule a new installation of TS 144.
LA METRO REGIONAL SPECIAL SALES INCENTIVE SUMMARY OF TERMS For all contracts received on or before 6/30/98, Covad ISP partners shall receive the following discounts and incentives: 1. ISP WAN Circuit one-time installation shall be reduced by 1/2 off the Covad published pricing of $2,500 for T1 and $7,500 for DS3. 2. Covad will defer billing for the ISP WAN Circuit shall be deferred until September 1998. 3. For TeleSpeed orders received on or before July 31, 1998, installation charges shall be reduced from the Covad published rate of $325.00 as follows: TeleSpeed 144 $ Waived TeleSpeed 384 $162.50 (50% off) TeleSpeed 1.1 $162.50 (50% off) TeleSpeed 1.5/384 $162.50 (50% off) All other terms and conditions shall remain the same. COVAD COMMUNICATIONS CO AVAILABILITY AS OF 6/12/98
COVAD CO NAME CLLI ORDERING AVAILABLE - -------------------------------------------------------------------------------- 1. Anaheim, CA ANHMCA01 Now 2. Sherman Oaks, CA SHOKCA01 Now 3. Orange, CA ORNGCA11 7/9/98 4. Burbank, CA BRBNCA11 7/17/98 5. Canoga Park, CA CNPKCA01 7/17/98 6. Los Angeles, CA LSANCA07 7/17/98 7. Los Angeles, CA LSANCA11 7/17/98 8. Pasadena, CA PSDNCA11 7/17/98 9. Van Nuys, CA VNNYCA02 7/17/98 10. Huntington Beach, CA HNBHCAXH 7/31/98 11. Redondo HRBHCAXH 7/31/98 12. Rolling Hills Estate RLHLCAXF 7/31/98 13. Torrance TRNCCAXF 7/31/98 14. Artesia ARTSCAXF 7/31/98 15. Beverly Hills, CA BVHLCA01 8/6/98 16. Gardena, CA GRDNCA01 8/6/98 17. Huntington Beach HNBHCAXG 8/6/98 18. Huntington Beach HNBHCAXL 8/6/98 19. Huntington Park, CA HNPKCA01 8/6/98 20. Los Angeles, CA LSANCA08 8/6/98 21. Los Angeles, CA LSANCA10 8/6/98 22. Los Angeles, CA LSANCA12 8/6/98 23. North Hollywood, CA NHWDCA02 8/6/98 24. Reseda, CA RESDCA01 8/6/98 25. Slater HNBHCAXF 8/6/98 26. Long Beach Termino LNBHCAXT 8/6/98 27. Torrance TRANCCAXG 8/6/98 28. Long Beach Uptown LNBHCAXG 8/6/98 29. South Pasadena SPSDCA11 8/6/98 30. Los Angeles, CA LSANCA34 8/21/98 31. El Monte, CA ELMNCA01 8/21/98 32. Lomita, CA LOMTCA11 8/21/98 33. Torrance, CA TRNCCA11 8/21/98 34. Los Angeles, CA LSANCA01-03 8/21/98 35. Alhambra, CA ALHBCA01 9/1/98 36. Hollywood, CA HLWDCA01 9/1/98 37. Fullerton, CA FUTNCA01 9/7/98 38. San Pedro SNPDCA01 9/7/98 39. Covina COVNCAXF 9/25/98 40. Costa Mesa, A CSMSCA11 9/25/98 41. Corona Del Mar, CA CRDMCA11 10/5/98 42. Los Angeles, CA LSANCA35 10/5/98 43. Culver City CLCYCA11 10/5/98 44. Pasadena, CA PSDNCA12 10/5/98 45. Pacific Palisades PCPLCAXF 10/16/98 46. Playa Del Rey PRDYCAXF 10/16/98 47. West Los Angeles WLANCAXF 10/16/98 48. Westminster WMNSCAXF 10/16/98 49. Santa Fe Springs/Alondra NRWLCAXG 10/16/98 50. Long Beach F (HUB) LNBHCAXF 10/16/98 51. Laguna Niguel, CA LGNGCA12 10/20/98
- -------------------------------------------------------------------------------- EX-10.9 18 EXHIBIT 10.9 CNM NETWORK-TM- PHONE (805) 520-7170 1900 LOS ANGELES AVE., 2ND FLOOR FAX (805) 520-7211 SIMI VALLEY, CA 93065 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CNM NETWORK-TM- RESELLER TERMS AND CONDITIONS I. Recitals Within this Document _(BCD ONLINE)_ will be represented by "Reseller". CNM Network-TM- will be represented by "Provider." Provider and Reseller enter into the following resellers agreement. II. Customers All customers entering into an agreement with Reseller becomes and remains customers of both Reseller and Provider. Customers provided by Reseller will be serviced on Provider's computer network. Reseller account(s) refers to any account where Reseller's I.D. number is listed with the Provider. Customers' domain names registered with any InterNIC organizations are the property of the customer. For all domains hosted by Provider, Provider will be listed as the Technical and Zone Contact for InterNIC. Customers will be listed as the Billing contact for InterNIC domains and will therefore be responsible for all associated InterNIC registration and renewal fees. Neither Reseller nor Provider may interfere with the customers right to transfer domains within the scope of this agreement. Changes made to Customer's accounts will be made through the Primary/Technical contact of the Provider. All accounts must be processed through the official Provider sign-up form. Provider must be listed as the Primary/Technical contact, and customer must be listed as the account owner and billing contact. III. Notices Provider agrees to notify Reseller of any and all changes in policy and large technical issues that might affect the operations of Reseller within 5 days and scheduled maintenance within 2 days. Provider reserves the right to perform emergency maintenance with no notice. IV. Use of the Marks Reseller shall use the mark "CNM Network-TM-" as applicable on products and packaging containing Provider products and in related advertising, marketing, and technical material. All use of the Marks shall inure to Provider benefit. Upon Provider's request, Reseller shall promptly provide Provider with samples of any product or documentation bearing the Marks. If Provider determines that Reseller is using the Marks improperly, Reseller shall have ten (10) days to remedy the improper use. V. Technical Support Provider intends to provide a high quality of service for Resellers and customers. Technical support will occur primarily through e-mail. All e-mail received by the published technical e-mail address will receive a response within 1 business day. Provider staff will be available for urgent matters by phone during posted business hours. Provider will provide technical support as the Primary/Technical contact listed on all accounts. Reseller will be responsible for all direct technical support to customers they provide. VI. Rates and Discounts PROVIDER RESERVES THE RIGHT TO MODIFY ANY AND ALL RATES, AT ANY TIME, WITHOUT NOTICE TO RESELLER. Reseller agrees to uphold Providers published fixed retail prices on all Providers services the Reseller offers. See Retail Rate Schedules. Reseller has received copy (initials):___________ , RV#_______________ See Reseller Rate Schedule. Reseller has received copy (initials):___________ , RV#_______________ VII. Cancellation Terms This Agreement shall be terminated by either party with a 30 day prior written notice. All fees paid in advance of a cancellation will be prorated. VIII. Lawful Purpose All Reseller's customer sites are subject to the published Terms of Service section, located within the Providers Web Site at "http://www.cnmnetwork.com". It is the responsibility of Reseller to inform and notify its customers of Provider's Terms of Service. Provider reserves the right to monitor all accounts for violations of Provider's Terms of Service. See Terms of Service. Reseller has received copy (initials): _____________ , RV#_______________ IX. Term The term of this Agreement shall commence on _(08/01/98)_ and shall terminate at the end of a 30 day prior written notice of termination inclusive of any and all outstanding payments indicated by terms and conditions of the Agreement in which are due and must be received by the Provider. X. Successors and Assigns This Agreement shall be binding to Reseller, companies owned by Reseller, agents and or affiliates of the Reseller and in no way transfers to respective heirs, legal representatives, successors, and assigns unless in written agreement. XI. Indemnification Reseller agrees that it shall defend, indemnify, save and hold Provider harmless from any and all demands, liabilities, losses, costs and claims, including reasonable attorney's fees asserted against Provider, its agents, its customers, officers and employees, that may arise or result from any service provided or performed or agreed to be performed or any product sold by Reseller, it's agents, employees or assigns. Reseller agrees to defend, indemnify and hold harmless Provider against liabilities arising out of; (1) any injury to person or property caused by any products sold or otherwise distributed in connection with Reseller; (2) any material supplied by Reseller infringing or allegedly infringing on the proprietary rights of a third party; (3) copyright infringement; (4) defective products and (5) any misrepresentation by the Reseller or violations of law. XII. Disclaimer Provider will not be responsible for any damages any business may suffer. Provider makes no warranties of any kind, expressed or implied for services provided. Provider disclaims any warranty or merchantability or fitness for a particular purpose. This includes loss of data resulting from delays, nondeliveries, wrong delivery, and any and all service interruptions caused by Provider and its employees. XIII. Taxes Reseller will pay all taxes (except for taxes on our net income) which may be imposed by any taxing authority, that relates to your purchase of services under this agreement, and that we may be responsible to collect or pay. Provider: (Randy Greene)-CNM Network (SIGNED BY RANDY GREENE) (08/21/98) ----------------------------- ------------------------ ---------- Print Name Signature Date Reseller: (Karen Angone) (SIGNED BY KAREN ANGONE) (08-21-98) ----------------------------- ------------------------ ---------- Print Name Signature Date Provide the required information for our records: Karen Angone - ---------------------------------------------------------- Reseller Contact Name(s) BCD Online.Com - ---------------------------------------------------------- Company Name 1903 Redondo Ave. - ---------------------------------------------------------- Address Signal Hill CA 90804 USA - ----------------------------------------------------------------------- City State Zip Country - -------------------------------------------------------------------------------- Tax ID Number - -------------------------------------------------------------------------------- Day Time Phone Number Night Time Phone Number - -------------------------------------------------------------------------------- Emergency Phone Number Fax Phone Number - -------------------------------------------------------------------------------- Pager Number(s) Please Fax this document to CNM Network-TM- at (805) 520-7211. CNM Network-TM- | 1900 Los Angeles Ave., 2nd Floor | Simi Valley, CA 93065 | USA CNM NETWORK-TM- PHONE (805) 520-7170 1900 LOS ANGELES AVE., 2ND FLOOR FAX (805) 520-7211 SIMI VALLEY, CA 93065 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CNM NETWORK-TM- RESELLER TERMS AND CONDITIONS I. Recitals Within this Document (BMD SOLUTIONS, LLC) will be represented by "Reseller". CNM Network-TM- will be represented by "Provider." Provider and Reseller enter into the following resellers agreement. II. Customers All customers entering into an agreement with Reseller becomes and remains customers of both Reseller and Provider. Customers provided by Reseller will be serviced on Provider's computer network. Reseller account(s) refers to any account where Reseller's I.D. number is listed with the Provider. Customers' domain names registered with any InterNIC organizations are the property of the customer. For all domains hosted by Provider, Provider will be listed as the Technical and Zone Contact for InterNIC. Customers will be listed as the Billing contact for InterNIC domains and will therefore be responsible for all associated InterNIC registration and renewal fees. Neither Reseller nor Provider may interfere with the customers right to transfer domains within the scope of this agreement. Changes made to Customer's accounts will be made through the Primary/Technical contact of the Provider. All accounts must be processed through the official Provider sign-up form. Provider must be listed as the Primary/Technical contact, and customer must be listed as the account owner and billing contact. III. Notices Provider agrees to notify Reseller of any and all changes in policy and large technical issues that might affect the operations of Reseller within 5 days and scheduled maintenance within 2 days. Provider reserves the right to perform emergency maintenance with no notice. IV. Use of the Marks Reseller shall use the mark "CNM Network-TM-" as applicable on products and packaging containing Provider products and in related advertising, marketing, and technical material. All use of the Marks shall inure to Provider benefit. Upon Provider's request, Reseller shall promptly provide Provider with samples of any product or documentation bearing the Marks. If Provider determines that Reseller is using the Marks improperly, Reseller shall have ten (10) days to remedy the improper use. V. Technical Support Provider intends to provide a high quality of service for Resellers and customers. Technical support will occur primarily through e-mail. All e-mail received by the published technical e-mail address will receive a response within 1 business day. Provider staff will be available for urgent matters by phone during posted business hours. Provider will provide technical support as the Primary/Technical contact listed on all accounts. Reseller will be responsible for all direct technical support to customers they provide. VI. Rates and Discounts PROVIDER RESERVES THE RIGHT TO MODIFY ANY AND ALL RATES, AT ANY TIME, WITHOUT NOTICE TO RESELLER. Reseller agrees to uphold Providers published fixed retail prices on all Providers services the Reseller offers. See Retail Rate Schedules. Reseller has received copy (initials):___________ , RV#_______________ See Reseller Rate Schedule. Reseller has received copy (initials):__________ , RV#_______________ VII. Cancellation Terms This Agreement shall be terminated by either party with a 30 day prior written notice. All fees paid in advance of a cancellation will be prorated. VIII. Lawful Purpose All Reseller's customer sites are subject to the published Terms of Service section, located within the Providers Web Site at "http://www.cnmnetwork.com". It is the responsibility of Reseller to inform and notify its customers of Provider's Terms of Service. Provider reserves the right to monitor all accounts for violations of Provider's Terms of Service. See Terms of Service. Reseller has received copy (initials): _____________ , RV#_______________ IX. Term The term of this Agreement shall commence on _(08/01/98)_ and shall terminate at the end of a 30 day prior written notice of termination inclusive of any and all outstanding payments indicated by terms and conditions of the Agreement in which are due and must be received by the Provider. X. Successors and Assigns This Agreement shall be binding to Reseller, companies owned by Reseller, agents and or affiliates of the Reseller and in no way transfers to respective heirs, legal representatives, successors, and assigns unless in written agreement. XI. Indemnification Reseller agrees that it shall defend, indemnify, save and hold Provider harmless from any and all demands, liabilities, losses, costs and claims, including reasonable attorney's fees asserted against Provider, its agents, its customers, officers and employees, that may arise or result from any service provided or performed or agreed to be performed or any product sold by Reseller, it's agents, employees or assigns. Reseller agrees to defend, indemnify and hold harmless Provider against liabilities arising out of; (1) any injury to person or property caused by any products sold or otherwise distributed in connection with Reseller; (2) any material supplied by Reseller infringing or allegedly infringing on the proprietary rights of a third party; (3) copyright infringement; (4) defective products and (5) any misrepresentation by the Reseller or violations of law. XII. Disclaimer Provider will not be responsible for any damages any business may suffer. Provider makes no warranties of any kind, expressed or implied for services provided. Provider disclaims any warranty or merchantability or fitness for a particular purpose. This includes loss of data resulting from delays, nondeliveries, wrong delivery, and any and all service interruptions caused by Provider and its employees. XIII. Taxes Reseller will pay all taxes (except for taxes on our net income) which may be imposed by any taxing authority, that relates to your purchase of services under this agreement, and that we may be responsible to collect or pay. Provider: (Randy Greene)-CNM Network (SIGNED BY RANDY GREENE) (08/21/98) ---------------------------- --------------------------- ----------- Print Name Signature Date Reseller: (William Crombie) (SIGNED BY WILLIAM CROMBIE) (08-21-98) ---------------------------- --------------------------- ----------- Print Name Signature Date
Provide the required information for our records: (Bill Crombie, Terry Daus, Brian Hurd, Greg Snyder) --------------------------------------------------------------------------- Reseller Contact Name(s) (BMD Solutions, LLC) --------------------------------------------------------------------------- Company Name --------------------------------------------------------------------------- Address --------------------------------------------------------------------------- City State Zip Country --------------------------------------------------------------------------- Tax ID Number --------------------------------------------------------------------------- Day Time Phone Number Night Time Phone Number --------------------------------------------------------------------------- Emergency Phone Number Fax Phone Number --------------------------------------------------------------------------- Pager Number(s) Please Fax this document to CNM Network-TM- at (805) 520-7211. CNM Network-TM- | 1900 Los Angeles Ave., 2nd Floor | Simi Valley, CA 93065 | USA CNM NETWORK-TM- PHONE (805) 520-7170 1900 LOS ANGELES AVE., 2ND FLOOR FAX (805) 520-7211 SIMI VALLEY, CA 93065 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CNM NETWORK-TM- RESELLER TERMS AND CONDITIONS I. Recitals Within this Document (CARVER COMMUNICATIONS) will be represented by "Reseller". CNM Network-TM- will be represented by "Provider." Provider and Reseller enter into the following resellers agreement. II. Customers All customers entering into an agreement with Reseller becomes and remains customers of both Reseller and Provider. Customers provided by Reseller will be serviced on Provider's computer network. Reseller account(s) refers to any account where Reseller's I.D. number is listed with the Provider. Customers' domain names registered with any InterNIC organizations are the property of the customer. For all domains hosted by Provider, Provider will be listed as the Technical and Zone Contact for InterNIC. Customers will be listed as the Billing contact for InterNIC domains and will therefore be responsible for all associated InterNIC registration and renewal fees. Neither Reseller nor Provider may interfere with the customers right to transfer domains within the scope of this agreement. Changes made to Customer's accounts will be made through the Primary/Technical contact of the Provider. All accounts must be processed through the official Provider sign-up form. Provider must be listed as the Primary/Technical contact, and customer must be listed as the account owner and billing contact. III. Notices Provider agrees to notify Reseller of any and all changes in policy and large technical issues that might affect the operations of Reseller within 5 days and scheduled maintenance within 2 days. Provider reserves the right to perform emergency maintenance with no notice. IV. Use of the Marks Reseller shall use the mark "CNM Network-TM-" as applicable on products and packaging containing Provider products and in related advertising, marketing, and technical material. All use of the Marks shall inure to Provider benefit. Upon Provider's request, Reseller shall promptly provide Provider with samples of any product or documentation bearing the Marks. If Provider determines that Reseller is using the Marks improperly, Reseller shall have ten (10) days to remedy the improper use. V. Technical Support Provider intends to provide a high quality of service for Resellers and customers. Technical support will occur primarily through e-mail. All e-mail received by the published technical e-mail address will receive a response within 1 business day. Provider staff will be available for urgent matters by phone during posted business hours. Provider will provide technical support as the Primary/Technical contact listed on all accounts. Reseller will be responsible for all direct technical support to customers they provide. VI. Rates and Discounts PROVIDER RESERVES THE RIGHT TO MODIFY ANY AND ALL RATES, AT ANY TIME, WITHOUT NOTICE TO RESELLER. Reseller agrees to uphold Providers published fixed retail prices on all Providers services the Reseller offers. See Retail Rate Schedules. Reseller has received copy (initials):____________ , RV#_______________ See Reseller Rate Schedule. Reseller has received copy (initials):___________ , RV#_______________ VII. Cancellation Terms This Agreement shall be terminated by either party with a 30 day prior written notice. All fees paid in advance of a cancellation will be prorated. VIII. Lawful Purpose All Reseller's customer sites are subject to the published Terms of Service section, located within the Providers Web Site at "http://www.cnmnetwork.com". It is the responsibility of Reseller to inform and notify its customers of Provider's Terms of Service. Provider reserves the right to monitor all accounts for violations of Provider's Terms of Service. See Terms of Service. Reseller has received copy (initials): _____________ , RV#_______________ IX. Term The term of this Agreement shall commence on _(08/01/98)_ and shall terminate at the end of a 30 day prior written notice of termination inclusive of any and all outstanding payments indicated by terms and conditions of the Agreement in which are due and must be received by the Provider. X. Successors and Assigns This Agreement shall be binding to Reseller, companies owned by Reseller, agents and or affiliates of the Reseller and in no way transfers to respective heirs, legal representatives, successors, and assigns unless in written agreement. XI. Indemnification Reseller agrees that it shall defend, indemnify, save and hold Provider harmless from any and all demands, liabilities, losses, costs and claims, including reasonable attorney's fees asserted against Provider, its agents, its customers, officers and employees, that may arise or result from any service provided or performed or agreed to be performed or any product sold by Reseller, it's agents, employees or assigns. Reseller agrees to defend, indemnify and hold harmless Provider against liabilities arising out of; (1) any injury to person or property caused by any products sold or otherwise distributed in connection with Reseller; (2) any material supplied by Reseller infringing or allegedly infringing on the proprietary rights of a third party; (3) copyright infringement; (4) defective products and (5) any misrepresentation by the Reseller or violations of law. XII. Disclaimer Provider will not be responsible for any damages any business may suffer. Provider makes no warranties of any kind, expressed or implied for services provided. Provider disclaims any warranty or merchantability or fitness for a particular purpose. This includes loss of data resulting from delays, nondeliveries, wrong delivery, and any and all service interruptions caused by Provider and its employees. XIII. Taxes Reseller will pay all taxes (except for taxes on our net income) which may be imposed by any taxing authority, that relates to your purchase of services under this agreement, and that we may be responsible to collect or pay. Provider: (Randy Greene)-CNM Network (SIGNED BY RANDY GREENE) (08/21/98) ------------------------------- --------------------------- ----------- Print Name Signature Date Reseller: (Mike Carver) (SIGNED BY MIKE CARVER) (08-21-98) ------------------------------- --------------------------- ----------- Print Name Signature Date
Provide the required information for our records: Mike Carver --------------------------------------------------------------------------- Reseller Contact Name(s) Carver Communications --------------------------------------------------------------------------- Company Name 10503 Hawthorne Blvd. --------------------------------------------------------------------------- Address Lennox CA 90304 USA --------------------------------------------------------------------------- City State Zip Country --------------------------------------------------------------------------- Tax ID Number --------------------------------------------------------------------------- Day Time Phone Number Night Time Phone Number --------------------------------------------------------------------------- Emergency Phone Number Fax Phone Number --------------------------------------------------------------------------- Pager Number(s) Please Fax this document to CNM Network-TM- at (805) 520-7211. CNM Network-TM- | 1900 Los Angeles Ave., 2nd Floor | Simi Valley, CA 93065 | USA CNM NETWORK-TM- PHONE (805) 520-7170 1900 LOS ANGELES AVE., 2ND FLOOR FAX (805) 520-7211 SIMI VALLEY, CA 93065 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CNM NETWORK-TM- RESELLER TERMS AND CONDITIONS I. Recitals Within this Document _(Converging Lines)_ will be represented by "Reseller". CNM Network-TM- will be represented by "Provider." Provider and Reseller enter into the following resellers agreement. II. Customers All customers entering into an agreement with Reseller becomes and remains customers of both Reseller and Provider. Customers provided by Reseller will be serviced on Provider's computer network. Reseller account(s) refers to any account where Reseller's I.D. number is listed with the Provider. Customers' domain names registered with any InterNIC organizations are the property of the customer. For all domains hosted by Provider, Provider will be listed as the Technical and Zone Contact for InterNIC. Customers will be listed as the Billing contact for InterNIC domains and will therefore be responsible for all associated InterNIC registration and renewal fees. Neither Reseller nor Provider may interfere with the customers right to transfer domains within the scope of this agreement. Changes made to Customer's accounts will be made through the Primary/Technical contact of the Provider. All accounts must be processed through the official Provider sign-up form. Provider must be listed as the Primary/Technical contact, and customer must be listed as the account owner and billing contact. III. Notices Provider agrees to notify Reseller of any and all changes in policy and large technical issues that might affect the operations of Reseller within 5 days and scheduled maintenance within 2 days. Provider reserves the right to perform emergency maintenance with no notice. IV. Use of the Marks Reseller shall use the mark "CNM Network-TM-" as applicable on products and packaging containing Provider products and in related advertising, marketing, and technical material. All use of the Marks shall inure to Provider benefit. Upon Provider's request, Reseller shall promptly provide Provider with samples of any product or documentation bearing the Marks. If Provider determines that Reseller is using the Marks improperly, Reseller shall have ten (10) days to remedy the improper use. V. Technical Support Provider intends to provide a high quality of service for Resellers and customers. Technical support will occur primarily through e-mail. All e-mail received by the published technical e-mail address will receive a response within 1 business day. Provider staff will be available for urgent matters by phone during posted business hours. Provider will provide technical support as the Primary/Technical contact listed on all accounts. Reseller will be responsible for all direct technical support to customers they provide. VI. Rates and Discounts PROVIDER RESERVES THE RIGHT TO MODIFY ANY AND ALL RATES, AT ANY TIME, WITHOUT NOTICE TO RESELLER. Reseller agrees to uphold Providers published fixed retail prices on all Providers services the Reseller offers. See Retail Rate Schedules. Reseller has received copy (initials):___________ , RV#_______________ See Reseller Rate Schedule. Reseller has received copy (initials):___________ , RV#_______________ VII. Cancellation Terms This Agreement shall be terminated by either party with a 30 day prior written notice. All fees paid in advance of a cancellation will be prorated. VIII. Lawful Purpose All Reseller's customer sites are subject to the published Terms of Service section, located within the Providers Web Site at "http://www.cnmnetwork.com". It is the responsibility of Reseller to inform and notify its customers of Provider's Terms of Service. Provider reserves the right to monitor all accounts for violations of Provider's Terms of Service. See Terms of Service. Reseller has received copy (initials): _____________ , RV#_______________ IX. Term The term of this Agreement shall commence on (08/01/98) and shall terminate at the end of a 30 day prior written notice of termination inclusive of any and all outstanding payments indicated by terms and conditions of the Agreement in which are due and must be received by the Provider. X. Successors and Assigns This Agreement shall be binding to Reseller, companies owned by Reseller, agents and or affiliates of the Reseller and in no way transfers to respective heirs, legal representatives, successors, and assigns unless in written agreement. XI. Indemnification Reseller agrees that it shall defend, indemnify, save and hold Provider harmless from any and all demands, liabilities, losses, costs and claims, including reasonable attorney's fees asserted against Provider, its agents, its customers, officers and employees, that may arise or result from any service provided or performed or agreed to be performed or any product sold by Reseller, it's agents, employees or assigns. Reseller agrees to defend, indemnify and hold harmless Provider against liabilities arising out of; (1) any injury to person or property caused by any products sold or otherwise distributed in connection w_th Reseller; (2) any material supplied by Reseller infringing or allegedly infringing on the proprietary rights of a third party; (3) copyright infringement; (4) defective products and (5) any misrepresentation by the Reseller or violations of law. XII. Disclaimer Provider will not be responsible for any damages any business may suffer. Provider makes no warranties of any kind, expressed or implied for services provided. Provider disclaims any warranty or merchantability or fitness for a particular purpose. This includes loss of data resulting from delays, nondeliveries, wrong delivery, and any and all service interruptions caused by Provider and its employees. XIII. Taxes Reseller will pay all taxes (except for taxes on our net income) which may be imposed by any taxing authority, that relates to your purchase of services under this agreement, and that we may be responsible to collect or pay. Provider: (Randy Greene)-CNM Network (SIGNED BY RANDY GREENE) (08/21/98) ---------------------------------- --------------------------- ----------- Print Name Signature Date Reseller: (Brian Davids-Converging Lines (SIGNED BY BRIAN DAVIDS( (08-21-98) ---------------------------------- --------------------------- ----------- Print Name Signature Date
Provide the required information for our records: Brian Davids --------------------------------------------------------------------------- Reseller Contact Name(s) Converging Lines --------------------------------------------------------------------------- Company Name --------------------------------------------------------------------------- Address --------------------------------------------------------------------------- City State Zip Country --------------------------------------------------------------------------- Tax ID Number --------------------------------------------------------------------------- Day Time Phone Number Night Time Phone Number --------------------------------------------------------------------------- Emergency Phone Number Fax Phone Number --------------------------------------------------------------------------- Pager Number(s) Please Fax this document to CNM Network-TM- at (805) 520-7211. CNM Network-TM- | 1900 Los Angeles Ave., 2nd Floor | Simi Valley, CA 93065 | USA CNM NETWORK-TM- PHONE (805) 520-7170 1900 LOS ANGELES AVE., 2ND FLOOR FAX (805) 520-7211 SIMI VALLEY, CA 93065 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CNM NETWORK-TM- RESELLER TERMS AND CONDITIONS I. Recitals Within this Document (INFO DIRECT) will be represented by "Reseller". CNM Network-TM- will be represented by "Provider." Provider and Reseller enter into the following resellers agreement. II. Customers All customers entering into an agreement with Reseller becomes and remains customers of both Reseller and Provider. Customers provided by Reseller will be serviced on Provider's computer network. Reseller account(s) refers to any account where Reseller's I.D. number is listed with the Provider. Customers' domain names registered with any InterNIC organizations are the property of the customer. For all domains hosted by Provider, Provider will be listed as the Technical and Zone Contact for InterNIC. Customers will be listed as the Billing contact for InterNIC domains and will therefore be responsible for all associated InterNIC registration and renewal fees. Neither Reseller nor Provider may interfere with the customers right to transfer domains within the scope of this agreement. Changes made to Customer's accounts will be made through the Primary/Technical contact of the Provider. All accounts must be processed through the official Provider sign-up form. Provider must be listed as the Primary/Technical contact, and customer must be listed as the account owner and billing contact. III. Notices Provider agrees to notify Reseller of any and all changes in policy and large technical issues that might affect the operations of Reseller within 5 days and scheduled maintenance within 2 days. Provider reserves the right to perform emergency maintenance with no notice. IV. Use of the Marks Reseller shall use the mark "CNM Network-TM-" as applicable on products and packaging containing Provider products and in related advertising, marketing, and technical material. All use of the Marks shall inure to Provider benefit. Upon Provider's request, Reseller shall promptly provide Provider with samples of any product or documentation bearing the Marks. If Provider determines that Reseller is using the Marks improperly, Reseller shall have ten (10) days to remedy the improper use. V. Technical Support Provider intends to provide a high quality of service for Resellers and customers. Technical support will occur primarily through e-mail. All e-mail received by the published technical e-mail address will receive a response within 1 business day. Provider staff will be available for urgent matters by phone during posted business hours. Provider will provide technical support as the Primary/Technical contact listed on all accounts. Reseller will be responsible for all direct technical support to customers they provide. VI. Rates and Discounts PROVIDER RESERVES THE RIGHT TO MODIFY ANY AND ALL RATES, AT ANY TIME, WITHOUT NOTICE TO RESELLER. Reseller agrees to uphold Providers published fixed retail prices on all Providers services the Reseller offers. See Retail Rate Schedules. Reseller has received copy (initials):____________ , RV#_______________ See Reseller Rate Schedule. Reseller has received copy (initials):___________ , RV#_______________ VII. Cancellation Terms This Agreement shall be terminated by either party with a 30 day prior written notice. All fees paid in advance of a cancellation will be prorated. VIII. Lawful Purpose All Reseller's customer sites are subject to the published Terms of Service section, located within the Providers Web Site at "http://www.cnmnetwork.com". It is the responsibility of Reseller to inform and notify its customers of Provider's Terms of Service. Provider reserves the right to monitor all accounts for violations of Provider's Terms of Service. See Terms of Service. Reseller has received copy (initials): _____________ , RV#_______________ IX. Term The term of this Agreement shall commence on (08/01/98) and shall terminate at the end of a 30 day prior written notice of termination inclusive of any and all outstanding payments indicated by terms and conditions of the Agreement in which are due and must be received by the Provider. X. Successors and Assigns This Agreement shall be binding to Reseller, companies owned by Reseller, agents and or affiliates of the Reseller and in no way transfers to respective heirs, legal representatives, successors, and assigns unless in written agreement. XI. Indemnification Reseller agrees that it shall defend, indemnify, save and hold Provider harmless from any and all demands, liabilities, losses, costs and claims, including reasonable attorney's fees asserted against Provider, its agents, its customers, officers and employees, that may arise or result from any service provided or performed or agreed to be performed or any product sold by Reseller, it's agents, employees or assigns. Reseller agrees to defend, indemnify and hold harmless Provider against liabilities arising out of; (1) any injury to person or property caused by any products sold or otherwise distributed in connection with Reseller; (2) any material supplied by Reseller infringing or allegedly infringing on the proprietary rights of a third party; (3) copyright infringement; (4) defective products and (5) any misrepresentation by the Reseller or violations of law. XII. Disclaimer Provider will not be responsible for any damages any business may suffer. Provider makes no warranties of any kind, expressed or implied for services provided. Provider disclaims any warranty or merchantability or fitness for a particular purpose. This includes loss of data resulting from delays, nondeliveries, wrong delivery, and any and all service interruptions caused by Provider and its employees. XIII. Taxes Reseller will pay all taxes (except for taxes on our net income) which may be imposed by any taxing authority, that relates to your purchase of services under this agreement, and that we may be responsible to collect or pay. Provider: (Randy Greene)-CNM Network (SIGNED BY RANDY GREENE) (08/21/98) ---------------------------------- --------------------------- ----------- Print Name Signature Date Reseller: (Craig Comroe (SIGNED BY CRAIG COMROE) (08-21-98) ---------------------------------- --------------------------- ----------- Print Name Signature Date
Provide the required information for our records: Craig Comroe, Tom Fontera --------------------------------------------------------------------------- Reseller Contact Name(s) Info Direct --------------------------------------------------------------------------- Company Name 802 East Cota --------------------------------------------------------------------------- Address Santa Barbara CA 93101 USA --------------------------------------------------------------------------- City State Zip Country --------------------------------------------------------------------------- Tax ID Number --------------------------------------------------------------------------- Day Time Phone Number Night Time Phone Number --------------------------------------------------------------------------- Emergency Phone Number Fax Phone Number --------------------------------------------------------------------------- Pager Number(s) Please Fax this document to CNM Network-TM- at (805) 520-7211. CNM Network-TM- | 1900 Los Angeles Ave., 2nd Floor | Simi Valley, CA 93065 | USA CNM NETWORK-TM- PHONE (805) 520-7170 1900 LOS ANGELES AVE., 2ND FLOOR FAX (805) 520-7211 SIMI VALLEY, CA 93065 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CNM NETWORK-TM- RESELLER TERMS AND CONDITIONS I. Recitals Within this Document (Converging Lines) will be represented by "Reseller". CNM Network-TM- will be represented by "Provider." Provider and Reseller enter into the following resellers agreement. II. Customers All customers entering into an agreement with Reseller becomes and remains customers of both Reseller and Provider. Customers provided by Reseller will be serviced on Provider's computer network. Reseller account(s) refers to any account where Reseller's I.D. number is listed with the Provider. Customers' domain names registered with any InterNIC organizations are the property of the customer. For all domains hosted by Provider, Provider will be listed as the Technical and Zone Contact for InterNIC. Customers will be listed as the Billing contact for InterNIC domains and will therefore be responsible for all associated InterNIC registration and renewal fees. Neither Reseller nor Provider may interfere with the customers right to transfer domains within the scope of this agreement. Changes made to Customer's accounts will be made through the Primary/Technical contact of the Provider. All accounts must be processed through the official Provider sign-up form. Provider must be listed as the Primary/Technical contact, and customer must be listed as the account owner and billing contact. III. Notices Provider agrees to notify Reseller of any and all changes in policy and large technical issues that might affect the operations of Reseller within 5 days and scheduled maintenance within 2 days. Provider reserves the right to perform emergency maintenance with no notice. IV. Use of the Marks Reseller shall use the mark "CNM Network-TM-" as applicable on products and packaging containing Provider products and in related advertising, marketing, and technical material. All use of the Marks shall inure to Provider benefit. Upon Provider's request, Reseller shall promptly provide Provider with samples of any product or documentation bearing the Marks. If Provider determines that Reseller is using the Marks improperly, Reseller shall have ten (10) days to remedy the improper use. V. Technical Support Provider intends to provide a high quality of service for Resellers and customers. Technical support will occur primarily through e-mail. All e-mail received by the published technical e-mail address will receive a response within 1 business day. Provider staff will be available for urgent matters by phone during posted business hours. Provider will provide technical support as the Primary/Technical contact listed on all accounts. Reseller will be responsible for all direct technical support to customers they provide. VI. Rates and Discounts PROVIDER RESERVES THE RIGHT TO MODIFY ANY AND ALL RATES, AT ANY TIME, WITHOUT NOTICE TO RESELLER. Reseller agrees to uphold Providers published fixed retail prices on all Providers services the Reseller offers. See Retail Rate Schedules. Reseller has received copy (initials):____________ , RV#_______________ See Reseller Rate Schedule. Reseller has received copy (initials):___________ , RV#_______________ VII. Cancellation Terms This Agreement shall be terminated by either party with a 30 day prior written notice. All fees paid in advance of a cancellation will be prorated. VIII. Lawful Purpose All Reseller's customer sites are subject to the published Terms of Service section, located within the Providers Web Site at "http://www.cnmnetwork.com". It is the responsibility of Reseller to inform and notify its customers of Provider's Terms of Service. Provider reserves the right to monitor all accounts for violations of Provider's Terms of Service. See Terms of Service. Reseller has received copy (initials): _____________ , RV#_______________ IX. Term The term of this Agreement shall commence on _(08/01/98)_ and shall terminate at the end of a 30 day prior written notice of termination inclusive of any and all outstanding payments indicated by terms and conditions of the Agreement in which are due and must be received by the Provider. X. Successors and Assigns This Agreement shall be binding to Reseller, companies owned by Reseller, agents and or affiliates of the Reseller and in no way transfers to respective heirs, legal representatives, successors, and assigns unless in written agreement. XI. Indemnification Reseller agrees that it shall defend, indemnify, save and hold Provider harmless from any and all demands, liabilities, losses, costs and claims, including reasonable attorney's fees asserted against Provider, its agents, its customers, officers and employees, that may arise or result from any service provided or performed or agreed to be performed or any product sold by Reseller, it's agents, employees or assigns. Reseller agrees to defend, indemnify and hold harmless Provider against liabilities arising out of; (1) any injury to person or property caused by any products sold or otherwise distributed in connection with Reseller; (2) any material supplied by Reseller infringing or allegedly infringing on the proprietary rights of a third party; (3) copyright infringement; (4) defective products and (5) any misrepresentation by the Reseller or violations of law. XII. Disclaimer Provider will not be responsible for any damages any business may suffer. Provider makes no warranties of any kind, expressed or implied for services provided. Provider disclaims any warranty or merchantability or fitness for a particular purpose. This includes loss of data resulting from delays, nondeliveries, wrong delivery, and any and all service interruptions caused by Provider and its employees. XIII. Taxes Reseller will pay all taxes (except for taxes on our net income) which may be imposed by any taxing authority, that relates to your purchase of services under this agreement, and that we may be responsible to collect or pay. Provider: (Randy Greene)-CNM Network (SIGNED BY RANDY GREENE) (08/21/98) ---------------------------------- --------------------------- ----------- Print Name Signature Date Reseller: (Brian Davids-Converging Lines (SIGNED BY BRIAN DAVIDS( (08-21-98) ---------------------------------- --------------------------- ----------- Print Name Signature Date
Provide the required information for our records: Brian Davids --------------------------------------------------------------------------- Reseller Contact Name(s) Converging Lines --------------------------------------------------------------------------- Company Name --------------------------------------------------------------------------- Address --------------------------------------------------------------------------- City State Zip Country --------------------------------------------------------------------------- Tax ID Number --------------------------------------------------------------------------- Day Time Phone Number Night Time Phone Number --------------------------------------------------------------------------- Emergency Phone Number Fax Phone Number --------------------------------------------------------------------------- Pager Number(s) Please Fax this document to CNM Network-TM- at (805) 520-7211. CNM Network-TM- | 1900 Los Angeles Ave., 2nd Floor | Simi Valley, CA 93065 | USA EX-10.10 19 EXHIBIT 10.10 LEASE BETWEEN LEVITT, LEVITT & LIJGASH (-Landlord-) and CONSUMER NET MARKETPLACE ("Tenant") TABLE OF CONTENTS BASIC LEASE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .Iv 1. PREMISES 1.1 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Landlord's Reserved Rights . . . . . . . . . . . . . . . . . . . . 1 2. TERM 2.1. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2. Early Possession . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.3. Delay In Possession. . . . . . . . . . . . . . . . . . . . . . . . 1 2.4. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.5. Acknowledgment of Lease Commencement . . . . . . . . . . . . . . . 2 2.6. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3. RENTAL. 3.1 Minimum Rental . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.2 Late Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.3 Form of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . 3 4. PERSONAL PROPERTY TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. ESCALATION RENT 5.1 Definition and Payment of Escalation Rent. . . . . . . . . . . . . 3 5.2. Tenant's Operating Cost Share. . . . . . . . . . . . . . . . . . . 4 5.3. Definition of Operating Expenses . . . . . . . . . . . . . . . . . 4 6. ALTERATIONS 6.1. Right To Make Alterations. . . . . . . . . . . . . . . . . . . . . 5 6.2. Title To Alterations . . . . . . . . . . . . . . . . . . . . . . . 5 6.3. Tenant Fixtures. . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.4. No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.5. Signs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7 MAINTENANCE, REPAIRS AND SERVICES 7.1. Landlord's Work. . . . . . . . . . . . . . . . . . . . . . . . . . 6 (a) Maintenance. . . . . . . . . . . . . . . . . . . . . . . . 6 (b) Utilities. . . . . . . . . . . . . . . . . . . . . . . . . 6 (c) Heat generating Equipment. . . . . . . . . . . . . . . . . 6 (d) Payment for Additional Power Use . . . . . . . . . . . . . 6 (e) Payment for Additional Services. . . . . . . . . . . . . . 6 (f) Tenant's Payment for Other Utilities . . . . . . . . . . . 7 7.2. Tenant's Obligation for Maintenance. . . . . . . . . . . . . . . . 7 (a) Good Order, Conditions And Repair. . . . . . . . . . . . . 7 (b) Landlord's Remedy. . . . . . . . . . . . . . . . . . . . . 7 (c) Condition Upon Surrender . . . . . . . . . . . . . . . . . 7 8. US OF PREMISES 8.1. Permitted Use . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.2. Requirement of Continued Use. . . . . . . . . . . . . . . . . . . . 7 8.3 No Nuisance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.4. Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . 7 8.5. Liquidation Sales . . . . . . . . . . . . . . . . . . . . . . . . . 8 8.6. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 8 9. INSURANCE AND INDEMNITY 9.1. Tenant's Insurance . . . . . . . . . . . . . . . . . . . . . . . .10 9.2. Quality of Policies and Certificates . . . . . . . . . . . . . . .10 9,3, Workers' Compensation. . . . . . . . . . . . . . . . . . . . . . .11 9.4, Waiver of Subrogation. . . . . . . . . . . . . . . . . . . . . . .11 9,5. Increase in Premiums . . . . . . . . . . . . . . . . . . . . . . .11 9.6. Tenant's Indemnification . . . . . . . . . . . . . . . . . . . . .11 9.7. Blanket Policy . . . . . . . . . . . . . . . . . . . . . . . . . .11 10. SUBLEASE AND ASSIGNMENT 10.1. Assignment and Sublease of Premises . . . . . . . . . . . . . . .11 10.2. Rights Of Landlord . . . . . . . . . . . . . . . . . . . . . . . .12 11. RIGHT OF ENTRY AND QUIET ENJOYMENT 11,1 Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . . .12 11.2. Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . .12 12. CASUALTY AND TAKING 12.1. Termination or Reconstruction. . . . . . . . . . . . . . . . . . .12 12.2. Tenant's Rights. . . . . . . . . . . . . . . . . . . . . . . . . .13 12.3. Lease To Remain in Effect. . . . . . . . . . . . . . . . . . . . .13 2.4. Reservation of Compensation . . . . . . . . . . . . . . . . . . .13 2.5. Restoration of Fixtures. . . . . . . . . . . . . . . . . . . . . .13 13. DEFAULT 13.1. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . .13 (a) Abandonment. . . . . . . . . . . . . . . . . . . . . . . .13 (b) Nonpayment . . . . . . . . . . . . . . . . . . . . . . . .13 (c) Other Obligations. . . . . . . . . . . . . . . . . . . . .14 (d) General Assignment . . . . . . . . . . . . . . . . . . . .14 (e) Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . .14 (f) Receivership . . . . . . . . . . . . . . . . . . . . . . .14 (g) Attachment . . . . . . . . . . . . . . . . . . . . . . . .14 (h) Insolvency . . . . . . . . . . . . . . . . . . . . . . . .14 13.2. Remedies upon Tenant's Default . . . . . . . . . . . . . . . . . .14 13.3. Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . .15 13.4. Remedies upon Landlord's default . . . . . . . . . . . . . . . . .15 14. SUBORDINATION, ATTORNMENT AND SALE 14.1. Subordination to Mortgage. . . . . . . . . . . . . . . . . . . . .15 14.2. Sale ofLandlord' Interest. . . . . . . . . . . . . . . . . . . . .15 14.3. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . .16 14.4. Subordination to CC&R's. . . . . . . . . . . . . . . . . . . . . .16 15. SECURITY DEPOSIT 15.1 Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 16. MISCELLANEOUS 16.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 16.2. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . .17 16.3. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 16.4. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . .17 16.5 Litigation between Parties . . . . . . . . . . . . . . . . . . . .17 16.6 Surrender. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 16.7 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . .17 16.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . .18 16.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . .18 16.10 No Partnership . . . . . . . . . . . . . . . . . . . . . . . . . .18 16.11 Financial Information. . . . . . . . . . . . . . . . . . . . . . .18 16.12 Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 16.13 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 16.14 Ru1es and Regulations. . . . . . . . . . . . . . . . . . . . . . .18 16.15 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 16.16 Memorandum of Lease. . . . . . . . . . . . . . . . . . . . . . . .18 16.17 Corporate Authority. . . . . . . . . . . . . . . . . . . . . . . .19 16.18 Executive & Delivery . . . . . . . . . . . . . . . . . . . . . . .19 16.19 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 16.20 Security Cameras . . . . . . . . . . . . . . . . . . . . . . . . .19 16.21 Backup Generator . . . . . . . . . . . . . . . . . . . . . . . . .19 16.22 Property Tax on Sale . . . . . . . . . . . . . . . . . . . . . . .19
EXHIBITS A Location of Premises B. Real Property Description C. Construction D. Acknowledgement of Lease Commencement E. Rules & Regu1ations F. Guaranty BASIC LEASE INFORMATION Date: April 8, 1998 Landlord: Levitt, Levitt & Lugash, a California general partnership Landlord's Representative: Michael Levitt 10425 Bainbridge Avenue Los Ange1es, CA 90024 Telephone & Fax: (310) 474-0115 (310) 441-2165 Fax Consumer Net Marketplace, a California corporation 1900 Los Angeles Avenue Second Floor Simi Valley, California 93065 Area of the Premises. 7,202 square feet Tenant's Share of Operating Expenses: 42% Term: 60 months Term Commencement Date: May 1, 1998 ' Term Expiration Date: April 30, 2003
Minimum Rent Months Amount 1 Free 2 $9,002.50 3-7 $4,501.25 8-36 $9,002 50 37-60 $9,362.60
Rent Adjustments. See Sections 3.1(e) and (f) Security Deposit. $13,503.75 Prepaid Rent; $9,002.50 to be applied to rent for month #2 (June) Guarantor(s): Fredrick Rice Notice Addresses: See Section 16.1 Permitted Use: General office Landlord's Broker CB Commercial Real Estate Group, Inc., Mark Perry Tenant's Broker: Kenneth K. Lattin NOTE: This Basic Lease information is a summary provid_d for reference purposes only and is qualified in its entirety by the actual terms of the Lease; in the event of any conflict between the terms of the Lease and the information contained herein, the terms of the Lease shall be controlling LEASE THIS LEASE is made and entered into as of the 8th day of APRIL, 1998, by and between LEVITT, LEVITT & LUGASH, a California general partnership ("LANDLORD") and CONSUMER NET MARKETPLACE, a California corporation ("Tenant") THE PARTIES AGREE AS FOLLOWS: 1. PREMISES 1.1 PREMISES (a) Landlord leases to Tenant and Tenant hires and leases from Landlord, on the terms, covenants and conditions hereinafter set forth, the premises (the "Premises") designated in EXHIBIT A attached hereto and incorporated herein by this reference, consisting of approximately 7,202 square feet of space located within the building located at 1900 Los Angeles Avenue in the City of Simi Valley, County of Ventura, State of California (the "Building"), and located on the real property (the "Property") described in EXHIBIT B attached hereto and incorporated herein by this reference, together with the nonexclusive right to use any common areas in the Building designated as such from time to time by Landlord. (b) Tenant acknowledges and agrees that, notwithstanding the fact that it may design the Premises to accommodate more than twenty-eight (28) persons a total of twenty eight (28) parking spaces are allocated to the Premises in the parking lot that serves the Building. Tenant represents that the nature of its business is such that all of its personnel "will not be on the Premises at one time and, therefore, it will not require or use more than twenty-eight (28) spaces at any time. 1.2. LANDLORD'S RESERVED RIGHTS. Landlord reserves the right from time to time to (i) install, use, maintain, repair and replace pipes, ducts, conduits, wires and appurtenant meters and equipment for service to other parts of the 13uilding above the ceiling surfaces, below the floor surfaces, within the walls or leading through the Premises in locations which will not materially interfere with Tenant's use thereof, (ii) relocate any pipes, ducts, conduits, wires and appurtenant meters and equipment included in the Premises which are so located or located elsewhere outside the Premises, (iii) make alterations or additions to the Building, (iv) construct, alter or add to improvements on the Property, (v) build adjoining to the Property, and (vi) lease any part of the Property for the construction of improvements or buildings. Landlord may modify or enlarge the common area, alter or relocate accesses to the Premises, or alter or relocate any common facility. Landlord shall not exercise nights reserved to it pursuant to this Section 1.2 in such a manner as to materially impair Tenant's ability to conduct its activities in the normal manner, provided, however, that the foregoing shall not limit or restrict Landlord's right to undertake reasonable construction activity and Tenant's use of the Premises shall be subject to reasonable temporary disruption incidental to such activity diligently prosecuted. 2. TERM 2.1 TERM. The term of this Lease shall commence May 1, 1998 herein called the "COMMENCEMENT DATE" and shall end on the day immediately preceding the date sixty (60) months thereafter, unless sooner terminated or extended (if applicable) as hereinafter provided. 2.2. EARLY POSSESSION. If Landlord permits Tenant to occupy, use or take possession of the Premises prior to the Commencement Date determined under Section 2.1, such occupancy, use or possession shall be subject to and upon all of the terms and conditions of this Lease, including the obligation to pay rent and other charges, unless Landlord and Tenant agree otherwise; provided, however, that such early possession shall not advance or otherwise affect the Commencement Date or termination date determined under Section 2.1. Upon delivery by tenant of an executed lease along with the good faith deposit and security deposit, landlord grants tenant early possession, without obligation to payment, to begin importation to start business. 2.3 DELAY IN POSSESSION. Landlord agrees to use its best reasonable efforts to complete promptly the work described in Section 2.4 and EXHIBIT C; provided, however, Landlord shall not be liable for any damages caused by any delay in the completion of such work, nor shall any such delay affect the validity of this Lease or the obligations of Tenant hereunder. 2.4. CONSTRUCTION. Tenant is accepting the Premises in "as is" condition. Except as set forth in EXHIBIT C, Landlord shall have no responsibilities or obligations with respect to preparation of the Premises for Tenant's occupancy. Acceptance by Tenant of possession of the Premises after performance of such work, if any, by Landlord shall constitute acceptance by Tenant of such work in its then completed condition and Landlord shall have no further responsibility of any kind or character for improvement of the Premises or in connection with such provided, however, that within thirty (30) days after the Commencement Date Tenant may furnish to Landlord a "punch list" identifying any items or matters in the Premises which are not constructed in accordance with the plans and specifications approved under EXHIBIT C hereto and Landlord shall promptly and diligently correct all such matters at its sole cost and expense. 2.5 ACKNOWLEDGMENT OF LEASE COMMENCEMENT. Upon commencement of the term of this Lease, Landlord and Tenant shall execute a written acknowledgement of the Commencement Date, date of termination, square footage of the Premises and related matters, substantially in the form attached hereto as EXHIBIT D (with appropriate insertions), which acknowledgement shall be deemed to be incorporated herein by this reference. Notwithstanding the foregoing requirement, the failure of Tenant to execute such a written acknowledgement shall not affect landlord's determination of the Commencement Date, date of termination, square footage of the Premises and related matters in accordance with the provisions of this Lease. 2.6. HOLDING OVER. If Tenant holds possession of the premises after the term of this Lease with Landlord's written consent, then except as otherwise specified in such consent, Tenant shall become a tenant from month to month at 135% the rental and otherwise upon the terms herein specified for the period immediately prior to such holding over and shall continue in such status until the tenancy is terminated by either party upon not less than thirty (30) days prior written notice. If Tenant holds possession of the Premises after the term of this Lease without Landlord's written consent, then Landlord in its sole discretion may elect (by written notice to Tenant) to have Tenant become a tenant either from month to month or at will, at 135% the rental (prorated on a daily basis for an at will tenancy, if applicable) and otherwise upon the terms herein specified for the period immediately prior to such holding over, or may elect to pursue any and all legal remedies available to Landlord under applicable law with respect to such unconsented holding over by Tenant. Tenant shall indemnify, and hold Landlord harmless from any loss, damage, Claim, liability, Cost or expense (including reasonable attorneys' fees) resulting from any delay by tenant in surrendering the Premises (except with Landlord's prior written consent), including but not limited to any claims made by a succeeding tenant by reason of. such delay. Acceptance of rent by Landlord following expiration or termination of this Lease shall not constitute a renewal of this Lease. 3. RENTAL 3.1 MINIMUM RENTAL. (a) Subject to any applicable adjustments pursuant Section 5 of this Lease, Tenant shall pay to Landlord as minimum rental for the Premises, in advance, without deduction, offset, notice or demand, on or before the Commencement Date and on or before the first day of each subsequent calendar month of the term of this Lease, the following amounts per month.
Months Minimum Rental ------ -------------- 1 Free 2-36 $9,002.50 3-7 $4,501.25 Credit 37-60 $9,362.60
Concurrently with Tenant's execution of this Lease, Tenant shall pay to Landlord the sum of $9,002.50, which sum shall be held by Landlord, without interest, as a good faith deposit and applied against the minimum rental falling due for the month of May. If Tenant never commences business in the Premises, Landlord shall have the right, in addition to any other rights under this Lease, to retain the funds described in the previous sentence. If the obligation to pay minimum rental hereunder commences on other than the first day of a calendar month or if the term of this Lease terminates on other than the last day of a calendar month, the minimum rental for such first or last month of the term of this Lease, as the case may be, shall be prorated based on the number of days the term of this Lease is in effect during such month. If an increase in minimum rental becomes effective on a day other than the first day of a calendar month, the minimum rental for that month shall be the sum of the two applicable rates, each prorated for the portion of the month during which such rate is in effect. Notwithstanding anything to the contrary in this Lease, Landlord shall provide Tenant "with a rental credit of Four Thousand live hundred and one and 25/100 Dollars ($4,501.25) per month for five (5) months, commencing with the third (3rd) month of the term of this Lease; provided, however, that Tenant shall not receive the credit described in this sentence for any month if, on the first day of such month, Tenant is in default of its obligation to pay the rent due on the first day of the month immediately preceding. -2- (b) The minimum rental amounts specified in this Section 3.1 are based upon an estimated area of 7,202 square feet for the Premises, if the actual area of the Premises, when completed, is greater or less than such estimated area, or if the area of the Premises changes for any reason during the term hereof, then the minimum rentals specified in this Section 3.1 shall be adjusted proportionately to the change in the area of the Premises, as determined in good faith by Landlord's architect on a basis consistent with that used in measuring other leased premises within the Building. (c) If this Lease contains any "free rent," rent abatement or other period in which minimum monthly rent pursuant to Section 3.1 (a) is zero, or has rental credits, (collectively, a "FREE RENT PERIOD Tenant hereby agrees that if Tenant breaches this Lease and or abandons the Premises before the end of the Lease term, or if Tenant's right to possession is terminated by Landlord because of Tenant's breach of this Lease then Landlord may, at its sole option and in addition to all other remedies available under this Lease or under applicable law, (i) void or rescind such Free Rent Period and (ii) recover from Tenant, in addition to any other damages recoverable by Landlord under the terms of this Lease or under applicable law, additional rent in an amount equal to the product of the number of months in such Free Rent Period times the minimum monthly rental payable under Section 3.1(a) in the first full month following the end of such Free Rent Period. 3.2. LATE CHARGE. If Tenant fails to pay when due rental or other amounts due Landlord hereunder, such unpaid amounts shall beat interest for the benefit of Landlord at a rate equal to the lesser of fifteen percent (15%) per annum or the maximum rate permitted by law, from the date due to the date of payment. In addition to such interest, Tenant shall pay to Landlord a late charge in an amount equal to five percent (5%) of any installment of minimum rental and any other amounts due Landlord if not paid in full on or before the tenth (10th) day after such rental or other amount is due. Tenant acknowledges that late payment by Tenant to Landlord of rental or other amounts due hereunder will cause Landlord to incur costs not contemplated by this Lease, including, without limitation, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any loan relating to the Property. Tenant further acknowledges that it is extremely difficult and impractical to fix the exact amount of such costs and that the late charge set forth in this Section 3.2 represents a fair and reasonable estimate thereof. Acceptance of any late charge by Landlord shall not constitute a waiver of Tenant's default with respect to overdue rental or other amounts, nor shall such acceptance prevent Landlord from exercising any other rights and remedies available to it. Acceptance of rent or other payments by Landlord shall not constitute a waiver of late charges or interest accrued with respect to such rent or other payments or any prior installments thereof, nor of any other defaults by Tenant, whether monetary or non-monetary in nature, remaining uncured at the time of such acceptance of rent or other payments. 3.3 FORM OF PAYMENT. All payments due from Tenant under this Lease shall be made in lawful money of the United States. If any rental or other payment by Tenant in the form of a check is returned against insufficient funds or is otherwise not honored by the financial institution on which such instrument is drawn, then Tenant agrees that upon written request by Landlord, all future payments by Tenant of rental or other amounts due under this Lease shall be made solely in the form of cashier's checks, certified checks or such other form of payment as may be acceptable to Landlord in its sole discretion. 4. PERSONAL PROPERTY TAXES Tenant shall be responsible for and shall pay prior to delinquency all taxes and assessments levied against or by reason of all alterations and additions and all other items installed or paid for by Tenant under this Lease, and the personal property, trade fixtures and all of the property placed by Tenant in or about the Premises. Upon demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence or payment thereof. If at any time during the term of this Lease any of said alterations, additions or personal property, whether or not belonging to Tenant, shall be taxed or assessed as part of the Property, then such tax or assessment shall be paid by Tenant to Landlord immediately upon presentation by Landlord of copies of the tax bills in which such taxes and assessments are included and shall, for the purposes of this Lease be deemed to be personal property taxes or assessments under this Article 4. 5. ESCALATION RENT 5,1. DEFINITION AND PAYMENT OF ESCALATION RENT. (a) The minimum rental payable under this Lease during each calendar year subsequent to the Base Year, as hereinafter defined, shall be subject to increase by Tenant's Operating Cost Share, as defined in Section 5.2 of this Lease, of the total dollar increase, if any, in Operating Expenses, as defined in Section 5.3 of this Lease, paid or incurred by Landlord in such year over the Operating Expenses paid incurred by Landlord in the Base Year (the "BASE OPERATING EXPENSE). The increased rental due pursuant to this Section 5.1 is hereinafter referred to as "ESCALATION RENT." The Base Year for this Lease shall be 1998, except that the Base Year for property taxes shall be the 1997-98 tax year. Escalation Rent shall be paid monthly on an estimated basis, with subsequent annual reconciliation, in accordance with this SECTION 5.1. (b) During December of the Base Year and December of each subsequent calendar year, or as soon thereafter as practicable, Landlord shall give Tenant notice of its estimate of any Escalation Rent due under Section 3.1(a) for the ensuing calendar year. On or before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord 1/12th of such estimated Escalation Rent, provided that if such notice is not given in December Tenant shall continue to pay on the basis of the prior year's estimate until the month after such notice is given. If at any time or times it appears to Landlord that the Escalation Rent for the current calendar year will vary from its estimate by more than five percent (5%), Landlord shall, by notice to Tenant, revise its estimate for such year, and subsequent payments by Tenant for such year shall be based upon such "revised estimate. (c) Within ninety (90) days after the close of each calendar year or as soon after such 90-day period as practicable, Landlord shall deliver to Tenant a statement of the actual Escalation Rent for such calendar year, accompanied by a statement from certified public accountants for the Building showing the Operating Expenses on the basis of which the actual Escalation Rent was determined. If Landlord's statement discloses that Tenant owes an amount that is less than the estimated payments for such calendar year previously made by Tenant, Landlord shall credit such excess first against any sums then owed by Tenant to Landlord and then against the next payments or rental due hereunder. If Landlord's statement discloses that Tenant owes an amount that is more than the estimated payments for such calendar year previously made by Tenant, Tenant shall pay the deficiency to landlord within 30 days after delivery of the statement. (d) The amount of Escalation Rent for any fractional year in the term hereof shall be appropriately prorated. The termination of this Lease shall not affect the obligations of Landlord and Tenant pursuant to paragraph (b) above to be performed after such termination. 5.2. TENANT'S OPERATING COST SHARE. Tenant's Operating Cost Share to be used in calculating Escalation Rent shall be forty-two percent (42%) of the Operating Expense defined in Section 5.3. Tenant's Operating Cost Share as specified in this Section 5.2 is based upon an estimated AREA of 7,202 square feet for the Premises and upon an aggregate area of 17,220 square feet for the Building. If the actual area of the Premises (when completed) or of the Building, as determined in good faith by Landlord's architect on a basis consistent with that used in measuring other leased premises within the Building, differs from the assumed numbers set forth above, or if the area of the Premises changes for any reason during the term hereof, then Tenant's Operating Cost Share shall be adjusted to reflect the actual areas so determined. 5,3, DEFINITION OF OPERATING EXPENSES. Subject to the exclusions and provisions hereinafter contained, the term "Operating Expenses" shall mean the total costs and expenses incurred by or allocable to Landlord for management, operation and maintenance of the Building and the Property, including, without limitation, costs and expenses of (i) insurance (including, but not limited to, the deductible portion of any insured loss), property management, building operation, repairs and maintenance (including, but not limited to, Building office rent or rental value for a Building office of no more than 600 square feet at market rental rates), landscaping and common area operation, repairs and maintenance; (ii) all utilities and services (including, but not limited to, security services, trash disposal, elevator maintenance and repair, janitorial services, sprinkler maintenance and repair, and establishment and maintenance of a Building directory), other than utilities and services that are directly metered or charged to the premises; (iii) real and personal property taxes and assessments or substitutes therefor, including (but not limited to) any public interest, use, business, license or other taxes or fees, any taxes imposed directly on rents or services, any assessments or charges for police or fire protection, housing, transit, open space, street or sidewalk construction or maintenance or other similar services from time to time by any governmental or quasi-governmental entity, and any other new taxes on landlords in addition to taxes now in effect; (iv) supplies, equipment, utilities and tools used in management, Operation and maintenance of the Property; (v) capital improvements to the Property or Building, amortized over a reasonable period, (aa) which reduce or will cause future reduction of other items of Operating Expenses for which Tenant is otherwise required to contribute or b) which are required by law, ordinance, regulation or order of any governmental authority or (cc) of which tenant has use or which benefit Tenant; (vi) any other costs (including, but not limited to, any parking or utilities fees or surcharges) allocable to or paid by Landlord, as owner of the Property or Building, pursuant to any applicable laws, ordinances, regulations or orders of any governmental or quasi-governmental authority or pursuant to the terms of any declarations of covenants, conditions and restrictions now or hereafter affecting the Property; and (vii) any cost or expenses listed in clauses (i) through (vi) of this Section 5,3 that are allocable to the driveway opening onto Los Angeles Avenue to the east of the Building and the driveway opening onto Erringer Road to the south of the Building Operating Expenses shall not include any costs attributable to increasing the size of or otherwise expanding the Building or the cost of the work for which Landlord is required to pay under Section 2.4 or Exhibit C. The distinction between items of ordinary operating maintenance and repair and items of a capital nature shall be made in accordance with generally accepted accounting principles applied on a consistent basis. 6 ALTERATIONS 6.1. Right TO MAKE ALTERATIONS. Tenant shall make no alterations additions or improvements to the Premises other than interior non-structural alterations costing less than Two Thousand Dollars ($2,000.00) in each instance, without the prior written consent of Landlord all such alterations, additions and improvements shall be completed with due diligence in a first-class workmanlike manner and in compliance with plans and specifications approved in writing by Landlord and all applicable laws, ordinances, rules and regulations. All such alterations, additions and improvements shall be performed solely by a licensed and bonded general contractor approved by Landlord, and Landlord shall be named as an additional insured on such contractor's bond Landlord may also, at its election, require Tenant to furnish to Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of any such work to ensure completion of the work and to protect Landlord against any liens or claims relating thereto. 6.2. TITLE TO ALTERATIONS. All alterations, additions and improvements installed in, on or about the Premises shall be part of the Building and the property of Landlord, unless Landlord elects to require Tenant to remove the same upon the termination of this Lease; provided, however, that the foregoing shall not apply to Tenant's movable furniture and trade fixtures not affixed to the Property. 6.3. TENANT FIXTURES. Notwithstanding the provisions of Sections 6.1 and 6.2, Tenant May install, remove and reinstall trade fixtures without Landlord's prior written consent, except that any fixtures which are affixed to the Premises or which affect the exterior or structural portions of the Building shall require Landlord's written approval. The foregoing shall apply to Tenant's signs, logos and insignia. All of which Tenant shall have the right to place and remove and replace solely WITH Landlord's prior written consent as to location, size and composition. Tenant shall immediately repair any damage caused by installation and removal of fixtures under this Section 6.3. 6.4. NO LIENS. Tenant shall at all times keep the Premises free from all liens and claims of any contractors, subcontractors, materialmen, suppliers or any other parties employed either directly or indirectly by Tenant in construction work on the Premises. Tenant may contest any claim of lien, but only if; prior to such contest, Tenant either (i) posts security in the amount of the claim, plus estimated costs and interest, or (ii) records a bond of a responsible corporate surety in such amount as may be required to release the lien from the Premises. Tenant shall indemnify, defend and hold Landlord harmless against any and all liability, loss, damage cost and other expenses, including, without limitation, reasonable attorneys' fees, arising out of claims of any lien for work performed or materials or supplies furnished at the request of Tenant or persons claiming under Tenant. 6.5 SIGNS (a) Tenant shall have the right to place, at tenant's sole cost (including all costs of operation and maintenance), a business sign upon the exterior wall of the Building above the third-floor window line, in place of the existing sign at the northeast corner of the facia of the building, provided that such sign is in compliance with applicable law and the sign design standards for the Building, and provided further that the location, size, composition and design of such sign have been approved by Landlord in writing which approval shall not be unreasonably withheld. Landlord shall be responsible for the cost incurred for the removal of the existing prior tenant's sign. (b) Tenant shall not affix or maintain upon the glass panes or supports of the show windows of the Premises (or within twenty-four (24) inches of any such window), doors or exterior walls of the Premises any signs advertisements, names, insignia, trademarks, descriptive material, or any other similar item(s) without Landlord's consent. Tenant shall not use any advertising medium which can be seen or heard outside the Premises, including, without limitation, flashing lights, search lights, loudspeakers, phonographs, radios or other similar visual or audio media. Tenant shall not solicit business in, on or about the common areas of the Building, or distribute handbills or other advertising or promotional media in, on or about such common areas. (c) Landlord may, at Tenant's sole cost and expense, remove any item placed, constructed or maintained in violation of the provisions of this Section 6.5. 7. MAINTENANCE, REPAIRS AND SERVICES 7.1. LANDLORD'S WORK. (a) MAINTENANCE. Landlord shall maintain the public and common areas of the Building, including lobbies, stairs1 elevators, corridors and restrooms, all exterior landscaping, the windows in the Building the mechanical plumbing and electrical equipment serving the Building, and the structure itself in reasonably good order and condition. The cost of all work performed by Landlord under this Section 7.1 shall be an Operating Expense hereunder, except to the extent such work (i) is required due to the gross negligence of Landlord or any other tenant of the Building, (ii) is a service to a specific tenant or tenants, other than Tenant, for which Landlord has received or has the right to receive AM reimbursement, (iii) is a capital expense not includible as an Operating Expense under Section 5.3 hereof, or (iv) is required due to the negligence or willful misconduct of Tenant or its agents, employees or invitees (in which event Tenant shall bear the full cost of such work pursuant to the indemnification provided in Section 9.6 hereof). Tenant knowingly and voluntarily waives the right to make repairs at landlord's expense, or to offset the cost thereof against rent, under any law, statute, regulation or ordinance now or hereafter in effect. (b) UTILITIES. Landlord shall cause to be furnished (1) electricity for lighting and the operation of office machines, (2) heat and air conditioning to the extent reasonably required for the comfortable occupancy by Tenant in its use of the Premises during the period from 8 a.m. to 6 p.m. on weekdays and from 9 a.m. to 1 p.m. on Saturdays (except holidays), or such shorter periods as may be prescribed by any applicable policies or regulations adopted by any utility or governmental agency, (3) elevator service, (4) lighting replacement (for building standard lights), (5) restroom supplies, (6) window washing with reasonable frequency, and (7) daily janitor service during the times and in the manner that such services are customarily furnished in comparable office buildings in the area, PROVIDED, however, that cleaning services shall be provided to the Premises no less than three (3) times per week. Landlord may establish reasonable measures to conserve energy, including but not limited to, automatic switching of lights after hours and more efficient forms of lighting, so long as such measures do not unreasonably interfere with Tenant's use of the Premises. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the rental herein reserved be abated by reason of (i) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, (ii) failure to furnish or delay in furnishing any such services when such failure or delay is caused by accident or any condition beyond the reasonable control of Landlord or by the making of necessary repairs or improvements to the Premises or to the building, or (iii) the limitation, curtailment, rationing or restrictions on use of water, electricity, gas or any other form of energy or utility serving the Premises or the Building. Landlord shall use reasonable efforts diligently to remedy any interruption in the furnishing of such services. (c) HEAT-GENERATING EQUIPMENT. If heat-generating equipment or lighting other than building standard lights are installed or used in the Premises and such equipment or lighting affects the temperature otherwise maintained by the air conditioning system, or if equipment is installed in the Premises which requires a separate temperature-controlled room, on Tenant's request, or at landlord's election alter notice to Tenant. Landlord shall install supplementary air conditioning facilities in the Premises or otherwise modify the ventilating and air conditioning system serving the Premises, and the capital and maintenance costs of such facilities and modifications shall be borne by Tenant. (d) PAYMENT FOR ADDITIONAL POWER USE. Tenant shall reimburse Landlord, upon billing therefor, for the cost of (1) all heat or air conditioning provided to the Premises during hours requested by Tenant when such services are not otherwise furnished by Landlord, (2) all power and cooling energy provided for supplementary air conditioning facilities in or serving the Premises, and (3) if the average monthly power usage of all lighting and office equipment in the Premises, excluding equipment power usage of which is charged to Tenant under item (2) above, exceeds the amount that, in Landlord's reasonable discretion, Tenant's use of the Premises reasonably requires, all power usage in excess of such reasonable amount. Tenant shall also pay the cost of any transformers, additional risers, panel boards and other facilities if and to the extent required to furnish power for supplementary air conditioning facilities in or serving the Premises or power for lighting and office equipment with a power usage in excess of the amount reasonable for tenant's use of the Premises. (e) PAYMENT FOR ADDITIONAL SERVICES. In the event that Landlord, at Tenant's request, provides services to Tenant that are not otherwise provided for in this Lease, Tenant shall pay Landlord's reasonable charges for such services upon billing thereof (f) TENANT'S PAYMENT FOR OTHER UTILITIES. Commencing with the Commencement Date and thereafter throughout the term of this Lease. Tenant shall pay, before delinquency, all charges for all services or utilities used in or consumed on the Premises other than those provided by Landlord, including, but not limited to, all charges for telephone service including any taxes on such services and utilities. 7.2. TENANT'S OBLIGATION FOR MAINTENANCE. (a) GOOD ORDER, CONDITION AND REPAIR. By accepting possession of the Premises, Tenant acknowledges that the Premises are in good and sanitary order, condition and repair. except as provided in Section 7.1 hereof, Tenant at its sole cost and expense shall keep and maintain in good and sanitary order, condition and repair the Premises and every part thereof, wherever located. (b) LANDLORD'S REMEDY. If tenant, after notice from Landlord, fails to make or perform promptly any repairs or maintenance which are the obligation of Tenant hereunder, Landlord shall have the right, but shall not be required, to enter the Premises and make the repairs or perform the maintenance necessary to restore the Premises to good and sanitary order, condition and repair. Immediately on demand from Landlord, the cost of such repairs shall be due and payable by Tenant to Landlord. (c) CONDITION UPON SURRENDER. At the expiration or sooner termination of this Lease, Tenant shall surrender the Premises, including any additions, alterations and improvements thereto, broom clean, in good and sanitary order, condition and repair, ordinary wear and tear excepted, first, however, removing all goods and effects of Tenant and all fixtures and items required to be removed or specified to be removed at Landlord's election pursuant to this Lease, and repairing any damage caused by such removal. Tenant shall not have the right to remove fixtures or equipment if Tenant is in default hereunder unless Landlord specifically waives this provision in writing. Tenant expressly waives any and all interest in any personal property and trade fixtures not removed from tile Premises by Tenant at the expiration or termination of this Lease agrees that any such personal property and trade fixtures may at Landlord's election, be deemed to have been abandoned by Tenant, and authorizes Landlord (at its election and without prejudice to any other remedies under this Lease or under applicable law) to remove and either retain, store or dispose of such property at Tenant's cost and expense, and Tenant waives all claims against Landlord for any damages resulting from any such removal, storage, retention or disposal. 8. USE OF PREMISES 8.1. PERMITTED USE. Tenant shall use the Premises solely for general office communication services and administrative purposes and for no other purpose. 8.2. REQUIREMENT OF CONTINUED USE. Tenant shall not at any time leave the Premises unoccupied or vacant, and shall continuously during the term of this Lease (except during any period when the Premises are unusable by reason of events described in Article 12 hereof) conduct and carry on in the Premises the use permitted hereunder. 8.3. NO NUISANCE. Tenant shall not use the Premises for or carry on or permit upon the Premises or any part thereof any offensive, noisy or dangerous trade, business, manufacture, occupation, odor or fumes, or any nuisance or anything against public policy, nor interfere with the rights or business of any other tenants or of Landlord in the Building or the Property, nor commit or allow to be committed any waste in, on or about the Premises, nor make any other unreasonable use of the Premises. Tenant shall not do or permit anything to be done in or about the Premises, nor bring nor keep anything therein, which will in any way cause the Premises to be uninsurable with respect to the insurance required by this Lease or with respect to standard fire and extended coverage insurance with vandalism, malicious mischief and riot endorsements. 8.4. COMPLIANCE WITH LAWS. Tenant shall not use the Premises or permit the Premises to be used in whole or in part for any purpose or use that is in violation of any applicable laws, ordinances, regulations or rules of any governmental agency or public authority, tenant shall keep the Premises equipped with all safety appliances required by law, ordinance or insurance on the Premises, or any order OR regulation of any public authority because of Tenant's particular use of the Premises. Tenant shall procure all licenses and permits required for use of the Premises. Tenant shall use the Premises in strict accordance with all applicable ordinances, rules, laws and regulations and shall comply with all requirements of all governmental authorities now in force or which may hereafter be in force pertaining to the use of the Premises by Tenant, including, without limitation, regulations applicable to noise, water, soil and air pollution, and making such nonstructural alterations and additions thereto as may be required from time to time by such laws, ordinances, rules, regulations and requirements of governmental authorities or insurers of the Premises (collectively, "REQUIREMENTS") because of Tenant's construction of improvements in or other particular use of the Premises. Any structural alterations or additions required from time to time by applicable Requirements because of Tenant's construction of improvements in or other particular use of the Premises shall, at Landlord's election, either (i) be made by Tenant, at tenant's sole cost and expense, in accordance with the procedures and standards set forth in Section 7.1 for alteration by Tenant, or (ii) be made by Landlord at Tenant's sole cost and expense, in which event Tenant shall pay to Landlord as additional rent, within ten (10) days after demand by Landlord, an amount equal to all Costs incurred by Landlord in connection with such alterations or additions. The judgment of any Court, or the admission by Tenant in any proceeding against Tenant, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement shall be conclusive of such violation as between Landlord and Tenant. 8.5. LIQUIDATION SALES. Tenant shall not conduct or permit to be conducted any auction, bankruptcy sale, liquidation sale, or going out of business sale, in, upon or about the Premises or the Property, whether said auction or sale be voluntary, involuntary or pursuant to any assignment for the benefit of creditors, or pursuant to any bankruptcy or other insolvency proceeding. 8.6. ENVIRONMENTAL MATTERS. (a) For purposes of this Section, "HAZARDOUS SUBSTANCE" shall mean the substances included within the definitions of the term "hazardous substance" under (i) the Comprehensive Environmental Response, Compensation and Liability Act of 198U, as amended, 42 U.S.C. Section 9601 et seq., and the regulations promulgated thereunder, as amended, (ii) the California Carpenter-Presley-Tanner Hazardous Substance Account Act, California Health & Safety Code Section 25300 et. seq., and regulations promulgated thereunder, as amended, (iii) the Hazardous Materials Release Response Plans and Inventory Act, California Heath & Safety Code Sections 25500 et. seq., and regulations promulgated thereunder, as amended, and (iv) petroleum, "HAZARDOUS WASTE" shall mean (i) any waste listed as or meeting the identified characteristics of a "hazardous waste under the Resource Conservation and Recovery Act of 1976, 42 U S.C. Sections 6901 et seq., and regulations promulgated pursuant thereto, as amended (collectively, "RCRA"), (ii) any waste meet mg the identified characteristics of "hazardous waste," "extremely hazardous waste" or "restricted hazardous waste" under the California Hazardous Waste Control Law, California Health & Safety Code Sections 25100 et. seq. and regulations promulgated pursuant thereto, as amended (collectively, the CHWCL"), and/or (iii) any waste meeting the identified characteristics of "medical waste" under California Health & Safety Code Sections 25015-25027 8, and regulations promulgated thereunder, as amended and "HAZARDOUS WASTE FACILITY SHALL mean a hazardous waste facility as defined under the CHWCL. (b) Landlord hereby indemnifies Tenant from any and all damages resulting from the presence of hazardous substances on or before the Lease commencement date or caused by another previous, existing, or future Tenant. (c) Without limiting the generality of the obligations set forth in Section 8.4 above: (i) Tenant covenants not to cause or permit any hazardous substance or hazardous waste to be brought upon, kept, stored or used in or about the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld. (ii) Tenant covenants that ii will comply with all applicable laws, rules, regulations, orders, permits, licenses and operating plans of any governmental authority with respect to the receipt, use, handling, generation, transportation, storage, treatment and/or disposal of hazardous, substances or wastes, and tenant will provide Landlord with copies of all permits, licenses, registrations and other similar documents that authorize tenant to conduct any such activities in connection with its authorized use of the Premises. (iii) Tenant agrees that it shall not (A) operate on or about the Premises any facility required to be permitted or licensed as a hazardous waste facility or for which interim status as such is required, nor (13) store any hazardous wastes on or about the Premises for ninety (90) days or more, nor (C) conduct any other activities on or about the Premises that could result in the Premises being deemed to be a "hazardous waste facility" (including, but not limited to, any storage or treatment of hazardous substances or hazardous wastes which could have such a result) (iv) Tenant agrees to comply with all applicable laws, rules, regulations, orders and permits relating to underground storage tanks (including any installation monitoring, maintenance, closure and/or removal of such tanks) as such tanks are defined in California Health & Safety Code Section 25281(x), including without limitation, complying with California Health & Safety Code Sections 25280-25299.7 and the regulations promulgated thereunder, as amended. Tenant shall furnish to Landlord copies of all registrations and permits for all underground Storage tanks. (v) If applicable, Tenant shall provide Landlord in writing the following information and/or documentation at the commencement of this Lease and within sixty (60) days of any change in or addition to the required information and/or documentation. (A) A list of all hazardous substances and/or wastes that Tenant receives, uses, handles generates, transports, stores, treats or disposes of in connection with its operations on the Premises. (B) Copies of all Material Safety Data Sheets ("MSDS's"), if any, required to be completed with respect to operations of Tenant at the Premises in accordance with Title 26, California Code of Regulations Section 8-5194 or 42 U.S.C. Section 11021, or any amendments thereto. In lieu OF this requirement, Tenant may provide a Hazardous Materials Inventory Sheet that details the MSDS's. (C) Copies of all hazardous waste manifests (as defined in Title 26, California Code of Regulations Section 22-66481), if any, that Tenant is required to complete in connection with its operations at the Premises. (D) A copy of any hazardous Materials Management Plan required with respect with Tenant's operations at the Premises, pursuant to California Health & Safety Code Sections 25500 et seq., and any regulations promulgated thereunder, as amended. (E) Copies of any Contingency Plans and Emergency Procedures required of Tenant due to its operations in accordance with Title 26, California Code of Regulations Section 22-67140 et. seq. and any amendments thereto, and copies of any Training Programs and Records required under Title 26, California Code of Regulations, Section 2267105, and any amendments thereto. (F) Copies of any biennial reports to be furnished to the California Department of Health Services relating to hazardous substances or wastes, pursuant to Title 26, California Code of Regulations, Section 22-66493, and any amendments thereto. (G) Copies of all industrial wastewater discharge permits. (H) Copies of any other lists or inventories of hazardous substances and/or wastes on or about the Property or Premises that Tenant is otherwise required to prepare and file with any governmental or regulatory authority. (vi) Tenant shall secure Landlord's prior written approval for any proposed receipt, storage, possession, use, transfer or disposal of "RADIOACTIVE MATERIALS" or "radiation", as such materials are defined in Title 26, California Code of Regulations Section 1730100, and/or any other materials possessing the characteristics of the materials so defined, which approval Landlord may withhold in its sole and absolute discretion, Tenant, in connection with any such authorized receipt storage, possession, use, transfer or disposal of radioactive materials or radiation, shall: (A) Comply with all federal, state, and local laws, rules, regulations, orders, licenses and permits; (B) Furnish Landlord with a list of all radioactive materials or radiation received, stored, possessed, used, transferred or disposed of, and (C) Furnish Landlord with all licenses, registration materials, inspection reports, orders and permits in connection with the receipt, storage, possession, use, transfer or disposal of radioactive materials or radiation (vii) Tenant agrees to comply with any and all applicable laws, rules, regulations and orders with respect to the release into the environment of any hazardous wastes or substances or radiation or radioactive materials. Tenant agrees to notify landlord in writing of any unauthorized release of any such hazardous wastes or substances or radiation or radioactive materials into the environment within twenty-four hours of the time at which Tenant became aware of such release. (viii) Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, losses (including, but not limited to, loss of rental income and loss due to business interruption) damages, liabilities, costs, legal fees and expenses of any sort arising out of or relating to any unauthorized release into the environment of hazardous substances or wastes or radiation or radioactive materials, or Tenant's failure to comply with any subparagraphs of this paragraph (b). (ix) Tenant agrees to cooperate with Landlord in furnishing Landlord with complete information regarding Tenant's receipt, handling, use, storage, transportation, generation, treatment and/or disposal of any HAZARDOUS SUBSTANCES or wastes or radiation or radioactive materials. Upon request, Tenant agrees to grant Landlord reasonable access at reasonable times to the Premises to inspect Tenant's receipt, handling, use, storage, transportation, generation, treatment and/or disposal of hazardous substances or wastes or radiation or radioactive materials, without being deemed guilty of any disturbance of Tenant's use or possession and without being liable to tenant in any manner. (x) Notwithstanding Landlord's rights of inspection and review under this paragraph (b), Landlord shall have no obligation or duty to so inspect or review, and no third party shall be entitled to rely on Landlord to conduct any sort of inspection or review by reason of the provisions of this paragraph (b). (xi) If Tenant receives, handles, uses, stores, transports, generates, treats and/or disposes of any hazardous substances or wastes or radiation or radioactive materials on or about the Premises at any time during the term of this Lease, then within thirty (30) days after termination or expiration of this Lease, Tenant at its sole cost and expense shall obtain and deliver to Landlord an environmental study, performed by an expert reasonably satisfactory to Landlord, evaluating the presence or absence of hazardous substances and wastes, radiation and radioactive materials on and about the Premises. Such study shall be based on a reasonable and prudent level of tests and investigations of the Premises, which tests shall be conducted no earlier than the date of termination or expiration of this Lease. Liability for any remedial actions required or recommended on the basis of such study shall be allocated in accordance with Sections 8.4, 8.6, 9.6 and other applicable provisions of this Lease. (c) The provisions of this Section 8.6 shall survive the termination of this Lease. 9 INSURANCE AND INDEMNITY 9.1. TENANT'S INSURANCE. (a) Tenant shall procure and maintain in full force and effect at all times during the term of this Lease, at Tenant's cost and expense, comprehensive public liability and property damage insurance to protect against any liability to the public, or to any invitee of Tenant or Landlord, arising out of or related to the use of or resulting from any, accident occurring in, upon or about the Premises, with limits of liability of not LESS than (i) One Million Dollars ($l,000.000.00) for injury to or death of one person, (ii) Two Million Dollars ($2,000,000.00) for personal injury or death, per occurrence, and (iii) Five hundred Thousand Dollars ($500,000. 00) for property damage, or a combined single limit of public liability and property damage insurance of not less than Two Million Dollars ($2,000,000.00). Such insurance shall name Landlord as an additional insured thereunder. The amount of such insurance shall not be construed to limit any liability or obligation of Tenant under this Lease. (b) Tenant shall procure and maintain in full force and effect at all times during the term of this Lease, at Tenant's cost and expense, a policy of fire and extended coverage insurance covering all fixtures, equipment, alterations, additions and improvements constructed or installed by Tenant in or about the Premises, and all plate glass on the interior of the Premises, in an amount not less than the replacement cost thereof, together with insurance against sprinkler damage, vandalism and malicious mischief In the event of any casualty, the proceeds of such insurance, so long as this Lease remains in effect, shall be used to repair or replace the property so insured in accordance with Section 12.5 of this Lease. The amount of such Insurance shall not be construed to limit any liability or obligation of Tenant under this Lease. 9.2. QUALITY OF POLICIES AND CERTIFICATES. All policies of insurance required hereunder shall be issued by responsible insurers and shall be written as primary policies not contributing with and not in excess of any coverage that Landlord may carry. Tenant shall deliver to Landlord copies of policies or certificates of insurance showing that said policies are IN effect. The coverage provided by such policies shall include the clause or endorsement referred to in Section 9.4. If Tenant fails to acquire maintain or renew any insurance required to be maintained by it under this Article 9 or to pay the premium therefor, then Landlord, at its option and in addition to its other remedies, but without obligation so to do, may procure such insurance, and any sums expended by it to procure any such insurance shall be repaid upon demand, with interest as provided in Section 3.2 hereof. Tenant shall obtain written undertakings from each insurer under policies required to be maintained by it to notify all insureds thereunder at least thirty (30) days prior to cancellation, amendment or revision of coverage. 9.3, WORKERS' COMPENSATION. Tenant shall maintain in full force and effect during the term of this Lease workers' compensation insurance covering all of Tenant's employees working on the Premises. 9,4. Waiver Of Subrogation. To the extent permitted by law and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and Tenant each waive any right to recover against the other (i) damages for injury to or death of persons, (ii) damage to property, (iii) damage to the Premises or any part thereof, or (iv) claims arising by reason of any of the foregoing, but only to the extent that any of the foregoing damages and claims under subparts (i)-(iv) hereof are covered, and only to the extent of such coverage, by insurance actually carried or required to be carried hereunder by either Landlord or Tenant. This provision is intended to waive fully, and for the benefit of each party, any rights and claims which might give rise to a right of subrogation in any insurance carrier. Each party shall procure a clause or endorsement on any policy required under this Article 9 denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to the occurrence of injury or loss. Coverage provided by insurance maintained by Tenant under this Article 9 shall not be limited, reduced or diminished by virtue of the subrogation waiver herein contained. 9,5. INCREASE IN PREMIUMS. Tenant shall do all acts and pay all expenses necessary to insure that the Premises are not used for purposes prohibited by any applicable fire insurance, and that Tenant's use of the Premises complies with all requirements necessary to obtain any such insurance. If Tenant uses or permits the Premises to be used in a manner which increases the existing rate of any insurance on the Premises carried by Landlord, Tenant shall pay the amount of the increase in premium caused thereby, and Landlord's costs of obtaining other replacement insurance policies, including any increase in premium, within ten (10) days after demand therefor by Landlord. 9.6. TENANT'S INDEMNIFICATION TENANT shall indemnify, defend and hold Landlord, its Partners, shareholders, officers, directors, affiliates, agents, employees and contractors, harmless from any and all liability for injury to or death of any person, or loss of or damage to the property of any person, and all actions, claims, demands, costs (including, "without limitation, reasonable attorney's fees), damages or expenses of any kind arising therefrom which may be brought or made AGAINST Landlord or which Landlord may pay or incur by reason of the use, occupancy and enjoyment of the Premises by Tenant or any invitees, sublessees, licensees, assignees, employees, agents or contractors of Tenant or holding under Tenant from any cause whatsoever other than willful misconduct or omission by Landlord, its agents or employees. Landlord, its partners, shareholders, officers, directors, affiliates, agents, employees and contractors all not he liable for, and Tenant hereby waives all claims against such persons for, damages to goods, wares and merchandise in or upon the Premises, or for injuries to Tenant, its agents or third persons in or upon the Premises, from any cause whatsoever other than willful misconduct or omission by Landlord, its agents or employees. Tenant shall give prompt notice to Landlord of any casualty or accident in, on or about the Premise. 9.7. BLANKET POLICY. Any policy required to be maintained hereunder may be maintained under a so-called "blanket policy insuring other parties and other locations so long as the amount of insurance required to be provided hereunder is not thereby diminished. 9.8. LANDLORD'S INSURANCE Landlord shall procure and maintain such insurance on the Building and the Property as Landlord, in its sole discretion, deems necessary. 10. SUBLEASE AND ASSIGNMENT 10.1. ASSIGNMENT AND SUBLEASE OF PREMISES. Tenant shall not have the right or power to assign Its interest in this Lease, or make any sublease, nor shall any interest of Tenant under this Lease be assignable involuntarily or by operation of law, without or each occasion obtaining the prior written consent of Landlord, which consent shall not be unreasonably withhold. Any purported sublease or assignment of Tenant's interest in this Lease requiring but not having received Landlord's consent thereto shall be void. Without limiting the generality of the foregoing, Landlord may withhold consent to any proposed subletting or assignment solely on the ground that the use by the proposed subtenant or assignee is reasonably likely to be incompatible with Landlord's use of the balance of the Building or Property. Any dissolution, consolidation, merger or other reorganization of Tenant, or any sale or transfer of the stock of or other interest in Tenant, or any series of one or more of such events, involving in the aggregate a change of fifty percent (50%) or more in the beneficial ownership of tenant or its assets shall be deemed to be an assignment hereunder and shall be void without the prior written consent of landlord as required above. 10.2. RIGHTS OF LANDLORD (a) Consent by Landlord to one or more assignments of this Lease, or to one or more sublettings of the Premises, or collection of rent by Landlord from any assignee or sublessee, shall not operate to exhaust Landlord's rights under this Article 10, nor constitute consent to any subsequent assignment or subletting. No assignment of Tenant's interest in this Lease and no sublease shall relieve Tenant of its obligations hereunder, notwithstanding any waiver or extension of time granted by Landlord to any assignee or sublessee, or the failure of Landlord to assert its rights against any assignee or sublessee, and regardless of whether Landlord's consent thereto is given or required to be given hereunder. In the event of a default by any assignee, sublessee or other successor of Tenant in the performance of any of the terms or obligations of Tenant under this Lease, Landlord may proceed against Tenant without the necessity of exhausting remedies against any such assignee, sublessee or other successor. In addition, Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all rent from any subletting of all or a part of the Premises as permitted under this Lease, and Landlord, as Tenant's assignee and as attorney-in-fact for Tenant, or any receiver for tenant appointed on Landlord's application, may collect such rent and apply it toward Tenant's obligations under this Lease; except that until the occurrence of an act of default by Tenant, Tenant shall have the right to collect such rent. (b) Upon any assignment of Tenant's interest in this Lease, tenant shall pay to Landlord, within ten (10) days after receipt Thereof by Tenant from time to time, one hundred percent (100%) of all cash sums and other economic consideration received by Tenant in connection with or as a result of such assignment. (c) Upon any sublease of all or any portion of the Premises, Tenant shall pay to Landlord, within ten (10) days after receipt thereof by tenant from time to time, one hundred percent (100%) of existing rent plus fifty (50%) of any excess. (d) If tenant (i) assigns tenant's interest in this Lease, (ii) subleases all or any portion of the Premises, (iii) requests Landlord's Consent to any such assignment or subletting, or (iv) requests Landlord's consent to any act that Tenant proposes to do, then Tenant shall, upon demand, pay to Landlord all of Landlord's costs, including (but not limited to) attorneys' fees, reasonably incurred by Landlord in connection with such act OR request. 11. RIGHT OF ENTRY AND QUIET ENJOYMENT 11.1. RIGHT OF ENTRY. Landlord and its authorized representatives shall have the right to enter with company escort the Premises at any time during the term of this Lease during normal business hours and upon not less than forty-eight (48) hours prior notice, except in the case of emergency (in which event no notice shall be required and entry may be made at any time), for the purpose of inspecting and determining the condition of the Premises or for any other proper purpose including, without limitation, to make repairs, replacements or improvements which Landlord may deem necessary, to show the Premises to prospective purchasers, to show the Premises to prospective tenants, and to post notices of non-responsibility. To facilitate exercise of Landlord's right of entry, Tenant shall ensure that Landlord or its agent at all times have at least one (1) key to unlock all doors in or about the Premises, and Tenant shall not change any locks in or about the Premises without prior notice to Landlord and delivery of a key for the new locks to Landlord or its agent. Landlord shall not be liable for inconvenience, annoyance, disturbance, loss of business, quiet enjoyment or other damage or loss to Tenant by reason of making any repairs or performing any work upon the Premises, the Building or the Property or by reason of erecting or maintaining any scaffolding or protective barricades in connection with any such work, and the obligations of Tenant under this Lease shall not thereby be affected in any manner whatsoever, provided, however, Landlord shall use reasonable efforts to minimize the inconvenience to Tenant's normal business operations caused thereby. 11.2. QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying the rent and performing its obligations hereunder and subject to all the terms and conditions of this Lease, shall peacefully and quietly have, hold and enjoy the Premises throughout the term of this Lease or until this Lease is terminated as provided by this Lease. 12. CASUALTY AND TAKING 12.1 TERMINATION OR RECONSTRUCTION. If during the term of this Lease the Premises or building, or any substantial part of either, (i) is damaged materially by fire or other casualty or by action of public or other authority in consequence thereof, (ii) is taken by eminent domain or by reason of any public improvement or condemnation proceeding or in any manner by exercise of the right of eminent domain (including any transfer in avoidance of an exercise of the power of eminent domain), or (iii) receives irreparable damage by reason of anything lawfully done under color of public or other authority, this Lease shall terminate as to the entire Premises at Landlord's election by written notice given to Tenant within sixty (60) days after the damage or taking has occurred. If Landlord does not elect to terminate this Lease as hereinabove provided, Landlord shall repair any such damage and restore the Premises (to the extent of Landlord's work therein under Section 2.4 and Exhibit (c) and the Building as nearly as reasonably possible to the condition existing before the damage or taking. 12.2. TENANT'S RIGHTS. If any portion of the Premises IS so taken by condemnation, Tenant may elect to terminate this Lease if the portion of the Premises taken is of such extent and nature as substantially to handicap, impede or permanently impair Tenant's use of the balance of the Premises. Tenant must exercise its right to terminate by giving notice to Landlord within thirty (30) days after the nature and extent of the taking have been finally determined. If Tenant elects to terminate this Lease, Tenant shall also notify Landlord of the date of termination, which date shall not be earlier than thirty (30) days nor later than ninety (90) days after Tenant has notified Landlord of its election to terminate, except that this Lease shall terminate on the date of taking if the date of taking falls on any date before the date of termination designated by tenant. 12.3. LEASE TO REMAIN IN EFFECT. If neither Landlord nor Tenant terminates this Lease as hereinabove provided, this Lease shall continue in full force and effect, except that minimum monthly rental and Tenant's Operating Cost Share shall abate to the extent Tenant's use of the premises is impaired for any period that any portion of the Premises is unusable or inaccessible because of a casualty or taking hereinabove described. Each party waives the provisions of Code of Civil Procedure Section 1265.130, allowing either party to petition the Superior Court to terminate this Lease in the event of a partial condemnation of the Premises. 12.4. RESERVATION OF COMPENSATION. Landlord reserves, and tenant waives and assigns to Landlord, a rights to any award or compensation for damage to the Premises, Building, Property and the leasehold estate created hereby, accruing by reason of any taking in any public improvement, condemnation or eminent domain proceeding or in any other manner by exercise of the right of eminent domain or of anything lawfully done by public authority, except that Tenant shall be entitled to any and all compensation or damages paid for or on account of Tenant's moving expenses, trade fixtures, equipment and any leasehold improvements in the Premises the cost of which was borne by Tenant, but only to the extent of the then remaining unamortized value of such improvements computed on a straight-line basis over the term of this Lease. Tenant Covenants to deliver such further assignments of the foregoing as Landlord may from time to time request. 12.5. RESTORATION OF FIXTURES. If Landlord repairs or causes repair of the Premises after such damage or taking, Tenant at its sole expense shall repair and replace promptly all fixtures, equipment and other property of Tenant located at, in or upon the Premises and all additions, alterations and improvements and all other items installed or paid for by Tenant under this Lease that were damaged or taken, so as to restore the same to a condition substantially equal to that which existed immediately prior to the damage or taking. Tenant shall have the right to make modifications to the Premises, fixtures and improvements, subject to the prior written approval of Landlord. In its review of Tenant's plans and specifications, Landlord may take into consideration the effect of the proposed modifications on the exterior appearance the structural integrity and the mechanical and other operating systems of the Building. 13 DEFAULT 13.1 EVENT OF DEFAULT. The occurrence of any of the following shall constitute an event of default on the part of the tenant. (a) ABANDONMENT. Abandonment of the Premises. "ABANDONMENT" is hereby defined to include, but is not limited to, any absence by Tenant from he Premises for fifteen (15) consecutive days or more while Tenant is in default under any other provision of this lease. Tenant waives any right Tenant may have to notice under Section 1951.3 of the California Civil Code, the terms of this subsection (a) being deemed such notice to tenant as required by said Section 1951.3; (b) NONPAYMENT. Failure to pay, when due, ANY amount payable to Landlord hereunder, such failure continuing for a period of five (5) days after written notice of such failure; PROVIDED however, that any such notice shall be in lieu of; and not in addition to, any notice required under California Code of Civil Procedure Section 1161 ET. SEQ., as amended from time to time; (c) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subsection (b) hereof, such failure continuing for fifteen (15) days after written notice of such failure, or, if it is not possible to cure such default within fifteen (15) days, failure to commence cure within said fifteen (15) day period and thereafter to proceed diligently to complete cure, PROVIDED however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 ET. SEQ., as amended from time to time; (d) (d) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit of creditors; (e) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's creditors, which involuntary petition remains undischarged for a period of thirty (30) days. in the event that under applicable law the trustee in bankruptcy or Tenant has the right to AFFIRM this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shill, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease. Specifically, but without limiting the generality of the foregoing, such adequate assurances must include assurances that the Premises continue to be operated only for the use permitted hereunder. The provisions hereof are to assure that the basic understandings between Landlord and Tenant with respect to Tenant's use of the Premises and the benefits to Landlord therefrom are preserved, consistent with the purpose and intent of applicable bankruptcy laws; (f) RECEIVERSHIP. The employment of a receiver appointed by court order to take possession of substantially all of Tenant's assets or the Premises, if such receivership remains undissolved for a period of thirty (30) days; (g) ATTACHMENT. The attachment, execution or other Judicial seizure of all or substantially all of Tenant's assets or the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of thirty (30) days after the levy thereof; or (h) INSOLVENCY. The admission by Tenant in writing of its inability to pay its debts as they become due, the filing by Tenant of a petition seeking any reorganization or arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation the filing by Tenant of an answer admitting or failing timely to contest a material allegation of a petition filed against Tenant in any such proceeding or, if within thirty (30) days after the commencement of any proceeding against Tenant seeking any reorganization or arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed. 13.2. REMEDIES UPON TENANT'S DEFAULT. (a) Upon the occurrence of any event of default described in Section 13.1 hereof, Landlord, in addition to and without prejudice to any other rights or remedies it may have, shall have the immediate right to re-enter the Premises or any part thereof and repossess the same, expelling and removing therefrom all persons and property (which property may be stored in a public warehouse or elsewhere AT the cu and risk of and for the account of Tenant), using such force as may be necessary to do so (as to which Tenant hereby waives any claim for loss or damage that may thereby occur) or addition to or in lieu of such re-entry, and without prejudice to any other rights or remedies it may have, Landlord shall have the right either (i) to terminate this Lease and recover from Tenant all damages incurred by Landlord as a result of Tenant's default, as hereinafter provided, or (ii) to continue this Lease in effect and recover rent and other charge and amounts as they become due. (b) Even if Tenant has breached this lease or abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under subsection (a) hereof and Landlord may enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a lessor under 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), or any successor Code section. Acts of maintenance preservation or efforts to relet the Premises or the appointment of a receiver upon application of Landlord to protect Landlord's interests under this Lease shall not constitute a termination of tenant's right to possession. (c) If Landlord terminates this Lease pursuant to this Section 13.2, Landlord shall have all of the rights and remedies of a landlord provided by Section 1951.2 of the Civil Code of the State of California, or any successor Code section, which remedies include Landlord's right to recover from Tenant (i) the worth at the time of award of the unpaid rent and additional rent which had been earned at the time of termination, (ii) the worth at the time of award of the amount by which the unpaid rent and additional rent 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 additional rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be 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 which in the ordinary course of things would be likely to result therefrom, including, but not limited to, the cost of recovering possession of the Premises, expenses of reletting, including necessary repair, renovation and alteration of the Premises, reasonable attorneys' fees, and other reasonable costs. The "worth at the time of award" of the amounts referred to in clauses (i) and (ii) above shall be computed by allowing interest at ten percent (10%) per annum from the date such amounts accrued to Landlord The "worth at the time of award" of the amounts referred to in clause (iii) above shall be computed by discounting such amount at one percentage point above the discount rate of the Federal Reserve Bank of San Francisco at the time of award. 13.3. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of Landlord contained in this Article 13 are cumulative and not alternative to the extent permitted by law and except as otherwise provided herein. 13.4. REMEDIES UPON LANDLORD'S DEFAULT. Landlord shall not be in default of any of its obligations under this Lease so long as Landlord performs such obligations within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant specifying the obligation that Landlord has failed to perform; PROVIDED however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord shall not be in default If Landlord commences performance within such thirty (30) day period and diligently pursues such performance to, completion. In the event of any default or alleged default by Landlord, Tenant shall look solely to Landlord's interest in the Property for satisfaction of Tenant's claims and enforcement of Tenant's remedies, and no shareholder, officer, director or partner of Landlord (or of any successor in interest to Landlord) shall have any liability for Landlord's default. Except for Landlord's interest in the Property, no other assets of Landlord or of any shareholder, officer, director or partner of Landlord (or of any successor in interest to Landlord) shall be subject to execution or to any other enforcement procedure for the satisfaction of Tenant's claims or remedies under or with respect to this Lease. 14. SUBORDINATION, ATTORNMENT AND SALE 14.1. SUBORDINATION TO MORTGAGE. This Lease, and any sublease entered into by Tenant under the provisions of this Lease, shall be subject and subordinate to any ground lease, mortgage, deed of trust, sale/leaseback transaction or any other hypothecation for security now or hereafter placed upon the Building, the Property, or both, and to the rights of any assignee of Landlord or of any ground lessor, mortgagee, trustee, beneficiary or leaseback lessor under any of the foregoing, and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. If any mortgagee trustee, beneficiary, ground lessor, sale/leaseback lessor or assignee elects to have this Lease be an encumbrance upon the Property prior to the lien of its mortgage, deed of trust, ground lease or leaseback lease or other security arrangement and gives notice thereof to Tenant, this Lease shall be deemed prior thereto, whether this lease is dated prior or subsequent to the date thereof or the date of recording thereof. Tenant, and any sublessee, shall execute such documents as may reasonably be requested by any mortgagee, trustee, beneficiary, ground lessor, or leaseback lessor or assignee to evidence the subordination herein set forth or to make this Lease prior to the lien of any mortgage, deed of trust, ground lease, leaseback lease or other security arrangement, as the case may be, and if Tenant fails to do so within ten (10) days after demand on Landlord, Tenant constitutes and appoints Landlord as Tenant's attorney-in-fact and in Tenant's name, place and stead to do so. Upon any default by Landlord in the performance of its obligations under any mortgage, deed of trust, ground lease, leaseback lease or assignment, Tenant (and any sublessee) shall, notwithstanding any subordination hereunder, attorn to the mortgagee, trustee, beneficiary, ground lessor, leaseback lessor or assignee thereunder upon demand and become the tenant of the successor in interest to Landlord, at the option of such successor in interest, and shall execute and deliver any instrument or instruments confirming the attornment herein provided for. 14.2 SALE OF LANDLORD'S INTEREST. Upon sale, transfer or assignment of Landlord's entire interest in the building and Property, Landlord shall be relieved of its obligations hereunder with respect to liabilities accruing from and after the date of such transfer or assignment. 14.3 ESTOPPEL CERTIFICATES. Tenant shall at any time and from time to time, within ten (10) days after written request by Landlord, execute, acknowledge and deliver to Landlord a certificate in writing stating: (i) that this Lease is unmodified and in full force and effect, or if there have been any modifications, that this Lease is in full force and effect as modified and stating the date and the nature of each modification; (ii) the date to which rental and all other sums payable hereunder have been paid; (iii) that Landlord is riot in default in the performance of any of its obligations under this Lease, that Tenant has given no notice of default to Landlord and that no event has occurred which, but for the expiration of the applicable time period, would constitute an event of default hereunder, or if Tenant alleges that any such default, notice or event has occurred, specifying the same in reasonable detail; and (iv) such other matters as may reasonably be requested by Landlord or any institutional lender, mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or prospective purchaser of the Property. Any such certificate provided under this Section 14.3 may be relied upon by any lender, mortgagee, trustee, beneficiary, assignee or successor in interest to Landlord, by any prospective purchaser, by any purchaser on foreclosure or sale, by any grantee under a deed in lieu of foreclosure of any mortgage or deed of trust on the Property or Premises, or by any other third party. Failure to execute and return within the required time any estoppel certificate requested hereunder shall be deemed to be an admission of the truth of the matters set forth in the form of certificate submitted to tenant for execution. 14.4. SUBORDINATION TO CC&R'S This Lease, and any permitted sublease entered into by Tenant under the provisions of this Lease, shall be subject and subordinate to any declarations of covenants, conditions and restrictions affecting the Property from time to time, provided that the temis of such declarations are reasonable and do not discriminate against Tenant relative to oher similarly situated tenants occupying portions of the Property. Tenant agrees to execute, upon request by Landlord, any documents reasonably required from time to time to evidence such subordination. 15. SECURITY DEPOSIT 15.1 DEPOSIT. Upon execution of this Lease, Tenant shall deposit with Landlord the sum of Thirteen Thousand, Five Hundred and Three and 75/100 Dollars ($13,503.75), which sum (the "SECURITY DEPOSIT") shall be held by Landlord as security for the faithful performance of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the term hereof. The Security Deposit shall be increased by Tenant at the time of each increase (if any) in minimum rental under this Lease, so that the Security Deposit will always equal or exceed the monthly minimum rental as in effect from time to time. If Tenant defaults with respect to any provision of this Lease, including, without limitation, the provisions relating to the payment of rental and other sums due hereunder. Landlord shall have the right, but shall not be required, to use, apply or retain all or any part of the Security Deposit for the payment of rental or any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of the Security Deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount and tenant's failure to do so shall be a material breach of this Lease. Landlord shall not he required to keep any deposit under this Section separate from Landlord's general funds, and Tenant shall not be entitled to interest thereon. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit, or any balance thereof, shall be returned to Tenant or, at Landlord's option, to the last assignee of Tenant's interest hereunder, at the expiration of the term of this Lease and after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this Lease, Landlord shall transfer all deposits then held by Landlord under this Section to Landlord's successor in interest, whereupon Tenant agrees to release Landlord from all liability for the return of such deposit or he accounting thereof. CONSTRUCTION Landlord Shall prepare the premises for Tenant's possession. Such preparation shall include paint, carpet cleaning, ceiling tile replacements, glass cleaning, and service of the HVAC system. EXHIBIT C (Page 1 of 1) ACKNOWLEDGEMENT OF LEASE COMMENCEMENT This Acknowledgement is executed as of __________________ day of _______, 19 ______ by LEVITT, LEVITT & LUGASH ("Landlord"), and CONSUMER NET MARKETPLACE, a California corporation ("Tenant ), pursuant to Section 2,5 of the Lease dated,,,______________ 19 ____ between Landlord and Tenant (the "LEASE") covering premises located at 1900 Los Angeles Avenue, Second Floor (the "PREMISES"). Landlord and Tenant hereby acknowledge and agree as follows: 1. The Commencement Date under the Lease is _____________________, 19______. 2. The termination date under the Lease shall be ________________, 19______, subject to any applicable provisions of the Lease or extension or early termination thereof 3. The agreed square footage of the Premises, as built, is _______square feet. 4. Tenant accepts the Premises and acknowledges the satisfactory completion of all improvements therein (if any) required to be made by Landlord, subject only to any applicable "punch list" or similar procedures specifically provided under the lease. EXECUTED as of the date first set forth above. "Landlord" "Tenant" LEVITT, LEVITT & LUGASH, a CONSUMER NET MARKETPLACE, a California general partnership California corporation By __________________________ By ________________ Michael Levitt Fredrick Rice Authorized Representative President EXHIBIT D (Page 1 of 1) RULES AND REGULATIONS 1. The sidewalks, halls, passages, exits, entrances, elevator and stairways of the Building shall not be obstructed by any of the tenants or used by them for any purpose other than for ingress to and egress from their respective premises. The halls, passages, exits, entrances, elevator and stairways are not for the general public, and Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. No tenant and no employee or invitee of any tenant shall go upon the roof of the Building except such roof or portion thereof as may be contiguous to the premises of a particular tenant and may be designated in writing by Landlord as a roof deck or roof garden area. 2. No sign, placard, picture, name, advertisement or notice visible from the exterior of any tenant's premises shall be inscribed, painted, affixed or otherwise displayed by any tenant on any part of the Building without the prior written consent of Landlord. Landlord will adopt and furnish to tenants general guidelines relating to signs inside the Building on the office floors and on the exterior of the Building, if allowed by Landlord. Each tenant shall conform to such guidelines, but may request approval of Landlord for modifications, which approval will not be unreasonably withheld. All approved signs or lettering on doors shall be printed, painted, affixed, inscribed and maintained at the expense of the tenant by a person approved by Landlord, which approval will not be unreasonably withheld. Material visible from outside the Building will not be permitted. 3. The premises shall not be used for the storage of merchandise held for sale to the general public or for lodging. No cooking shall be done or permitted by any tenant on the premises, except that use by the tenant of food and beverage vending machines and Underwriters Laboratory approved microwave ovens and equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. 4. No tenant shall employ any person or persons other than Landlord's janitorial service for the purpose of cleaning the premises, unless otherwise approved by Landlord. No person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same. No tenant shall cause any unnecessary labor by reason of such tenant's carelessness or indifference in the preservation of good order and cleanliness. Janitor service will not be furnished to occupied rooms on nights when rooms are occupied after 9:30 P.M. unless, by prior arrangement with Landlord, service is extended to a later hour for specifically designated rooms. 5. No tenant shall alter any lock or install a new or additional lock or any bolt on any door of its premises without the prior notification in writing to Landlord. The tenant shall in each case furnish Landlord with a key for any such lock. Each tenant, upon the termination of its tenancy, shall deliver to Landlord all keys to doors in the building. 6. The elevator shall be available for freight use by all tenants in the Building, subject to such reasonable scheduling as Landlord in its reasonable discretion shall deem appropriate. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the building. Heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such property from any cause, and all damage done to the Building by moving or maintaining such property shall be repaired at tile expense of the tenant. 6. No tenant shall use or keep in the premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities thereof reasonably necessary for the operation or maintenance of office equipment, or, without landlord's prior approval, use any method of heating or air conditioning other than that supplied by Landlord. No tenant shall use or keep or permit to be used or kept any foul or noxious gas or substance in the premises, or permit or suffer the premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, or interfere in anyway with other tenants or those having business therein. No pets Shall be kept in the premises. EXHIBIT E (Page 1 of 3) GUARANTY THIS GUARANTY is executed this 30 day of March, l998, by Fredrick Rice, an individual ("Guarantor"), with reference to the following facts: RECITALS A. Substantially concurrently herewith, Levitt, Levitt & Lugash, a California general partnership ("LANDLORD") as lessor, proposes to enter into a lease (the "Lease") with Consumer Net Marketplace, a California corporation ("Tenant"), as lessee, covering certain premises Commonly known as 1900 Los Angeles Avenue, SUITE 200, Simi Valley, California (the "Premises"). B. Guarantor is President of, and is a direct or indirect owner or parent of Tenant and has a financial interest in Tenant In order to induce Landlord to enter into the Lease with Tenant (which Landlord would not do without Guarantor's execution and delivery of this Guaranty) Guarantor desires to enter into this guaranty of the obligations of Tenant as lessee under the Lease AGREEMENT NOW THEREFORE, FOR VALUABLE CONSIDERATION, Guarantor hereby acknowledges and agrees as follows: 1. Guarantor unconditionally and irrevocably guarantees to Landlord and its legal representatives, successors and assigns the timely payment of rent and all other amount payable by Tenant under the Lease and the faithful and prompt performance of each and all of the other obligations and covenants of Tenant pursuant to the Lease (including any renewals or extensions thereof). 2. If default shall at any time be made in the payment of rent or other amounts or in the performance of any other obligations Or covenants of Tenant pursuant to the Lease, Or if Landlord shall at any time institute summary proceedings or any other action or proceedings for the recovery of possession of the Premises, by reason of nonpayment of rent or otherwise, then Guarantor shall pay the rent or any arrears thereof, or any other sum or sums provided to be paid by Tenant under the terms of the Lease, that may then be due under the Lease or that may become due Guarantor shall also pay any and all damages that may arise in consequence of the nonperformance of any of the obligators and covenants of Tenant under the Lease. Guarantor waives any right to notice of any such defaults from Landlord and waives any right to require Landlord to institute any proceedings against Tenant for the collection of such amounts or to exercise or exhaust any other rights or legal remedies Landlord may have against tenant. 3. Guarantor hereby consents to all modifications, amendments, changes and assignments of the Lease hereafter agreed to by Landlord and Tenant, waives any right to notice of such modifications, amendments, changes and assignments, and agrees that this Guaranty shall continue to guarantee the performance of the Lease as so modified, amended, changed or assigned. 4. This Guaranty shall not be waived, released, modified or affected by any failure or delay on the part of Landlord to enforce any of the rights or remedies of Landlord under the Lease, whether pursuant to the terms thereof or at law or in equity. 5. Guarantor hereby waives, to the fullest extent permitted by law, (a) notice of acceptance of this Guaranty, (b) demand for payment, presentation and protest, (c) all right to assert or plead any statute of limitations as a defense to any action relating to this Guaranty or the Lease, (d) any right to require Landlord to apply to any default any security deposit or other security landlord may hold under the Lease, (e) any right to require Landlord to proceed under any other remedy Landlord may have before proceeding against Guarantor, and (f) any right of subrogation Guarantor hereby subordinates any and all existing and/or future indebtedness of Tenant to Guarantor to the obligations owed to Landlord under the Lease and under this Guaranty. 6. The obligations of Tenant under the Lease to execute and deliver estoppel statements and financial information to Landlord shall also he deemed to require Guarantor to execute and provide the same documents and information relative to and on behalf of Guarantor. EXHIBIT F (Page 1 of 2) 7. The term "LANDLORD" as used herein means and includes the Landlord named above and in the Lease, any assignee of any such Landlord (whether by outright assignment or assignment for security), and any successor to the interest of any such Landlord or assignee. 8. The term "Tenant" as used herein, means and includes the Tenant named above and in the Lease, any assignee of any such Tenant, and any successor to the interest of any such Tenant or assignee. 9. if any legal proceedings are instituted that concern this Guaranty or the Lease, the party or parties prevailing in such proceedings shall be entitled to reasonable attorneys fees and all related costs incurred in connection with such proceedings (including, but not limited to, all such attorneys fee and costs incurred (i) in any appellate proceedings and/or (ii) in the enforcement of any judgment or award rendered in any such proceedings). If Landlord incurs any attorneys fees and related costs prior to commencement of any legal proceedings that concern this Guaranty or the Lease, and if such attorneys' fees and costs result in any breach or alleged breach of this Guaranty or the Lease, Guarantor shall reimburse all such attorneys' fees and costs upon demand of Landlord, regardless of whether legal proceedings ultimately are commenced. 10. If separate guaranties are executed or have been executed by other persons or entities with respect to the Lease, the liability of Guarantor shall be joint and several with that of any such other guarantors and shall not be limited or diminished in any respect by the existence of any such separate guaranties. IN WITNESS WHEREOF, Guarantor has executed this Guaranty on the date first set forth above, effective as of the date of mutual execution and delivery of the Lease by Landlord and Tenant. Fredrick Rice (Signature) ----------------------------- Social Security Number ---------------------- EXHIBIT F (Page 2 of 2) EX-10.11 20 EXHIBIT 10.11 STANDARD OFFICE LEASE-GROSS AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. BASIC LEASE PROVISIONS (" Basic Lease Provisions") 1.1 PARTIES: This Lease dated, for reference purposes only, May 28, 1998 is made by and between Edwin S. Johnston Company (therein called "Lessor") and Fred Rice doing business under the name of Consumer Net Marketplace herein called "Lessee"). 1.2 PREMISES: Suite Number(s) 107, 1st floors, consisting of approximately 818 feet more or less, as defined in paragraph 2 and as shown on Exhibit "A" hereto (the "Premises"). 1.3 BUILDING: Commonly described as being located at 320 West Wilson Avenue in the City of Glendale County of Los Angeles Stale of California as more particularly described in Exhibit A hereto and as defined in paragraph 2. 1.4: USE: General Office subject to paragraph 6. 1.5 TERM: One Year commencing June 1, 1998 ("Commencement Date") and ending May 31, 1999, as defined in paragraph 3. 1.6 BASE RENT: $818.00 per month, payable on the 1st day of each month, per paragraph 4.1 1.7 BASE RENT INCREASE: On N/A the monthly Base Rent payable under paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below. 1.8 RENT PAID UPON EXECUTION: $818.00 for June 1998 1.9 SECURITY DEPOSIT: $981.00 1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 3 % as defined in paragraph 4.2. 2. PREMISES, PARKING AND COMMON AREAS. 2.1 PREMISES: The Premises are a portion of a building, herein sometimes referred to as the "Building" identified in paragraph 1.3 of the Basic Lease Provisions "Building" shall include adjacent parking structures used in connection therewith The Premises, the Building, the Common Areas, the land upon which the same are located, along with all other buildings and improvements thereon or thereunder, are herein collectively referred to as the "Office Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, the real property referred to in the Basic Lease Provisions, paragraph 1.2 as the "Premises," including rights to the Common Areas as hereinafter specified. 2.2 VEHICLE PARKING: So long as Lessee is not in default, and subject to the rules and regulations attached hereto, and as established by Lessor from time to time Lessee shall be entitled to rent and use 3 parking spaces in the Office Building Project at the monthly rate applicable from time to time for monthly parking as set by Lessor and/or its licensee. 2.2.1 If Lessee commits, permits or allows any of the prohibited activities described in the Lease or the rules then in effect,, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.2.2 The monthly parking rate per parking space will be $N/A per month at the commencement of the term of this Lease and is subject to change upon five (5) days prior written notice to Lessee. Monthly parking fees shall be payable one month in advance prior to the first day of each calendar month. 2.3 COMMON AREAS-DEFINITION. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary tine of the Office Building Project that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and of other lessees of the Office Building Project and their respective employees, suppliers, shippers. customers and invitees, including but not limited to common entrances, lobbies, corridors, stairways and stairwells, public restrooms, elevators, escalators, parking areas to the extent not otherwise prohibited by this Lease, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, ramps, driveways, landscaped areas and decorative walls. 2.4 COMMON AREAS-RULES AND REGULATIONS. Lessee agrees to abide by and conform to the rules and regulations attached hereto as Exhibit B with respect to the Office Building Project and Common Areas, and to cause its employees, suppliers, shippers, customers, and invitees to so abide and conform. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time to modify, amend and enforce said rules and regulations. Lessor shall not be responsible to Lessee for the noncompliance with said rules and regulations by other lessees, their agents, employees and invitees of the Office Building Project. 2.5 COMMON AREAS-CHANGES. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Building inferior and exterior and Common Areas, including, without limitation, changes in the location, size, shape, number, and appearance thereof, including but not limited to the lobbies windows, stairways, air shafts, elevators, escalators, restrooms, driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, decorative walls, landscaped areas and walkways; provided, however, Lessor shall at all times provide the parking facilities required by applicable law; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land and improvements outside the boundaries of the Of lice Building Project to be a part of the Common Areas, provided that such other land and improvements have a reasonable and functional relationship to the Office Building Project; (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Office Building Project, or any portion thereof, (f) To do and perform suck other acts and make such other changes in, to or with respect to the Common Areas and Office Building Project as Lessor may, in the exercise of sound business judgment deem to be appropriate. 3. TERM. 3.1 TERM. The term and Commencement Date of this Lease shall be as specified in paragraph 1.5 of the Basic Lease Provisions 3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Dale, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date and subject to paragraph 3.2.2, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but, In such case, Lessee shall not be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease, except as may be otherwise provided in this Lease, until possession of the Premises is tendered to Lessee, as hereinafter defined, provided, however, that it Lessor shall not have delivered possession of the Premises within sixty (60) days following said Commencement Date, as the same may be extended under the terms of a Work Letter executed by Lessor and Lessee, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parries shall be discharged from all obligations hereunder: provided, however, that, as to Lessee's obligations, Lessee first reimburses Lessor for all costs incurred for Non-Standard Improvements and, as to Lessor's obligations, Lessor shall return any money previously deposited by Lessee (less any offsets due Lessor for Nonstandard Improvements); and provided further, that if such written notice by Lessee is not received by Lessor within said ten 110) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 3.2.1 POSSESSION TENDERED-DEFINED. Possession of the Premises shall be deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to be provided by Lessor under this Lease are substantially completed, (2) the Building utilities are ready for use in the Premises, (3) Lessee has reasonable access to the Premises, and (4) ten (10) days shall have expired following advance written notice to Lessee of the occurrence of the matters described in (1), (2) and (3), above of this paragraph 3 2.1. 3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of rent, and the sixty (60) day period following the Commencement Date before which Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed extended to the extent of any delays caused by acts or omissions of Lessee, Lessee's agents. employees and contractors. 3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said Commencement Date, such occupancy shall be subject to all provisions of this lease, such occupancy shall not change the termination date,, and Lessee shall pay rent for such occupancy. 3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease term is defined as the completion of the improvements, Lessee and Lessor shall execute an amendment to this Lease establishing the date of Tender of Possession (as defined in paragraph 3.2.1) or the actual taking of possession by Lessee, whichever first occurs, as the Commencement Dale 4. RENT. 4.1 BASE RENT. Subject to adjustment as hereinafter provided in paragraph 4.3, and except as may be otherwise expressly provided in this Lease, Lessee shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of the Basic Lease Provisions, without offset or deduction. Lessee shall pay Lessor upon execution hereof the advance Base Rent described in paragraph 1.8 of the Basic Lease Provisions Rent for any period during the term hereof which is for less than one month shall be prorated based upon the actual number of days of the calendar month involved Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of the amount by which all Operating Expenses, as hereinafter defined for each Comparison Year exceeds the amount of all Operating Expenses for the Base Year, such excess being hereinafter referred to as the "Operating Expense Increase," in accordance with the following provisions: (a) "Lessee's Share" is defined, for purposes of this Lease, as the percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which percentage has been determined by dividing the approximate square footage of the Premises by the total approximate square footage of the rentable space contained in the Office Building Project. It is understood and agreed that the square footage figures set forth in the Basic Lease Provisions ate approximations which Lessor and Lessee agree are reasonable and shall not be subject to revision except in connection with an actual change in the size of the Premises or a change in the space available for lease in the Office Building Project. (b) "Base Year" is defined as the calendar year in which the Lease term commences (c) "Comparison Year" is defined as each calendar year during the term of this Lease subsequent to the Base Year; provided, however, Lessee shall have no obligation to pay a share of the Operating Expense Increase applicable to the first twelve (12) months of the Lease Term (other than such as are mandated by a governmental authority, as to which government mandated expenses Lessee shall pay Lessee's Share, notwithstanding they occur during the first twelve (12) months). Lessee's Share of the Operating Expense Increase for the first and last Comparison Years of the Lease Term shall be prorated according to that portion of such Comparison Year as to which Lessee is responsible for a share of such increase. (d) "Operating Expenses" is defined, for purposes of this Lease, to include all costs, if any, incurred by Lessor in the exercise of its reasonable discretion, for: (i) The operation, repair, maintenance, and replacement, in neat, clean, sale, good order and condition, of the Office Building Project, including but not limited to, the following: (aa) The Common Areas, including their surfaces, coverings, decorative items, carpers, drapes and window coverings, and Including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, stairways. parkways, driveways. landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, building exteriors and roofs, fences and gates; (bb) All heating, air conditioning, plumbing, electrical systems, life safety equipment, telecommunication and other equipment used in common by, or for the benefit of, lessees or occupants of the Office Building Project, including elevators and escalators, tenant directories, fire detection systems including sprinkler system maintenance and repair. (ii) Trash disposal. janitorial and security services; (iii) Any other service to be provided by Lessor that is elsewhere in this Lease slated to be an "Operating Expense"; (iv) The cost of the premiums for the liability and properly insurance policies to be maintained by Lessor under paragraph 8 hereof: (v) The amount of the real property faxes to be paid by Lessor under paragraph 10.1 hereof; (vi) The cost of water, sewer, gas, electricity, and other publicly mandated services to the Office Building Project; (vii) Labor, salaries and applicable fringe benefits and costs, materials, supplies and fools, used in maintaining and/or cleaning the Office Building Project and accounting and a management lee attributable to the operation of the Office building Project, (viii) Replacing and/or adding improvements mandated by any governmental agency and any repairs or removals necessitated thereby amortized over its useful life according to Federal income lax regulations or guidelines for depreciation thereof (including interest on the unamortized balance as is then reasonable in the judgment of Lessor's accountants); (ix) Replacements of equipment or improvements that have a useful idle for depreciation purposes according to Federal income tax guidelines of five (5) years or less, as amortized over such life. (e) Operating Expenses shall not include the costs of replacements of equipment or improvements that have a useful life for Federal Income tax purposes in excess of live (5) years unless it is of the type described in paragraph 4.2(d)(viii), in which case their cost shall be included as above provided. (f) Operating Expenses shelf not include any expenses paid by any lessee directly to Third parries, or as to which Lessor is otherwise reimbursed by any third party, other tenant, or by insurance proceeds. (g) Lessee's Share of Operating Expense Increase shall be payable by Lessee within ten (10) days alter a reasonably derailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be estimated by Lessor from time to time in advance of Lessee's Share of the Operating Expense Increase for any Comparison Year, and the same shall be payable monthly or quarterly, as Lessor shall designate, during each Comparison Year of the Lease term, on the same day as the Base Rent Is due hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of Operating Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60) days after the expiration of each Comparison Year a reasonably detailed statement showing Lessee's Share of the actual Operating Expense increase incurred during such year. If Lessee's payments under this paragraph 4.2(91 during said Comparison Year exceed Lessee's Share as indicated on said statement, Lessee shall be entitled to credit the amount of such overpayment against Lessee's Share of Operating Expense Increase next falling due. If Lessee's payments under this paragraph during said Comparison Year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. Lessor and Lessee shall forthwith adjust between them by cash payment any balance determined to exist with respect to that portion of the last Comparison Year for which Lessee is responsible as to Operating Expense Increases, notwithstanding that the Lease term may have terminated before the end of such Comparison Year. 4.3 RENT INCREASE. 4.3.1 At the times set forth in paragraph 1.7 of the Basic Lease Provisions the monthly Base Rent payable under paragraph 4.1 of this Lease shall be adjusted by the increase, If any, in the Consumer Price Index of the Bureau of Labor Statistics of the Department of Labor for All Urban Consumers, (1967=100), "AII Items" for the city nearest the location of the Building, herein referred to as "C.P.I.," since the date of this Lease. 4.3.2 The monthly Base Rent payable pursuant to paragraph 4 3.1 shall be calculated as follows: the Base Rent payable for the first month of the term of this Lease, as set forth m paragraph 4.1 of this Lease, shall be multiplied by a fraction the numerator of which shall be the C.P.I.. of the calendar month during which the adjustment is to lake effect,, and the denominator of which shall be the C.P.I. for the calendar month in which the original Lease term commences. The sum so calculated shall constitute the new monthly Base Rent hereunder but, in no event, shall such new monthly Base Rent be less than the Base Rent payable for the month immediately preceding the date for the rent adjustment. 4.3.3 In the event the compilation and/or publication of the C.P.I. shall be transferred to any other governmental department or bureau or agency or shall be discontinued then the index most nearly the same as the C.P.I. shall be used to make such calculations In the event that Lessor and Lessee cannot agree on such alternative index then the mailer shall be submitted for decision to the American Arbitration Association in the County in which the Premises are located, in accordance with the then rules of said association and the decision of the arbitrators shall be binding upon the parries, notwithstanding one party failing to appear after due notice of the proceeding. The cost of said Arbitrators shall be paid equally by Lessor and Lessee 4.3.4 Lessee shall continue to pay the rent at the rate previously in effect until the increase, if any, is determined. Within five (5) days following the date on which the increase is determined, Lessee shall make such payment to Lessor as will bring the increased rental current, commencing with the effective date of such increase through the date of any rental installments then due. Thereafter the rental shall be paid at the increased rate. 4.3.5 At such time as the amount of any change in rental required by this Lease is known or determined, Lessor and Lessee shall execute an amendment to this Lease setting forth such change 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the security deposit set forth in paragraph 19 of the Basic Lease Provisions as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder. Or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may stiller thereby. II Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount then required of Lessee if the monthly Base Rent shall, from time to time, increase during the term of this Lease, Lessee shall, at the time of such increase, deposit with Lessor additional money as a security deposit so that the total amount of the security deposit held by Lessor shall at all times bear the same proportion to the then current Base Rent as the initial security deposit bears to the initial Base Rent set forth in paragraph 1.6 of the Basic Lease Provisions. Lessor shall not be required to keep said security deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not heretofore been applied by Lessor, shall be returned without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. USE. 6.1 USE. The Premises shall be used and occupied only for the purpose set forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is reasonably comparable to that use and for no other purpose. 6.2 COMPLIANCE WITH LAW. (a) Lessor warrants to Lessee that the Premises, in the state existing on the dale that the Lease term commences, but without regard to alterations or improvements made by Lessee or the use for which Lessee will occupy the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term Commencement Date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, alter written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. (b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's expense, promptly comply with ail applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Lessee of the Premises. Lessee shall conduct its business In a lawful manner and shall not use or permit the use of the Premises or the Common Areas in any manner that will tend to create waste or a nuisance or shall tend to disturb other occupants of the Office Building Project. 6.3 CONDITION OF PREMISES. (a) Lessor shall deliver the Premises to Lessee in a clean condition on the Lease Commencement Dale (unless Lessee is already in possession) and Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and heating system in the Premises shall be in good operating condition. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specifically the nature of the violation to promptly, at Lessor's sole cost, rectify such violation. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises and the Office Building Project in their condition existing as of the Lease Commencement Dale or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, count_ and state laws, ordinances and regulations governing and regulating the use of the Premises, and any easements, covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that it has satisfied itself by its own independent investigation that the Premises are suitable for its intended use, and that neither Lessor nor Lessor's agent or agents has made any representation or warranty as to the present or future suitability of the Premises, Common Areas, or Office Building Project for the conduct of Lessee's business. 7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES. 7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building Project, including the Premises, interior and exterior walls, roof, and common areas, and the equipment whether used exclusively for the Premises or in common with other premises, in good condition and repair; provided, however, Lessor shall not be obligated to paint, repair or replace wall coverings, or to repair or replace any improvements that are not ordinarily a part of the Building or are above then Building standards. Except as provided in paragraph 9 5, there shall be no abatement of rent or liability of Lessee on account of any injury or interference with Lessee's business with respect to any improvements. alterations or repairs made by Lessor to the Office Building Project or any part thereof Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. 7.2 LESSEE'S OBLIGATIONS. (a) Notwithstanding Lessor's obligation to keep the Premises in good condition and repair. Lessee shall be responsible for payment of the cost thereof to Lessor as additional rent for that portion of the cost of any maintenance and repair of the Premises, or any equipment "wherever located) that serves only Lessee or the Premises, to the extent such cost is attributable to causes beyond normal wear and tear. Lessee shall be responsible for the cost of painting repairing or replacing wall coverings, and to repair or replace any Premises improvements that are not ordinarily a part of the Building or that are above then Building standards. Lessor may, at its option, upon reasonable notice, elect to have Lessee perform any particular such maintenance or repair s the cost of which is otherwise Lessee's responsibility hereunder (b) On the test day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted clean and free of debris. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Lessee. Lessee shall repair any damage to the Premises occasioned by the installation or removal of Lessee's trade fixtures, alterations, furnishings and equipment. Except as otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, air conditioning window coverings, wall coverings, carpers, watt paneling, ceilings and plumbing on the Premises and in good operating condition 7.3 ALTERATIONS AND ADDITIONS (a) Lessee shall not without Lessor's prior written consent make any alterations, improvements, additions, Utility Installations or repairs in, on or about the Premises or the Office Building Project. As used in this paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and wall coverings, power panels electrical distribution systems, lighting fixtures, air conditioning, plumbing and telephone and telecommunication wiring and equipment. At the expiration of the term. Lessor may require the removal of any or all of said alterations, improvements, additions or Utility Installations, and the restoration of the Premises and the Office Building Project to their prior condition, at Lessee's expense. Should Lessor permit Lessee to make its own alterations, improvements, additions or Utility Installations, Lessee shall use only such contractor as has been expressly approved by Lessor and Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements additions or Utility Installations without the prior approval of Lessor or use a contractor for not expressly approved by Lessor, Lessor may, at any time during the term of this lease, require that Lessee remove any part or all of the same. (b) Any alterations improvements, additions or Utility Installations in or about the Premises or the Office Building Project that Lessee shall desire to make shall he presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent to Lessee's making such alteration, improvement, addition or Utility Installation, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from the applicable governmental agencies, furnishing a copy thereof to Lessor prior to the commencement of the work, and compliance by Lessee with all conditions of said permit in a prompt and expeditious manner. (c) Lessee shall pay when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee al or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, the Building or the Office Building Project, or any interest therein. (d) Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises by Lessee, and Lessor shall have the right to post notices of non-responsibility in or on the Premises or the Building as provided by law If Lessee shall, in good faith, contest the validity of any such hen claim of demand, then Lessee shall at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises the Building or the Office Building Project upon] the condition that if Lessor shall require Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises, the Building and the Office Building Project free from the effect of such lien or claim. In addition Lessor may require Lessee to pay Lessor's reasonable attorneys' fees and costs in participating in such action if Lessor shall decide it is to Lessor's best interest so to do. (e) All alterations improvements additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made to the Premises by Lessee including but not limited to floor coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation and lighting and telephone or communication systems, conduit wiring and outlets, shall be made and done in a good and workmanlike manner and of good and sufficient qualify and materials and shall be the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the Lease term unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided Lessee is not in default, notwithstanding the provisions of this paragraph 7.3(e) Lessee's personal properly and equipment other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises or the Building and other than Utility Installations, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2. (f) Lessee shall provide Lessor with as-built plans and specifications for any alterations, improvements, additions, or Utility Installations. 7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or additional utility facilities throughout the Office Building Project for the benefit of Lessor or Lessee or any other lessee of the Office Building Project including but not by way of limitation such utilities as plumbing, electrical systems. communication systems, and fire protection and detection systems so long as such installations do not unreasonably interfere with Lessee's use Of the Premises. 8. INSURANCE; INDEMNITY 8.1 LIABILITY INSURANCE-LESSEE. Lessee shell at Lessee's expense, obtain and keep in force during the term of this lease a policy of Comprehensive General Liability insurance utilizing an Insurance Services Office standard form with Broad Form General Liability Endorsement (GL0404) or equivalent in an amount of not less than $1,000,000 per occurrence of bodily injury and property damage combined or in a greater amount as reasonably determined by Lessor and shall insure Lessee with Lessor as an additional insured against liability arising out of the use occupancy or maintenance of the Premises. Compliance with the above requirement shall not however limit the liability of Lessee hereunder. 8.2 LIABILITY INSURANCE-LESSOR. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Broad Form Property Damage Insurance plus coverage against such other risks Lessor deems advisable from time to time insuring Lessor but not Lessee against liability arising out of the ownership use occupancy or maintenance of the Office Building Project in an amount not less than $5,000,000.00 per occurrence. 8.3 PROPERLY INSURANCE-LESSEE. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease for the benefit of Lessee, replacement cost fire and extended coverage insurance, with vandalism and malicious mischief, sprinkler leakage and earthquake sprinkler leakage endorsements, in an amount sufficient to cover not less than 100% of the full replacement cost, as the same may exist from time to time, of all of Lessee's personal property, fixtures, equipment and tenant improvements. 8.4 PROPERTY INSURANCE-LESSOR. Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Office Building Project improvements but not Lessee's personal property, fixtures, equipment or tenant improvements in the amount of the full replacement cost thereof, as the same may exist from time to time, utilizing Insurance Services Office standard form or equivalent providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, plate glass, and such other perils as Lessor deems advisable or may be required by a lender having a lien on the Office Building Project. In addition, Lessor shall obtain and keep in force during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all Operating Expenses for said period. Lessee will not be named in any such policies carried by Lessor and shall have no right to any proceeds therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain such deductibles as Lessor or the aforesaid lender may determine. In the event that the Premises shall stiller an insured loss as defined in paragraph 9 1(f) hereof, the deductible amounts under the applicable insurance policies shall be deemed an Operating Expense. Lessee shaft not do or permit to he done anything which shall invalidate the insurance policies carried by Lessor. Lessee shall pay the entirety of any Increase in the property insurance premium for the Office Building Project over what it was immediately prior to the commencement of the term of this Lease if the increase is specified by Lessor's insurance carrier as being caused by the nature of Lessee's occupancy or any act or omission of Lessee. 8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of liability insurance policies required under paragraph 8 I or certificates evidencing the existence and amounts of such insurance within seven 17) days alter the Commencement Date of this Lease. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals thereof. 8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other, for direct or consequential loss or damage arising out of or incident to the perils covered by property insurance carried by such party, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. If necessary all property insurance policies required under this Lease shall be endorsed to so provide. 8.7 INDEMNITY. Lessee shall indemnity and hold harmless Lessor and its agents, Lessor's master or ground lessor, partners and lenders, from and against any and all claims for damage to the person or property of anyone or any entity arising from Lessee's use of the Office Building Project, or from the conduct of Lessee's business or from any activity. work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims, costs and expenses arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any act or omission of Lessee, or any of Lessee's agents, contractors, employees, or invitees, and from and against all costs, attorney's lees. expenses and liabilities Incurred by Lessor as the result of any such use, conduct, activity, work, things done. permitted or suffered, breach, default or negligence, and In dealing reasonably therewith, including but not limited to the defense or pursuit of any claim or any action or proceeding involved therein, and in case any action or proceeding be brought against Lessor by reason of any such matter, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property of Lessee or Injury to persons, in, upon or about the Office Building Project arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable (or injury to Lessee's business or any loss of income therefrom or for loss of or damage to the goods, wares merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises or the Office Building Project, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from theft, fire, steam. electricity, gas, water or rein, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or born any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Office Building Project, or from other sources or places, or from new construction or the repair, alteration or Improvement of any part of the Office Building Project, or of the equipment, fixtures or appurtenances applicable thereto, and regardless of whether the cause of such damage or injury or the means of repairing the same Is inaccessible, Lessor shall not be liable for any damages arising from any act or neglect of any other lessee, occupant or user of the Office Building Project, nor from the failure of Lessor to enforce the provisions of any other lease of any other lessee of the Office Building Project. 8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation that the limits or forms of coverage of insurance specified In this paragraph 8 are adequate to cover Lessee's property or obligations under this Lease. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS. (a) "Premises Damage" shall mean if the Premises are damaged or destroyed to any extent. (b) "Premises Building Partial Damage" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is less than fifty percent (50%) of the then Replacement Cost of the building. (c) "Premises Building Total Destruction" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is fifty percent (50%) or more of the then Replacement Cost of the Building. (d) "Office Building Project Buildings" shall mean all of the buildings on the Office Building Project site. (e) "Office Building Project Buildings Total Destruction" shall mean if tire Office Building Project Buildings are damaged or destroyed to the extent that the cost of repair is fifty percent (50%) or more of the then Replacement Cost of the Office Building Project I Buildings (f) "Insured Loss" shall mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8. The tact that an insured Loss has a deductible amount shall not make tire loss an uninsured loss. (g) "Replacement Cost" shall mean the amount of money necessary to be spent in order to repair or rebuild the damaged area to the condition that existed immediately prior to the damage occurring, excluding all improvements made by lessees, other than those installed by Lessor at Lessee's expense 9.2 PREMISES DAMAGE PREMISES. BUILDING PARTIAL DAMAGE. (a) Insured Loss. Subject to the provisions of paragraph 9.4 and 9.5, if at any time during the term of this lease there is damage which is an insured loss and which falls into the classification of either Premises Damage or Premises Building Partial Damage, then Leasor shall as soon as reasonably possible and to the extent the required materials and labor are readily available through usual commercial channels at Lessor's expense, repair such damage (but not Lessee's fixtures, equipment or tenant improvements originally paid for by Lessee) to its condition existing at the tiem of the damage and this Lease shall continue in full force and effect. (b) Uninsured Loss: Subject to the provisions of paragraphs 9 4 and 9 5 if at any time during the term of tins lease there is damage which is not an Insured Loss .and which falls. within the classification of Premises Damage or Premises Building Partial Damage unless caused by a negligent or willful act of Lessee [in which event Lessee shall make the repairs et Lessee's expense which damage prevents lessee from making any substantial use of the Premises Lessor may al Lessor's option either (i)) repair such damage as soon as reasonably possible al Lessor's expense in which event this Lease shall continue in full force and effect or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease as of the date: of the occurrence of such damage in which event this Lease shall terminate as of the date of the occurrence of such damage 9.3 PREMISES BUILDING TOTAL DESTRUCTION, OFFICE BUILDING PROJECT TOTAL DESTRUCTION. Subject to the provisions of paragraphs 9 4 and 9 5 if at any lime during the term A this 1 ease there is damage whether or not it is an Insured Loss which falls into the classifications of either (i) Premises Building Total Destruction of (ii) Office Building Project Total Destruction then Lessor may at Lessor's option either (i) repair such damage or destruction as soon as reasonably possible at Lessor's expense (to the extent the required materials are readily available through usual commercial channels) to its condition existing at the lime of the damage but not Lessee's fixtures equipment or tenant improvements. and this lease shall continue in lull force and effect or [jr; give written notice to Lessee within thirty (30) days after the date of occurrence of such damage of Lessor's intention to CANCEL AND TERMINATE tiers I ease in WHICH CAVE THIS LEASE SHALL TERMINATE AS OF THE date of the occurrence of such damage 9.4 DAMAGE NEAR END OF TERM. (a) Subject to paragraph 9.4(b), If at any time during the last twelve (12) months of the term of this Lease there is substantial damage to the Premises, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election. to do so within 30 days after the date of occurrence of such damage (b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an option to extend or renew this Lease, and the lime within which said option may be exercised has not yet expired, Lessee shaft exercise such option, if it is to be exercised al ail, no later than twenty (20) days after the occurrence of an Insured loss falling within the classification of Premises Damage during the last twelve (12) months of the term of this Lease. II Lessee duly exercises such option during said twenty (20) day period, Lessor shelf, al Lessor's expense, repair such damage, but not Lessee's fixtures, equipment OR tenant improvements as soon AS REASONABLY POSSIBLE AND THIS LEASE shall continue in full force and effect. If Lessee fails to exercise such option during said twenty (20) day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said twenty (20) day period by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of said twenty (20) day period, notwithstanding any term or provision in the grant of option to the contrary. 9.5 Abatement of Rent; Lessee's Remedies. (a) In the event Lessor repairs or restores the Building or Premises pursuant to the provisions of this paragraph 9, and any part of the Premises are not usable (including loss of use due to toss of access or essential services), the rent payable hereunder (including Lessee's Share of Operating Expense Increase) for the period during which such damage, repair or restoration continues shall be abated, provided (1) the damage was not the result of the negligence of Lessee, and (2) such abatement shall only be to the extent the operation and profitability of Lessee's business as operated FROM THE Premises is adversely affected . Except for said abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage destruction, repair or restoration. Dated May 28, 1998 By and Between Edwin S. Johnston Lessor and Fred Rice as Lessee . GENERAL RULES 1 Lessee shall not suffer or permit the obstruction of .any Common Areas, including driveways. walkways and stairways 2 Lessor reserves the right to refuse access to any persons Lessor in good faith judges to be a threat to the safety, reputation or property of the Office Building Project and its occupants. 3. Lessee shall not make or Permit any noise or odors that annoy or interfere with other lessees or persons having business within the Office Building Project. 4. Lessee shall not keep animals or birds within the Office Building Project, and shall not bring bicycles, motorcycles or other vehicles info areas not designated as authorized for same. 5. Lessee shall not make, stiller or permit litter except in appropriate receptacles for that purpose. 6. Lessee shall not alter any lock or install new or additional locks or bolts. 7. Lessee shall be responsible for the inappropriate use of any toilet rooms, plumbing or other utilities. No foreign substances of any KIND ARE to be inserted therein 8. Lessee shall not deface the walls, partitions or other surfaces of the premises or Office Building Project. 9. Lessee shall not stiller or permit any thing in or around the Premises or Building that causes excessive vibration or floor loading in any part of the Office Building Project. 10. Furniture, significant freight and equipment shall be moved into or out of the building only with the Lessor's knowledge and CONSENT, AND SUBJECT to such reasonable limitations. techniques and timing as may be designated by Lessor. Lessee SHALL BE RESPONSIBLE for any damage TO THE OFFICE Building Project arising from any such activity 11. Lessee shall not employ any service or contractor for services or work to be performed in the Building, except as approved by Lessor. 12. Lessor reserves the right to close and lock the. Building on Saturdays, Sundays and legal holidays, and on other days between the hours of 7 P.M. and 7 A.M. of the following day 11 Lessee uses the Premises during such periods, LESSEE SHALL be responsible for SECURELY LOCKING any doors it may have opened for entry. 13. Lessee shall return all keys al the termination of its tenancy and shall be responsible for the cost of replacing any keys that are lost. 14. No window coverings shades or awnings shall be installed or used by Lessee. 15 No Lessee, employee or invitee shall go upon the roof of the Building. 16.l Lessee shall not suffer or permit smoking or carrying of lighted cigars or cigarettes in areas reasonably designated by Lessor or by applicable governmental agencies as non- smoking areas 17. Lessee shall not use any method of heating or air conditioning other than as provided by Lessor. 18. Lessee shall not install, maintain or operate any vending machines upon the Premises without Lessor's written consent 19. The Premises shall not be used for lodging or manufacturing, cooking or food preparation. 20. Lessee shall comply with all safety, fire protection and evacuation regulations established by Lessor or any applicable governmental agency. 21. Lessor reserves the right to waive any one of these rules or regulations, and/or as to any particular Lessee, and any such waiver shall not constitute a waiver of any other rule or regulation or any subsequent application thereof to such Lessee. 22. Lessee assumes all risks from theft or vandalism and agrees to keep its Premises socked as may be required 23. Lessor reserves the right to make such other reasonable rules and regulations as it may from time to lime deem necessary for the appropriate operation and safety of the Office Building Project and its occupants. Lessee agrees to abide by these and such ruses and regulations, PARKING RULES 1. Parking areas shall be used only for parking by vehicles no longer than lull size,. passenger automobiles herein called "Permitted Size Vehicles,' Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized Vehicles" 2. Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees. suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by lessor for such activities. 3. Parking stickers or identification devices shall be the properly of Lessor and be returned to Lessor by the holder thereof upon termination of the holder's parking privileges. Lessee will pay such replacement charge as Is reasonably established by Lessor for the loss of such devices. 4. Lessor reserves the right to refuse the sate of monthly identification devices to any person or entity that willfully refuses to comply with the applicable rules, regulations, laws and/or agreements. 5. Lessor reserves the right to relocate all or a part of parking spaces from floor to floor, within one floor, and/or to reasonably adjacent offsite location(s),), and to reasonably allocate them between compact and standard size spaces. as long as the same complies with applicable laws, ordinances and regulations. 6. Users of the parking area will obey all posted signs and park only in the areas designated for vehicle parking 7. Unless otherwise instructed every person using the parking area Is required to park and lock his own vehicle Lessor will not be responsible for any damage to vehicles, injury to persons or loss of properly, all of which risks are assumed by the party using the parking area 8. Validation, if established, will be permissible only by such method or methods as Lessor and/or its licensee may establish at rates generally applicable to visitor parking. 9. The maintenance, washing, waxing or cleaning of vehicles in the parking structure or Common Areas Is prohibited 10. Lessee shall be responsible for seeing that nil of its employees, agents and invitees comply with the applicable parking rules, regulations, laws and agreements. 11. Lessor reserves the right to modify these rules and/or adopt such other reasonable and non-discriminatory ruses and regulations as it may deem necessary for the proper operation of the parking area. 12. Such parking use as is herein provided is intended merely ns a license only and no bailment is intended or shall be created hereby EX-10.12 21 EXHIBIT 10.12 FACILITY AGREEMENT FOR EQUIPMENT PLACEMENT I. Parties: This Agreement, entered into as of, AUGUST 19, 1998, is made by and between CARD SERVICES (herein called "Facility Provider") and Consumer Net Marketplace, Inc., (herein called "Equipment Owner"). II. Premises: Facility Provider hereby grants to Equipment Owner no less than ______________ square feet for the placement of rack mounted switching equipment which Equipment Owner may reconfigure at its discretion, in the premises located at 3037 GOLF COURSE DR. #4, in the City of, VENTURA, in the County of, VENTURA, in the State of, CALIFORNIA, as more particularly described in Exhibit____. III. Term: This Agreement shall run in concurrent 12 month periods and shall automatically be renewed on an annual basis unless terminated by either party, by written notification to the other party at least 90 days prior to any termination. IV. Facility Provider Obligations: Facility Provider warrants that the premises existing as of the date of this Agreement, do not violate any covenants or restriction of record, or any applicable building code, regulation or ordinance in effect on commencement date. Facility Provider warrants that the electrical, air conditioning, ventilating system, and security of the premises is in good working order and exclusive access to the equipment will be provided to Equipment Owner on a 24 hour a day, 7 days a week basis. Facility Provider will provide to Equipment Owner a copy of existing Lease Agreements and Amendments for review and approval. V. Equipment Owner Obligations: Equipment Owner will provide free internet access to Facility Provider for the term of this agreement. VI. Other Terms: CONTINGENT ON REFERRAL AGREEMENT AND WEBSITE. -------------------------------------------------------------- --------------------------------------------------------------------------- Facility Provider Equipment Owner Jonathan Severn Consumer Net Marketplace, Inc. - ---------------------------------------- By (Signature of Owner) By Randy Greene ------------------------------------------ ---------------------------- Its Owner Its VP of Sales & Marketing -------------------------------------- ------------------------ Executed at VTA, CA Executed at Simi Valley, CA ----------------------------------- -------------------- on August 20, 1998 On August 19, 1998 ------------------------------------------- ----------------------------- Address 3037 Golf Course Dr. #4, VTA, CA 93003 Address 1900 E. Los Angeles Ave. -------------------------------------- ------------------------ FACILITY AGREEMENT FOR EQUIPMENT PLACEMENT I. Parties: This Agreement, entered into as of, AUGUST 19, 1998, is made by and between INFO DIRECT (herein called "Facility Provider") and Consumer Net Marketplace, Inc., (herein called "Equipment Owner"). II. Premises: Facility Provider hereby grants to Equipment Owner no less than ________________ square feet for the placement of rack mounted switching equipment which Equipment Owner may reconfigure at its discretion, in the premises located at 802 E. COTA, in the City of, SANTA BARBARA, in the County of, SANTA BARBARA, in the State of, CALIFORNIA, as more particularly described in Exhibit . III. Term: This Agreement shall run in concurrent 12 month periods and shall automatically be renewed on an annual basis unless terminated by either party, by written notification to the other party at least 90 days prior to any termination. IV. Facility Provider Obligations: Facility Provider warrants that the premises existing as of the date of this Agreement, do not violate any covenants or restriction of record, or any applicable building code, regulation or ordinance in effect on commencement date. Facility Provider warrants that the electrical, air conditioning, ventilating system, and security of the premises is in good working order and exclusive access to the equipment will be provided to Equipment Owner on a 24 hour a day, 7 days a week basis. Facility Provider will provide to Equipment Owner a copy of existing Lease Agreements and Amendments for review and approval. V. Equipment Owner Obligations: Equipment Owner will provide free internet access to Facility Provider for the term of this agreement. VI. Other Terms: NONE. -------------------------------------------------------------------------- --------------------------------------------------------------------------. Facility Provider Equipment Owner Info Direct Consumer Net Marketplace, Inc. - ---------------------------------------- ----------------------------------- By (Craig Comroe) By Randy Greene ------------------------------------- -------------------------------- Its Owner Its VP of Sales & Marketing ------------------------------- --------------------------- Executed at Santa Barbara, CA Executed at Simi Valley, CA ---------------------------- ----------------------- on August 20, 1998 On August 19, 1998 -------------------------------------- --------------------------------- Address 802 E. Cota Address 1900 E. Los Angeles Ave. -------------------------------- ---------------------------- FACILITY AGREEMENT FOR EQUIPMENT PLACEMENT I. Parties: This Agreement, entered into as of, AUGUST 19, 1998, is made by and between WESTERN INDUSTRIAL SERVICES (herein called "Facility Provider") and Consumer Net Marketplace, Inc., (herein called "Equipment Owner"). II. Premises: Facility Provider hereby grants to Equipment Owner no less than ________ square feet for the placement of rack mounted switching equipment which Equipment Owner may reconfigure at its discretion, in the premises located at 10503 HAWTHORNE BLVD., in the City of, LENNOX, in the County of, LOS ANGELES, in the State of, CALIFORNIA, 90304, as more particularly described in Exhibit . III. Term: This Agreement shall run in concurrent 12 month periods and shall automatically be renewed on an annual basis unless terminated by either party, by written notification to the other party at least 90 days prior to any termination. IV. Facility Provider Obligations: Facility Provider warrants that the premises existing as of the date of this Agreement, do not violate any covenants or restriction of record, or any applicable building code, regulation or ordinance in effect on commencement date. Facility Provider warrants that the electrical, air conditioning, ventilating system, and security of the premises is in good working order and exclusive access to the equipment will be provided to Equipment Owner on a 24 hour a day, 7 days a week basis. Facility Provider will provide to Equipment Owner a copy of existing Lease Agreements and Amendments for review and approval. V. Equipment Owner Obligations: Equipment Owner will provide free internet access to Facility Provider for the term of this agreement. VI. Other Terms: NONE ------------------------------------------------------------- --------------------------------------------------------------------------. Facility Provider Equipment Owner Richard Carver Consumer Net Marketplace, Inc. - ---------------------------------------- ----------------------------------- By By Randy Greene -------------------------------------- -------------------------------- Its Owner Its VP of Sales & Marketing ------------------------------- -------------------------- Executed at Lennox, CA Executed at Simi Valley, CA ---------------------------- ----------------------- on August 20, 1998 On August 19, 1998 ------------------------------------- -------------------------------- Address 10503 Hawthorne Blvd. Address 1900 E. Los Angeles Ave. -------------------------------- ---------------------------- EX-10.13 22 EXHIBIT 10.13 ADVO, INC. GENERAL TERMS For DIRECT MAIL DISTRIBUTION 1. DEFINITIONS (A) As used in this contract, "ADVO", "we", and "our" means ADVO, Inc. "You" and "your" refers to the Client contracting with ADVO. (B) "Copy Deadline Date" is the date by which you are to submit the proposed text and artwork for your advertising piece to us. This date is set by the local ADVO branch which serves you. (C) "DAL" means Detached Address Label. (D) "Final price" means the total price, adjusted by the price of additional services and differences between actual and estimated piece weight, and actual and estimated address counts at the time we mail your advertising pieces. (E) "Marriage Mail" means ADVO's third class Marriage Mail program, its Mailbox Values program, or both. (F) "Postal Service" means the United States Postal Service. (G) "Proof Deadline Date" means the date by which you are to submit your final advertising proof to us. This date is set by the local ADVO branch which serves you. (H) "Services" means all services for which you contract, or which are performed by ADVO to correct your advertising piece or make it mailable. (I) "Total price" means the total amount you will pay to ADVO for all contracted Services. 2. SERVICES TO BE PERFORMED BY ADVO (A) MAILING SERVICES. We will distribute your advertising pieces by mail as part of our Marriage Mail program in the Markets, Zones, or ZIP Code areas, and for the In-Home Dates, which we offer. Services which we will perform include printing and addressing labels, merging the mailing pieces, bundling, packaging, and tagging according to Postal Service requirements, and depositing the mail with the Postal service. (B) PRINTING SERVICES. If we have agreed as a part of this contract to provide layout, artwork, typesetting or printing services, all of these services will be completed in accordance with ADVO's normal practices and standards. (C) IN-HOME DATE. An In-Home Date is the date or dates by which advertising which we deposit with the Postal Service is expected to arrive at its addressed destination. ADVO cannot guarantee Postal Service delivery by the In-Home Date. We are not responsible if advertising does not reach its addressed destination by the In-Home Date. 3. YOUR OBLIGATIONS (A) PREPAYMENT AMOUNT. Unless we have agreed in writing to different payment terms, you will prepay for all services, including printing. (i) For DETACHED ADDRESS LABELS ("DAL"), you will prepay the total price of each mailing by the Proof Deadline Date. (ii) For TURNKEY PRODUCTS, you will prepay the total price for each mailing by the Proof Deadline Date. However, if you contract for Turnkey Products to be mailed on three or more In-Home Dates, you may instead pay Twenty-Five percent (25%) of the total price at least three (3) days before the Proof Deadline Date for the first In-Home Date. The prepayment will be allocated evenly to each In-Home Date. You will then pay the balance of the total price for each In-Home Date at least nine (9) days before that In-Home Date. (iii) For ALL OTHER MAILING SERVICES, you will prepay the total price for each mailing at least nine (9) days before each In-Home Date. (B) DELIVERY OF PREPRINTED MATERIAL. Unless we are to provide printing services to you as a part of this contract, you will deliver sufficient preprinted advertising pieces to us to enable us to complete your order. The quantity must include one piece for each address on ADVO's mailing list, plus any additional amount requested by us to account for spoilage or similar loss. All pieces must meet our standards for processing and mailing, and you must deliver the pieces to us by the date set by the local ADVO branch which serves you. Sufficient quantity means one advertising piece for each residential household on ADVO's mailing list in the ZIP Code areas selected by Client plus such additional quantities as are requested by ADVO for spoilage or similar loss. (C) ARTWORK. If we have agreed as part of this contract to prepare camera-ready mechanicals, proofs with color break indications, or both, then you will submit your proposed text and artwork to us by the Copy Deadline Date set by the local ADVO branch which serves you. You will also submit your final written approval of all proofs supplied to you by the Proof Deadline Date set by that same local branch. If we have agreed as part of this contract to provide printing services only, then you will submit your camera-ready mechanicals and proofs with completed color break indications or separations to us by the Proof Deadline Date. We retain title to all rights in artwork produced by us under this contract. (D) DIGITAL ART. ADVO will not be responsible for the accuracy or reproduction quality of any client supplied digital art. (E) ADDITIONAL SERVICES. If we agree to provide additional services, such as preparing camera-ready mechanicals or proofs with color break indications, preparing or mailing different versions, special processing, non-image area printing, four-color printing, author's alterations to final proofs, or folding of your pieces; or if we determine additional services are necessary to correct the advertising price or make it mailable; then those services will be provided for an additional charge. All additional charges will be made at our then-current rates. However, we will not be obligated to perform additional services unless we agree in writing. If we perform additional services, either at your request, even if your request is not in writing, or because we determine the services are necessary to correct the piece or make it mailable, you will pay all additional charges. We will not provide press checks for four color printing. (F) PIECE WEIGHT AND QUANTITY ESTIMATES. All piece weights and quantities are estimates, and are subject to verification by the Postal Service. Your total price will be adjusted according to the actual weight of advertising pieces and the number mailed, calculated at the time we mail them. (G) FINAL BILLING. If the final price for a mailing exceeds your prepayment, you will pay the difference upon demand. (H) YOUR OBLIGATIONS IF YOU DEFAULT. If you do not pay us in a timely manner, if you do not fulfill all your obligations under this contract or any other contract between you and ADVO, if you become insolvent or a petition in bankruptcy is filed by or against you, or if a receiver is appointed for you, then you will be in Default. We will then not be required to perform any of the services for which you contracted, and you will be responsible for all additional costs which we incur because of your Default, and we may cancel this contract. Additional costs may include, among other charges, press time, paper stock, and additional postage. (I) DAL AND MAILBOX VALUES CANCELLATION. (i) IF YOU CANCEL OR CHANGE ALL OR PART OF ANY OF YOUR COMMITMENT FOR DAL OR MAILBOX VALUES SPACE, YOU WILL PAY US A CANCELLATION FEE TO DEFRAY ADDITIONAL COSTS WHICH WE WILL INCUR. IN THAT EVENT, YOU WILL PAY US: (A) IF YOU CANCEL OR MAKE A CHANGE BETWEEN NINETY (90) AND ONE HUNDRED FIFTY (150) DAYS BEFORE THE IN-HOME DATE, TEN PERCENT (10%) OF THE TOTAL PRICE OF THE CANCELED OR CHANGED PORTION OF THE MAILING; (B) IF YOU CANCEL OR MAKE A CHANGE FORTY-SIX (46), BUT LESS THAN NINETY (90) DAYS BEFORE THE IN-HOME DATE, TWENTY PERCENT (20%) OF THE TOTAL PRICE OF THE CANCELED OR CHANGED PORTION OF THE MAILING; OR (C) SUBJECT TO PARAGRAPH II, IF YOU CANCEL OR MAKE A CHANGE FORTY-FIVE (45) DAYS OR LESS BEFORE THE IN-HOME DATE, FIFTY PERCENT (50%) OF THE TOTAL PRICE OF THE CANCELED OR CHANGED PORTION OF THE PROGRAM. (ii) IN THE EVENT YOU CANCEL OR CHANGE ALL OR PART OF ANY OF YOUR COMMITMENT FOR DAL OR MAILBOX VALUES SPACE FORTY-FIVE (45) DAYS OR LESS BEFORE THE IN-HOME DATE, AND FOR ANY REASON IT IS IMPOSSIBLE OR IMPRACTICAL FOR US TO WITHDRAW YOUR PIECES FROM THE MAILING, YOU WILL REMAIN LIABLE FOR, AND WILL PAY TO US, THE FULL FINAL PRICE AS LIQUIDATED DAMAGES. ADVO SHALL NOT BE LIABLE IN THE EVENT THAT YOUR MATERIALS ARE INCLUDED IN THE MAILING. 4. ADVERTISING AGENCY (A) PAYMENT. If you are an advertising agency signing this contract in the name of a client, or for the benefit of a client, you warrant that you have received legal authority from your client to enter into the contract on its behalf, and guarantee payment of all charges. (B) ADVERTISING AGENCY DISCOUNT. If you are an advertising agency signing this contract in the name of a client, or for the benefit of a client, then you will receive ADVO's Advertising Agency Discount in effect when we both sign the contract. However, you may apply the Advertising Agency Discount only to Designated Services you purchase for that Client at Rate Card rates. The discount will apply to the appropriate rate net of postage. (C) CENTRALIZED ACCOUNTS. If your Client contracts directly with us for centralized purchasing or pricing of Services ("Central Contract"), you may buy Designated Services for that Client at the rate to which he is entitled under the Central Contract ("Central Contract Rate"), but with no Advertising Agency Discount; or at your election you may buy Designated Services for your Client at ADVO's Rate Card rate, less the Advertising Agency Discount on that rate net of postage, but only if the net rate after applying the discount is greater than your Client's Central Contract Rate. (E) AGENCY SHORT-RATE. The Advertising Agency Discount is conditioned upon your fulfillment of the volume, frequency, and payment commitments you have made for your Client. IF YOU OR YOUR CLIENT DO NOT PAY ADVO IN ACCORDANCE WITH THE PAYMENT TERMS OF THIS CONTRACT (OR OF THE CENTRAL CONTRACT, IF ANY), OR IF YOU OR YOUR CLIENT DO NOT MAIL AT LEAST THE VOLUME, OR AT THE FREQUENCY, YOU HAVE AGREED TO, THEN YOU WILL NOT BE ELIGIBLE FOR THE ADVERTISING AGENCY DISCOUNT FOR ADDITIONAL ORDERS PLACED UNDER THE CONTRACT, AND YOU WILL PROMPTLY PAY ADVO, UPON ITS DEMAND, THE AMOUNT OF THE DISCOUNT PROVIDED TO YOU FOR ORDERS PLACED UNDER THE CONTRACT, RETROACTIVE TO THE FIRST ORDER. 5. ZONE SELECT AND ZIP CODE SELECT PRICING Zone Select and ZIP Code Select Programs ("Pricing Programs") permit you to select Market level pricing or National level pricing options ("Pricing Options"). You must fulfill the criteria for each Pricing Program, and the volume and frequency for each Pricing Option separately. Your use of these Pricing Programs and Pricing Options is governed by our Zone Select and ZIP Code Select policies in effect at the time you contract with us. 6. CONTRACT FULFILLMENT (A) SHORT-RATE. Your rate under this contract is based upon your volume and frequency commitment. IF YOU DO NOT MAIL AT LEAST THE VOLUME, OR AT THE FREQUENCY, YOU HAVE AGREED TO, THEN YOU WILL PROMPTLY PAY US, UPON OUR DEMAND, AN AMOUNT EQUAL TO THE DIFFERENCE BETWEEN THE RATE AGREED TO AND OUR NORMAL RATE FOR THE VOLUME OR FREQUENCY ACTUALLY MAILED BY YOU, RETROACTIVE TO YOUR INITIAL MAILING UNDER THE CONTRACT. (B) INTERIM ADJUSTMENT. We may review your performance under this agreement at any time during its term. If we decide that it is unlikely that you will fulfill your volume and frequency commitment, we may implement the paragraph above entitled Short-Rate for all mailings completed at time of review, and adjust your rate for your remaining mailings. 7. ZONE RESTRUCTURING ADVO may restructure its Zones and Markets. You will continue to mail into a Zone or Market for which you contracted if (i) a Zone or Market is not restructured; or (ii) a Zone or Market is restructured and we determine that the restructuring is not substantial, but you are able to select new coverage similar to that which you had before restructuring. If we substantially restructure a Zone or Market and you cannot select new coverage similar to that which you had before restructuring, you will continue to mail into the unrestructured Zones or Markets for which you contracted. If there is a decrease in circulation because of our restructuring, your volume or frequency discount will not be affected. 8. ADVERTISING CONTENTS (A) SHARED MAIL. We have arranged for other advertisers' material to be included in the Marriage Mail package. Our judgment as to the suitability of your material or that of other advertisers, the placement of advertising material within a Marriage Mail package, and all other matters concerning design, handling, and delivery of the Marriage Mail package, is conclusive. We may, without liability, refuse to mail your advertising material if it appears to capitalize upon, tie in with, or otherwise take advantage of the subject matter of any of our public service programs. (B) INDEMNITY. You warrant that all advertising copy and artwork which you supply or approve complies with federal, state and local laws, ordinances and regulations. You will hold us harmless from all costs and liability (including attorneys' fees and defense costs), product or service claims, promises concerning the manufacture, distribution, consumer use, or purchase of your products or services. You will also be exclusively responsible for the entire cost of any coupons redeemed, and for compliance with all applicable laws and regulations relating to couponing or advertising activities concerning your products, services, and advertising prices. 9. CANCELLATION OR MODIFICATION OF MARRIAGE MAIL PROGRAM If we cancel or modify the Marriage Mail program for any reason, including changing In-Home Dates, we may give you notice that all or a part of your advertising pieces will not be mailed, or will be mailed for a changed In-Home Date. We will refund any amount of your prepayment which was made for services which we will not perform. 10. LIMITATION OF LIABILITY. Our responsibility to you if we do not perform all of our obligations under this contract is limited to the following: (A) Subject to the additional restrictions in paragraphs 10B, 10C and 10D, we will only be responsible to return money which you prepaid to us for services not performed, or if less, your actual out-of-pocket damages. WE WILL NOT BE RESPONSIBLE FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES WHICH YOU MAY INCUR. (B) FAILURE TO MAIL. If we do not mail all or a portion of your advertising material for an In-Home Date, our sole responsibility to you will be limited to a reduction of the final price for the services we performed for that In-Home Date to reflect the smaller number of pieces mailed. (C) PRINTING ERRORS. We will use reasonable efforts to deliver your proof at least one (1) business day before the Proof Deadline Date. You are solely responsible for timely correction of all printing errors on the proof. If you do not correct the pr`oof, or if you do not return the corrected and signed proof to us, then we may not print your advertising pieces; or if we do print the pieces, the pieces may contain errors. Printed pieces may have minor variations in color or shading from a proof and are not a breach of this agreement by us. If we materially breach our printing obligation, then we will only be responsible to offer you, at our election and expense (i) a correction of the piece for the same In-Home Date, (ii) preparation and distribution of the piece on a future available In-Home Date which is reasonably acceptable to you, or (iii) for DALs, preparation of a substitute product, which we will select, for distribution as an insert in the Marriage Mail package covering the same circulation for the same In-Home Date or a future In-Home Date which is reasonably acceptable to you. (D) STORAGE RISK. All materials, including artwork which you supply, will be received and stored by us at your risk. You will retain title to all materials. Although we will take reasonable precautions to safeguard your materials, we will not be responsible for any loss or damage to them from any cause. You will insure all materials against all loss or damage. 11. EVIDENCE OF MAILING If you request, in writing, written evidence of the mailing, we will provide you with a Verification of Mailing. This is a document produced by us, which certifies the deposit of your advertising pieces with the Postal Service. This is the only evidence of mailing which we will provide. 12. PRINT AND PAPER If we are to provide printing services to you and our cost for printing or paper increases after the date of this contract, the price you will pay under this contract will be immediately adjusted to completely include the amount of our increase. You will pay the difference between your adjusted price and the original price upon our demand. 13. POSTAGE If postal rates increase or are modified after the date of this contract so that the cost to ADVO to mail your pieces increase, the price you will pay for all mailings subsequent to the effective date of the postal rate increase or modification will immediately be adjusted to completely include the total amount of the cost increase to ADVO. You will pay the difference between the adjusted price and the original price upon our demand. 14. TAXES You will pay all taxes (except for taxes on our net income) which may be imposed by any taxing authority, that relate to your purchases of services under this contract, and that we may be responsible to collect or pay. 15. MISCELLANEOUS (A) CONFIDENTIALITY. You will not disclose the terms of this contract, including but not limited to pricing, duration, and volume or frequency commitments, to a third party, except as required by law, or to enforce your contract rights through legal process. (B) ENTIRE AGREEMENT. This contract consists of these general terms and the information on the reverse side. It is the entire agreement between you and ADVO, and it supersedes all prior statements, agreements, understandings, practices, and customs between us dealing with this transaction. Changes must be in writing, and must be signed by both you and ADVO. (C) GOVERNING LAW. The laws of the State of Connecticut are to be used to interpret and enforce this contract. Both you and ADVO consent to personal jurisdiction in the state and federal courts of Connecticut concerning any claims which relate to this contract. (D) ASSIGNMENT. You may not assign or transfer any of your rights under this agreement without our prior written authorization. (E) MARKET COVERAGE. Contract rates based on frequency are valid only for distribution into the Market(s) defined in this contract. If no Market is defined, rates are valid only for distribution into the Market where your primary facility is located. (F) RESPONSE RATE. We do not guarantee or represent a response rate for advertising mailed by us. (G) CONTINUATION OF SERVICE. If you continue to use our services after this contract has expired, al of the terms of this contract (other than rate, frequency and volume) will remain in effect. If you do not fulfill all of your obligations under this contract and we continue to perform our services, that will not waive any of our rights if you do not fulfill your obligations in the future. (H) CAPTIONS. Captions which are used in this contract are for reference only and will not affect its interpretation. (I) ACCEPTANCE. If our authorized representative has signed this contract, then our presentation of this contract to you is an offer to contract under these terms and no others. You may accept our offer by either (i) signing the contract; or (ii) performing any of your obligations under the contract. EX-10.14 23 EXHIBIT 10.14 UNLIMITED DISTRIBUTION PROGRAM CLIENT CUSTOMIZATION TERMS AND CONDITIONS ("AGREEMENT") 1. Term. This Agreement shall remain in effect until terminated pursuant to the terms and conditions set forth in this Agreement. Notwithstanding anything in this Agreement to the contrary, this Agreement shall remain in effect only until such time as Microsoft Corporation ceases to distribute free of charge products with features comparable to the Netscape client products. In such event, Netscape shall provide Applicant with 90 days prior written notice and this Agreement shall expire on the end of said 90-day notice period. 2. LICENSE GRANT. (a) Netscape grants to Applicant, subject to these terms and conditions, a nonexclusive, royalty-free and nontransferable right to (i) reproduce a version of the standard Netscape client product which Applicant has customized pursuant to the terms and conditions set forth in the end user license agreement for the client customization kit (the "Customized Netscape Product") in executable form only on any media and (ii) distribute by sublicense such Customized Netscape Product copies to end users, directly or through distributors. Applicant may electronically distribute the Customized Netscape Product, in exportable version only, pursuant to the terms and conditions set forth herein. (b) Except as expressly permitted herein or by applicable law, Applicant shall not and shall not permit any distributor or other person to reconfigure, modify, translate, decompile, reverse engineer, disassemble, or otherwise determine or attempt to determine source code from the Customized Netscape Products or to create any derivative works based upon the Customized Netscape Products including the Netscape user interface. If Applicant or any distributor fails to comply with this Section 2(b), Netscape may immediately (in addition to all other remedies it may have and except for end user licenses) revoke all licenses granted hereunder. (c) If Applicant is distributing the Customized Netscape Product bundled with an Applicant product, Applicant shall use, and is granted during the term hereof a nontransferable, nonexclusive, and restricted license (with a right to sublicense to distributors) to use the mark "Includes Netscape Navigator" or "Includes Netscape Communicator," as applicable (collectively, the "Marks") solely on products and packaging containing Customized Netscape Products and in related advertising, marketing, and technical material on Applicant's Internet site. If Applicant is distributing the Customized Netscape Product on a stand-alone basis, Applicant shall use, and is granted during the term hereof a nontransferable, nonexclusive, and restricted license (with a right to sublicense to distributors) to use the mark Netscape Navigator" or Netscape Communicator," as applicable (collectively, the "Marks") solely on products and packaging containing Customized Netscape Products and in related advertising, marketing, and technical material on Applicant's Internet site. Use of the Marks shall comply with Netscape's then-current signature guidelines. All use of the Marks shall inure to Netscape's benefit. 3. USE OF THE MARKS; PROTECTION OF THE MARKS. (a) Proper Use. Applicant agrees that all use of the Marks shall be only in connection with this Agreement. Applicant agrees not to use or combine any other trademark or service mark in combination with the Marks. Applicant further agrees not to use the Marks on or in connection with any products or services that are or could be deemed by Netscape in its reasonable judgment, to be obscene, pornographic, disparaging of Netscape or its products, or otherwise in poor taste, or that are themselves unlawful or whose purpose is to encourage unlawful activities by others. (b) Monitoring by Netscape Upon Netscape's request, Applicant shall promptly provide Netscape with samples of any product or documentation bearing the Marks. If Netscape determines that Applicant is using the Marks improperly, Applicant shall have ten (10) days to remedy the improper use. 4. REPORTS. Applicant shall report to Netscape within 30 calendar days after the end of each calendar quarter the quantity of Customized Netscape Product licenses granted during such prior quarter for distribution hereunder, by country therefor.. Such reports shall be provided in electronic form via the Unlimited Distribution Program Reporting Page at: HTTP://HOME.NETSCAPE. COM/COMPROD/NETSCAPE_PARTNERPROGRAMS/BROWSER_ DISTRIBLCCK_REPORT.HTML. 5. SUPPORT. The Customized Netscape Products come with no support from Netscape 6. DISTRIBUTION. (a) Applicant shall and shall cause its distributors to comply with all then-current applicable laws, regulations, and other legal requirements in its performance of this Agreement, including without limitation, all applicable export laws, rules, and regulations of any agency of the U.S. Government or other applicable agencies. Applicant shall ensure the inclusion of appropriate notices required by the U. S. Government agencies or other applicable agencies. (b) Applicant shall use commercially reasonable best efforts to ensure that its distributors and sub-distributors comply with all of the relevant terms contained in this Agreement. The Customized Netscape Products distributed pursuant to this Agreement must be distributed with the end user license agreement that is provided with such Customized Netscape Product. (c) This is a nonexclusive relationship, and each party agrees that the other may enter into similar arrangements with third parties. Applicant shall and shall cause its distributors to treat all Customized Netscape Products at least as favorably as it treats any competitive products it distributes. (d) Applicant agrees to distribute documentation or packaging relating to the Customized Netscape Product that shall conspicuously state that, notwithstanding anything in the end user license agreement included with the Customized Netscape Product to the contrary, end users are not entitled to any support, warranty, or documentation associated with the Customized Netscape Product unless they have paid for such support, warranty, or documentation. Applicant further agrees that any such documentation or packaging shall include instructions on how an end user may purchase support from Netscape. 7. PROPRIETARY RIGHTS. Title to and ownership of all copies of the Customized Netscape Products, including all copyrights thereto, whether in machine-readable or printed form, and including without limitation derivative works, compilations, or collective works thereof and all related technical know-how and all rights therein are and shall remain the exclusive property of Netscape or its suppliers. Applicant acknowledges that Netscape is the owner of the Netscape, Navigator, and Communicator trademarks, and any trademark applications and/or registrations thereto, agrees that it will do nothing inconsistent with such ownership and agrees that all use of the Marks by Applicant shall inure to the benefit of Netscape. Netscape agrees that nothing in this Agreement shall give Applicant any right, title, or interest in the Marks other than the right to use the Marks in accordance with this Agreement. Except for the rights expressly granted to Applicant hereunder, Netscape reserves for itself all other rights in and to the Customized Netscape Products. Applicant and distributor shall not take any action to jeopardize, limit, or interfere in any manner with Netscape's ownership of or rights with respect to the Customized Netscape Products. Further, Applicant or its distributors shall not remove or alter any trademark, copyright, or other proprietary notices, legends, symbols, or labels appearing on the Customized Netscape Products delivered to Applicant and Applicant shall reproduce such notices on all copies of the Customized Netscape Products made hereunder. 8. NO WARRANTY/ AS IS. THE PRODUCT SUBJECT TO THIS AGREEMENT DOES NOT COME WITH SUPPORT OF ANY KIND AND IS PROVIDED TO APPLICANT "AS IS" AND WITHOUT Warrantees OR CONDITIONS OF ANY KIND. Netscape EXPRESSLY DISCLAIMS ALL WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE. 9. INDEMNITY. Netscape shall have no obligation or liability for, and Applicant shall defend, indemnify, and hold Netscape harmless from and against any claim (including reasonable attorneys' fees and costs) arising from Applicant's distribution of the Customized Netscape Products under, and/or compliance with the terms and conditions set forth in, this Agreement. 10. LIMITATION OF LIABILITY. (a) TO THE EXTENT ALLOWED BY APPLICABLE LAW, IN NO EVENT SHALL Netscape OR ITS SUPPLIERS BE LIABLE FOR ANY DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION, ANY LOSS OF PROFITS, LOSS OF BUSINESS, LOSS OF USE OR DATA, INTERRUPTION OF BUSINESS, OR FOR DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND, EVEN IF Netscape HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. (b) IN NO EVENT WILL NETSCAPE OR ITS SUPPLIERS BE LIABLE FOR ANY CLAIM AGAINST APPLICANT BY ANY THIRD PARTY. (c) IN NO EVENT SHALL NETSCAPE OR ITS SUPPLIERS BE LIABLE FOR (I) ANY REPRESENTATION OR WARRANTY MADE TO ANY THIRD PARTY BY APPLICANT, ANY DISTRIBUTOR, OR THEIR RESPECTIVE AGENTS; (II) FAILURE OF THE PRODUCTS TO PERFORM; (III) FAILURE OF THE PRODUCTS TO PROVIDE SECURITY; OR (IV) THE RESULTS OR INFORMATION OBTAINED OR DECISIONS MADE BY END USERS OF THE PRODUCTS OR THE DOCUMENTATION. THIS LIMITATION OF LIABILITY IS AN ESSENTIAL PART OF THE BARGAIN UNDER THIS AGREEMENT. 11. TERMINATION. This Agreement may be terminated: (a) immediately by Netscape in the event Applicant or a distributor of Applicant attempts to derive the source code of the Customized Netscape Products; (b) by either party upon 60 days prior written notice to the other party; or (c) immediately by Netscape in the event Applicant fails to remedy a breach of Section 3(b) of this Agreement within the specified cure period. Immediately upon termination or expiration hereof, all licenses for the Customized Netscape Products granted hereunder (except for validly granted end user licenses) shall terminate, and Applicant shall deliver to Netscape or destroy all copies of the Customized Netscape Products in its possession or control, and shall furnish an Netscape signed by an officer of Applicant certifying such delivery or destruction. Termination by either party shall not act as a waiver or release of any breach hereof or any liability hereunder. Sections 2(b), 6, 7, 8, 9, 10, 11, 12 and 13 shall survive any expiration or termination of this Agreement. 12. NOTICE. Any notice required or permitted hereunder shall be in English, in writing, and shall be deemed to be properly given upon receipt. Notices to Netscape shall be to the attention of the Legal Department, Netscape Communications Corporation, 501 East Middlefield Road, Mountain View, California 94043. 13. MISCELLANEOUS. (a) Neither party's waiver of a breach or delay or omission to exercise any right or remedy shall be construed as a waiver of any subsequent breach or as a waiver of such right or remedy. (b) This Agreement shall' be governed by and construed under the laws of the State of California, U.S.A., without reference to its conflicts of law provisions. (c) Unless otherwise agreed in writing, all disputes relating to this Agreement (except any dispute relating to intellectual property rights) shall be subject to final and binding arbitration in Santa Clara County, California, under the auspices of JAMS/End Dispute, with the losing party bearing all costs of such arbitration. Notwithstanding the foregoing, Netscape reserves the right to invoke the jurisdiction of any competent court to remedy or prevent violation of any provision under this Agreement relating to Netscape Confidential Information. (d) This Agreement will not be governed by the United Nations Convention of Contracts for the International Sale of Goods. (e) This Agreement creates no agency, partnership, joint venture, or employment relationship and neither Applicant nor its agents have any authority to bind Netscape in any respect whatsoever. (f) If the application of any provision hereof to any particular facts shall be held to be unenforceable by any competent court, then (x) the enforceability of such provision as applied to any other facts and the validity of other provisions hereof shall not be affected and (y) such provision shall be reformed without further action by the parties hereto only to the extent necessary to make such provision valid and enforceable when applied to the particular facts. (g) This Agreement constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes prior and contemporaneous agreements and communications, whether oral or written, between the parties relating to the subject matter of this Agreement and all past courses of dealing or industry custom. (h) If Applicant has an effective agreement with Netscape ("Prior Agreement") covering only the distribution of the Customized Netscape Products set forth herein, then this Agreement shall supersede the Prior Agreement. If any Prior Agreement covers any Netscape products in addition to the Customized Netscape Products, for example Netscape server products, then this Agreement shall supersede only those portions of the Prior Agreement covering the Customized Netscape Products. (i) This Agreement is written in the English language only, which language shall be controlling in all respects. (j) Les parties aux presentes confirment leur volonte que cette convention de meme que tous les documents y compris tout avis qui s'y rattache soient rediges en langue anglaise (translation: The parties confirm that this Agreement and all related documentation will be in the English language"). (k) Netscape may use Applicant's name in a list of customer references or in any press release issued by Netscape regarding the licensing of the Customized Netscape Product and/or provide Applicant's name and the names of the Customized Netscape Products licensed by Applicant to third parties. (l) If any dispute arises under this Agreement, the prevailing party shall be reimbursed by the other party for any and all legal fees and costs associated therewith. Do you agree to the program's terms and conditions? (X) I HAVE READ AND AGREE to the terms and conditions in this agreement. ( ) I DO NOT AGREE to the terms and conditions in this agreement. Signed by Christopher M. Fogel on behalf of Consumer Net Marketplace, Inc. EX-10.15 24 EXHIBIT 10.15 FREEWARE AND DEMONSTRATION SO DISTRIBUTION AGREEMENT (FOR ISP) (LIMITED) THIS FREEWARE AND DEMONSTRATION SOFTWARE DISTRIBUTION AGREEMENT (this "Agreement") is entered into as of June 19th, 1998 by and between QUALCOMM Incorporated, a Delaware corporation ("QUALCOMM"), with its principal place of business located at 6455 Lusk Boulevard, San Diego, California 92121-2779, and CNM, Inc. ("DISTRIBUTOR"), with regard to the following facts: WHEREAS, QUALCOMM makes available to the public a freeware version of Eudora Software Products under the name EUDORA LIGHT-Registered Trademark- and a 30-Day Demonstration Copy of Eudora Pro with the understanding that the same are not fully supported by QUALCOMM and subject to the requirement that the same shall not be sold or redistributed on a commercial basis by third parties except as specifically permitted in writing by QUALCOMM; and WHEREAS, DISTRIBUTOR is engaged in the business described on Exhibit "A" and wishes to obtain the right from QUALCOMM to distribute the current version(s) of Eudora Light and/or the 30-Day Demonstration Copy of Eudora Pro, as listed on Exhibit "A." NOW, THEREFORE,, in consideration of the promises set forth herein and intending to be legally bound, the parties agree as follows: 1. DEFINITIONS. 1.1 Light Software. As used herein, the term "Light Software" shall mean the current version of the officially released versions of Eudora Light electronic mail software for the Macintosh and Windows platforms. If this Agreement includes the right to perform a Translation (as provided in Section 13 hereof), or if the right to use a translation other than the officially released English language version described above is specified in Exhibit A attached hereto and approved by QUALCOMM, such Translation or other translated version shall be included in the definition of "Light Software" herein. 1.2 30-Day Demonstration Copy of Eudora Pro. As used herein, the term "30-Day Demo" shall mean the current version of the officially released time-expiring versions of Eudora Pro electronic mail software for the Macintosh and Windows platforms. 2. RIGHT TO DISTRIBUTE LIGHT SOFTWARE. QUALCOMM hereby grants to DISTRIBUTOR the nonexclusive right to distribute the Light Software and the related documentation to its customers in the manner described on Exhibit "A," subject to the provisions of this Agreement and during the term hereof. No right to use or distribute any version of Eudora electronic mail software other than as described in Section I hereof or of any other product or publication of QUALCOMM is granted hereby, and DISTRIBUTOR shall not engage in any such use or distribution. 3. RIGHT TO DISTRIBUTE COPIES OF EUDORA DEMONSTRATION PRODUCTS. QUALCOMM hereby grants to DISTRIBUTOR the nonexclusive right to distribute for demonstration and evaluation purposes the 30-Day Demo and the related documentation to its customers in the manner described in Exhibit A' subject to the provisions of this Agreement and the 30-Day Demo user license agreement during the term hereof. 4. TRADEMARK. DISTRIBUTOR shall have the right and obligation to use the trademark ""EUDORA LIGHT-Registered Trademark-" at all times when referring to the Light Software, including but not limited to documentation, packaging, advertising and marketing materials, etc. The trademark ""Eudora"" cannot be used by itself nor can any other prefix or suffix be added to "Eudora" when referring to the Light Software or the 30-Day Demo. (a) DISTRIBUTOR shall indicate in packaging of and promotional materials relating to its products containing the Light Software and/or the 30-Day Demo that the Light Software and/or the 30-Day Demo are included therein by utilizing on such packaging or materials the artwork provided by QUALCOMM (or an acceptable facsimile thereof approved by QUALCOMM in advance) and such packaging and materials shall clearly disclose that the Light Software is not the fully supported commercial version. The following notice must be included on all promotional and packaging materials relating to the Light and/or the 30-Day Demo,; Eudora Pro and Eudora Light are registered trademarks of QUALCOMM Incorporated. (b) Use of the QUALCOMM logo by DISTRIBUTOR shall be protective of the rights of QUALCOMM and its licensors,,, and shall conform to the usage instructions described below as the same may be updated from time to time by QUALCOMM. DISTRIBUTOR shall provide QUALCOMM samples of each of its packaging and promotional materials utilizing the QUALCOMM trademark, and shall, at the request of QUALCOMM, cease any use of the same which QUALCOMM indicates in writing is violative of the provisions of this Section 4(b). USAGE INSTRUCTIONS FOR QUALCOMM LOGO: You may not alter the shape or proportions of the components in any way. An area greater than or equal to the diameter of the "Q" surround the logo on all four sides. This area must be free of any text, wording, slogans, organizational names, or any design element, illustration, background, decoration or graphic treatment. You may not combine other graphic elements with the logo. LOCATION: The logo must appear on the outside of packaging; if the product is delivered on CD-ROM, the logo must appear on the outside of the CD jacket or the CD label; if the product is delivered on a floppy disk, the logo must appear on the diskette holder or label; for software, the logo must appear on the splash screen, credits screen, or similar location within the software product itself (c) QUALCOMM Incorporated permits use of Eudora Light and the 30-Day Demo screen shots in publications and tutorials for email users. If the screen shots are used in later editions, DISTRIBUTOR shall obtain updated versions of Eudora Light or the 30-Day Demo screens for those editions. DISTRIBUTOR shall indicate QUALCOMM's copyright in any screenshots and include the following notice in the materials: Eudora-Registered Trademark-, Eudora Pro-Registered Trademark- and Eudora Light-Registered Trademark- are registered trademarks of QUALCOMM Incorporated. (d) QUALCOMM permits DISTRIBUTOR to excerpt the Eudora Light User Manual to prepare tutorials and reference guides for users of Eudora Light Software, or for inclusion in publications. DISTRIBUTOR shall use QUALCOMM's copyright notice with respect to the excerpted portion, (Copyright -C- 1998 QUALCOMM Incorporated. All rights reserved. 6455 Lusk Blvd. San Diego, CA 921 21-2779), and use the Eudora registered trademark and trademark notices as referenced in Section 4. 5. TITLE TO AND PROTECTION OF THE LIGHT SOFTWARE AND 30-DAY DEMONSTRATION COPY OF EUDORA PRO. 5.1 Title. QUALCOMM (or its licensors)) retains the entire title to the Light Software and the 30-Day Demo and any other information furnished hereunder to DISTRIBUTOR, and all copies of the foregoing. 5.2 Restrictions on Use and Protection of Light Software and 30-Day Demo. No right to modify the Light Software or 30-Day Demo is granted herein, and all copyright notices included in the Light Software and the 30-Day Demo shall be retained therein without alteration. DISTRIBUTOR shall not, and shall not allow any party to, copy, modify, alter, attempt to disassemble, decompile, or otherwise reverse engineer the Light Software or the 30-Day Demo, provided that DISTRIBUTOR may reconfigure the Light Software or the 30-Day Demo for its customers, so long as no use of the source code is required therefor and no modification of the source code results therefrom. When reverse engineered and/or decompiled, the Light Software and 30-Day Demo contains the trade secrets and proprietary and confidential information of QUALCOMM. Notwithstanding the above, if Licensee is located within a jurisdiction which by law prohibits such restrictions on reverse engineering, Licensee agrees that within that jurisdiction it shall not, and shall not allow any party on Licensee's behalf, to attempt to reverse engineer or decompile the Light Software or 30-Day Demo into another computer language, except as expressly and specifically provided by applicable law. Any and all information obtained during such lawful reverse engineering and/or decompiling activities, including but not limited to, the organization, logic, algorithms and processes of the Light Software or 30-Day Demo, shall be deemed to be the confidential and proprietary information of QUALCOMM or its licensors. DISTRIBUTOR may copy the documentation provided with the Light Software, and provide the same to its customers, and may make excerpts thereof for distribution with the Light Software, so long as QUALCOMM's copyright therein is acknowledged, and all proprietary notices included in the original copy thereof are preserved and reproduced in any copy or excerpt. 6. OBLIGATIONS OF DISTRIBUTOR. 6.1 Support. As a condition of the grant of rights set forth herein, DISTRIBUTOR shall provide to each customer with the Light Software a copy of the documentation or other user information which is provided with the Light Software by QUALCOMM, or a document which contains similar information. If inclusion of the complete documentation is not feasible, installation and connection instructions can be included with the Light Software, with directions on where the documentation can be obtained for download by the customer. Within a reasonable time after QUALCOMM makes available to DISTRIBUTOR any updates to the Light Software and documentation, DISTRIBUTOR shall provide copies thereof to each of its customers then using the Light Software, and shall substitute the updated versions for delivery to any future customers. DISTRIBUTOR is responsible for first line support of its customers, provided that no support other than provision of documentation shall be required for distribution of the Light Software solely as a part of a publication. QUALCOMM shall provide technical support for the 30-Day Demo to DISTRIBUTOR and its customers. DISTRIBUTOR shall have no obligation to provide technical support to its customers for the 30-Day Demo. 6.2 Promotion of Fully Supported Version. DISTRIBUTOR agrees to use reasonable efforts and to cooperate with QUALCOMM to promote the fully supported commercial versions of Eudora Pro electronic mail software, other than the 30-Day Demo and to provide the information QUALCOMM includes with the Light Software describing the features of and ordering procedure for the same to its customers. Such efforts may include, without limitation, blind mailings to DISTRIBUTOR's user base, links to QUALCOMM's Web page and other activities agreed upon by the parties. 6.3 Press Releases. DISTRIBUTOR and QUALCOMM shall cooperate in the preparation and publication of press releases relating to the distribution of the Light Software and the 30-Day Demo, provided that no such release shall be published without the prior written approval of QUALCOMM, which shall not unreasonably be withheld or delayed. 6.4 Compliance with Laws; Export Restrictions. DISTRIBUTOR shall comply with all applicable laws and regulations in effect in the country, state or province in which it distributes the Light Software and 30-Day Demo and with the material provisions of all U.S. laws and regulations which apply to the distribution and use of the Light Software and 30-Day Demo, including but not limited to the U.S. Export Administration Regulations ("EAR"), as such laws and regulations may be amended from time to time. As of the date of this revision of this Agreement, the Light Software and 30-Day Demo may not be exported to Cuba, Iran, Iraq, Libya, North Korea, Sudan or Syria. 6.5 Samples to be Provided. DISTRIBUTOR shall provide to QUALCOMM, at no charge, two (2) copies of any publication or product in which the Light Software and/or 30-Day Demo is included, provided that with respect to any hardware items, product information or packaging samples may be substituted. 7. DELIVERY OF LIGHT SOFTWARE AND 30-DAY DEMO OF EUDORA PRO. Upon authorization by QUALCOMM, DISTRIBUTOR will receive notification via email of their approval status and be given a Web URL to download the Eudora Light Distribution material. If specified in Exhibit A, within fifteen (15) days after QUALCOMM's receipt of a copy of this Agreement executed by DISTRIBUTOR, QUALCOMM shall make available to DISTRIBUTOR the Eudora Light Distribution material which includes a master CD-ROM containing the Light Software and 30-Day demo Software, documentation and other information to be distributed pursuant to the terms of this Agreement. As soon as reasonably practical after the release of new versions of the Light Software and/or 30-Day Demo, QUALCOMM shall notify DISTRIBUTOR electronically ( if electronic mail address is provided to QUALCOMM by DISTRIBUTOR) of how such versions can be obtained. Availability of new versions may be electronic or hard copy, at QUALCOMM's discretion. 8. NO WARRANTY. The Light Software, 30-Day Demo and other materials are delivered "AS IS" and QUALCOMM makes no warranty with respect thereto. QUALCOMM shall not be obligated to support or upgrade the Light Software or 30-Day Demo, and DISTRIBUTOR shall not make or provide any warranties or references to technical support of the Software on behalf of QUALCOMM. DISTRIBUTOR HEREBY EXPRESSLY WAIVES ALL GUARANTEES, WARRANTIES, AND LIABILITIES THEREFOR ON THE PART OF QUALCOMM OR ITS LICENSORS, EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, OR NONINFRINGEMENT), ARISING BY LAW OR OTHERWISE WITH RESPECT TO THE LIGHT SOFTWARE OR 30-DAY DEMO. 9. INDEMNIFICATION. DISTRIBUTOR hereby agrees to indemnify, defend and hold harmless QUALCOMM, its licensors and affiliates, and their directors, officers, employees and agents from any expenses or losses arising from any breach by DISTRIBUTOR of its obligations hereunder and from any claims that any items or services offered or provided by DISTRIBUTOR with the Light Software and 30-Day Demo infringe the copyright, trademark rights or other intellectual property rights of any third party or violates any applicable law or regulation. 10. LIMITATION. IN NO EVENT SHALL QUALCOMM OR ITS LICENSORS BE LIABLE TO DISTRIBUTOR OR ANY THIRD PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING' BUT NOT LIMITED TO LOSS OF PROFITS, DATA OR USE, WHETHER IN AN ACTION IN CONTRACT OR TORT, EVEN IF QUALCOMM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 11. TERM; TERMINATION. The term of this Agreement shall commence upon the date set forth above subject to execution by QUALCOMM, and shall continue for a period of one (1) year thereafter, subject to earlier termination by QUALCOMM upon DISTRIBUTOR's breach of any of its obligations hereunder which is not cured within thirty (30) days after written notice of such default. Upon expiration of the initial and each renewal term hereof, the term of this Agreement shall be automatically renewed for an additional period of one (1) year, unless one party delivers written notice to the other at least sixty (60) days prior to the expiration of the then current term, that such party does not wish to renew. 12. MISCELLANEOUS. This Agreement constitutes the entire agreement between the parties, and no modification of this Agreement shall be effective unless in writing and signed by the parties, except that DISTRIBUTOR may assign this Agreement to an entity controlling, controlled by or under common control with it or to any entity that acquires all or substantially all of DISTRIBUTOR's assets, or into which DISTRIBUTOR is merged or otherwise reorganized. Excepting the above, no assignment of this Agreement or delegation of any rights or obligations hereunder may be made by DISTRIBUTOR without the prior written approval of QUALCOMM, which approval may be withheld in QUALCOMM's sole discretion. This Agreement shall be governed by and determined in accordance with the laws of the State of California. In the event that litigation or other proceeding is instituted between the parties in connection with any dispute arising from or related to this Agreement, the judgment or award shall include a reasonable sum to be paid to the prevailing party for and on account of attorneys' fees and costs. 13. TRANSLATION OF LIGHT SOFTWARE. QUALCOMM permits selected distributors to translate the Light Software and related documentation, based on several factors, including the resources and customer base of the distributor and the availability of translated versions in the specified language. If DISTRIBUTOR wishes to translate and localize the Light Software, DISTRIBUTOR shall specify on an attached letter the language, country, and any qualifications relevant to DISTRIBUTOR's ability to translate, maintain and distribute the translated version. Upon review and acceptance thereof, QUALCOMM will grant to DISTRIBUTOR a non-transferable, non-exclusive limited license (without the right to sublicense), subject to the terms and conditions of this Agreement, to use the resource files of the Light Software described in Section I hereof solely for the purpose of translating and localizing such Light Software to create a translation into the language(s) specified on Exhibit A hereof (the "Translation"). No source code shall be provided for this purpose. DISTRIBUTOR shall deliver to QUALCOMM one (I ) copy of the Translation for its inspection and approval. All costs incurred by DISTRIBUTOR in the performance of the Translation shall be paid by DISTRIBUTOR. 13.1 Ownership of Translation. DlSTRIBUTOR and QUALCOMM hereby agree that the Translation is a "work made for hire" within the meaning of 17 United States Code Section 1 01 in that the Translation is a work that has been specially ordered or commissioned for use by QUALCOMM as a translation. All right, title and interest in the Light Software and any trademarks, copyrights, or other intellectual property rights associated therewith shall remain the property of QUALCOMM (or its licensors). DISTRIBUTOR hereby assigns to QUALCOMM all right, title and interest which it may otherwise acquire in and to the Translation, if any, immediately upon origination thereof and, if requested, DISTRIBUTOR shall sign all lawful documents and otherwise perform all acts necessary to enable QUALCOMM and its successors and assigns to obtain and enforce all available legal protections for the Translation in all countries. All inventions embodied in the Translation shall become and remain the sole and exclusive property of QUALCOMM, and DISTRIBUTOR shall be deemed to have assigned and relinquished all right, title and interest therein by virtue of this Section 13.1. 13.2 Transfer of Moral Rights. Without limiting the provisions of Section 13.1 hereof, DISTRIBUTOR hereby irrevocably transfers and assigns to QUALCOMM any and all Moral Rights (as defined below) which DISTRIBUTOR may have in or with respect to the Translation. To the extent DISTRIBUTOR cannot assign such rights, DISTRIBUTOR hereby waives and agrees never to assert such rights against QUALCOMM or any of QUALCOMM's licensees. In addition, DISTRIBUTOR agrees to obtain such assignment, waiver or covenant not to assert such rights from any subsidiary, subcontractor, or employee who creates, either in whole or in part, the Translation. As used herein, "Moral Rights" means any right to (i) divulge the Translation to the public; (ii) retract the Translation from the public; (ii) claim authorship of the Translation, including any subsequent version thereof; (iv) object to any distortion, mutilation or other modification of the Translation, and (v) any and all similar rights existing under the judicial or statutory law of any country or jurisdiction in the world, or under any treaty, regardless of whether such right is called or generally referred to as a "moral right." 14. ISP PROGRAM GUIDELINES 14.1 Rules and Guidelines for Participating in ISP Program. In order to participate, DISTRIBUTOR agrees to: (a) DISTRIBUTOR's physical business address is located in the United States or Canada. (b) Provide and maintain dial-in, leased line or wireless Internet connectivity services to residential, business, educational or government organization. (c) Distribute Eudora Light by Diskette, ftp, CD-ROM or other means of electronic distribution. (d) Display at least one of the following graphics on DISTRIBUTOR's web site, no more than one level deep from main home page: (1) "Eudora Light" Banner to link to download location of Eudora Light on DISTRIBUTOR's home page, on the Eudora(R) main web site, or other Eudora Light download location (2) "Eudora Pro Demo" Banner to promote Eudora Pro 30-Day Demo software and link users to download location of Eudora Pro 30-Day Demo on DISTRIBUTOR's home page, on the Eudora main web site, or other Eudora Pro 30-Day Demo download location (3) "QUALCOMM" Logo to promote either Eudora Light or 30-Day Demo software and link users to download location of these software programs, or to link users to QUALCOMM's Eudora home page or QUALCOMM's main web page. (e) Keep the ISP Program web page password in a safe place and not distribute to third parties, if DISTRIBUTOR is approved for password access. (f) Provide an accurate URL which will be hot-linked from the Eudora Email central location directly to DISTRIBUTOR's web site. IN WITNESS WHEREOF, QUALCOMM and DISTRIBUTOR have caused this Agreement to be duly executed by their duly authorized representatives as of the date first set forth above. DISTRIBUTOR QUALCOMM CNM, INC. QUALCOMM, INCORPORATED Signed by Chris Fogel Signed by Matthew Parks Software development Manager Eudora Product Manager June 19, 1998 June 25, 1998 EXHIBIT A DISTRIBUTOR NAME: CNM Inc. DOING BUSINESS AS: CNM Network DESIRED PRODUCTS: Eudora Light PLATFORM(S) OF SOFTWARE DESIRED: Windows BRIEF DESCRIPTION OF DISTRIBUTOR'S BUSINESS (e.g. additional services such as web hosting, web design, VAR, consulting, etc.): DESCRIPTION OF PLANNED DISTRIBUTION OF EUDORA LIGHT (i.e., media type, region or market, bundle components, etc.): CD platform for inclusion in paper media advertisements, which include business, ADVO, etc. DESCRIPTION OF PLANNED DISTRIBUTION FOR 30-DAY DEMONSTRATION COPIES OF EUDORA PRO (i.e., media type, region or market, bundle components, etc.): ADVO campaign (junk mail), Business locations, etc. TOTAL NUMBERS OF PLANNED DISTRIBUTION: Possible inclusion with ADVO campaign which would make the distribution over 1.2 million. CONTACT INFORMATION: Name: Chris Fogel Title: Software Development Manager Street Address: 1900 Los Angeles Street Address: 2nd Floor City: Simi Valley State/Province: CA Zip: 93065 Country: US E-mail Address: fogel@cnminc.com Phone: 805.520.7170 Fax: 805.520 7211 Web Page URL(s): http:/lwww.cnmnetwork.com Disbursement of Distribution Kit: Do not send me the Distribution Kit WEB-LISTING INFORMATION: Address 1: 1900 Los Angeles Address 2: 2nd Floor City: Simi Valley State/Province: CA Zip: 93065 Country: US Email: fogel@cnminc.com Phone: 805.520.7170 Note: The rights granted in this Agreement apply only to the Light Software and 30-Day Demo version(s) and types of distribution indicated above. Any changes in this information should be directed to QUALCOMM (eudora-isps@qualcomm.com) for determination of whether a contract modification is necessary. For information regarding distribution of Eudora Light and/or the 30-Day Demo where an amount in excess of cost is charged to the end user, please contact eudora-isps@qualcomm. com. EX-10.16 25 EXHIBIT 10.16 PROMISSORY NOTE $500,000 December 31, 1997 Simi Valley, California FOR VALUE RECEIVED, CONSUMER NET MARKETPLACE, INC., a California corporation (the "Maker") hereby promises to pay to the order of Consumer Net Partners, a California general partnership (the "Payee"), the principal sum of Five Hundred Thousand Dollars ($500,000) on demand. 1. REPAYMENT. This Note is payable on demand. Payments made by the Maker shall be allocated first against advances made to the Maker by Consumer Net Partners and second, to the purchase price paid by the Maker to the Payees for the Assets as defined in that certain Assignment, dated December 31, 1997, by and between the Payee, as the assignor, and the Maker, as the assignee. 2. SECURITY. This Note is unsecured. 3. DEFAULT. Maker shall be deemed to be in default under this Note if the Maker fails to make payment upon 30 days written notice of demand for payment by the Payee to the Maker. 4. NOTE IS NONRECOURSE TO INDIVIDUALS. In the event that the Maker defaults on this Note, Payee shall look solely to the assets of the Maker for repayment. The shareholders, officers, directors or affiliates of the Maker shall not have any personal liability for payment hereunder. 5. COSTS OF COLLECTIONS. Payee shall be entitled to collect reasonable attorney's fees and costs from the Maker, as well as other costs and expenses reasonably incurred, in curing any default or attempting collection of any payment due on this Note. 6. PAYMENT. This Note shall be payable in lawful money of the United States. 7. SEVERABILITY. If any provision of this Note or the application thereof to any persons or entities or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Note shall not be deemed affected thereby and every provision of this Note shall be valid and enforceable to the fullest extent permitted by law. 8. NO PARTNER. Payee shall not become or be deemed to be a partner or a joint venturer with Maker by reason of any provision of this Note. Nothing herein shall constitute Maker and Payee as partners or joint venturers or require Payee to participate in or be responsible or liable for any costs, liabilities, expenses or losses of Maker. -1- 9. NO WAIVER. The failure to exercise any rights herein shall not constitute a waiver of the right to exercise the same or any other right at any subsequent time in respect of the same event or any other event. 10. GOVERNING LAW. This Note shall be governed by and construed solely in accordance with the laws of the State of California. 11. ASSIGNMENT. This Note is not assignable without the prior written consent of the Maker, which can be withheld in the Maker's sole discretion. IN WITNESS WHEREOF, Maker has executed this Note as of the date first hereinabove written. CONSUMER NET MARKETPLACE, INC. By: /s/ Fredrick Rice ------------------------------ Fredrick Rice, President -2- EX-10.17 26 EXHIBIT 10.17 ASSIGNMENT This Assignment (the "Agreement") is entered into as of this 31st day of December 1997 by and between Consumer Net Marketplace, Inc., a California corporation (the "Assignee"), and Consumer Net Partners, a California general partnership (the "Assignor") with respect to the following facts: RECITALS -------- A. Consumer Net Partners ("CNP") is engaged in the business of developing, financing, and overseeing the Consumer Net Marketplace electronic shopping mall on the Internet (the "CNM Shopping Mall"). B. Consumers On-Line Development, Inc. relinquished all of its right, title and interest in and to the CNM Shopping Mall and the assets as defined in Section 1 of the Assignment to CNP in July 1997. C. Consumer Net Marketplace, Inc. ("CNM") is engaged in the business of providing technical support, equipment, and operational, developmental, and marketing advice for the CNM Shopping Mall. CNM desires to purchase all right, title, and interest in and to the CNM Shopping Mall which it does not already own from CNP. NOW, THEREFORE, in consideration of the mutual agreements herein and in light of the recitals stated above, the parties hereto agree as follows: 1. ASSIGNMENT OF CNM SHOPPING MALL ------------------------------- In consideration for the cash payment to be made and stock options to be granted to the Assignor pursuant to Section 2 of this Agreement, Assignor hereby assigns to the Assignee all of its right, title, and interest in and to the CNM Shopping Mall, including, but not limited to the Assignor's 75% net profits interest in the CNM Shopping Mall and related tangible and intangible assets, including but not limited to goodwill, proprietary rights, and trade secrets (collectively, the "Assets"). 2. CONSIDERATION FOR CNM SHOPPING MALL ----------------------------------- In consideration for all of the Assignor's right, title, and interest in and to the CNM Shopping Mall and the assets, the Assignee agrees to pay to the Assignor (a) $500,000 in cash, payable by issuance of a non-interest bearing, unsecured promissory note payable to the Assignor on demand and allocable first, to the repayment of any advances made by either of the Assignor to the Assignee, and second, to the purchase price of the CNM Shopping Mall and Assets; and (b) an option to purchase 250,000 shares of CNM's Class B Common Stock at an exercise price of $.50 per share for a period of three years. 1 3. CLOSING ------- The Assets are hereby assigned effective on the Closing of this Assignment. The Closing will occur at the offices of the Assignee on December 31, 1997. At the Closing, the Assignee will deliver the promissory note in the principal amount of $500,000 referenced in Section 2 of this Assignment and an executed stock option agreement granting the Assignor an option to purchase 250,000 shares of CNM's Class B Common Stock as described in Section 2 of this Assignment. At the Closing, the Assignor will deliver an executed copy of this Assignment to the Assignee as evidence of its assignment of the CNM Shopping Mall and the Assets to the Assignee. 4. INDEMNIFICATION --------------- Assignor hereby agrees to indemnify and hold harmless the Assignee and its affiliates from any liability, claims, damages, losses, or expenses incurred by them as a result of Assignors' ownership interest in the CNM Shopping Mall and the Assets, other than any liabilities, claims, losses, damages, or expenses incurred by them as a direct result of the Assignee's or any of its affiliates' negligence, bad faith, or willful misconduct. 5. FURTHER ACTS ------------ All parties agree to execute any other documents, agreements, instruments, or certificates and take any other action reasonably necessary in order to implement the terms and intent of this Assignment. 6. NOTICE ------ Notice will deemed to be given by one party to the other party of this Assignment upon personal delivery by messenger, air courier, express mail, or certified registered mail, return receipt requested, or upon facsimile or telegram, or three days after mailing by first class mail by the party giving the notice, addressed to the parties as follows, or to any other address or facsimile numbers provided to the parties in writing in accordance with this Assignment by the party making the change: If to Assignor: Consumer Net Partners 5737 Kanan Road, Suite 125 Agoura Hills, California 91301 If to Assignee: Consumer Net Marketplace, Inc. 1919 Williams Street, Suite 220 Simi Valley, California 93065 2 7. INJUNCTIVE RELIEF ----------------- 7.1 DAMAGES INADEQUATE ------------------ Each party acknowledges that it would be impossible to measure in money the damages to the other party if there is a failure to comply with any covenants and provisions of this Assignment, and agrees the in the event of any breach of any covenant or provision, the other party to this Assignment will not have an adequate remedy at law. 7.2 INJUNCTIVE RELIEF ----------------- It is therefore agreed that any party to this Assignment which have been breached, in addition to any other rights or remedies which they may have, shall be entitled to immediate injunctive relief to enforce such covenants and provisions, and that in the event that any such action or proceeding is brought in equity to enforce them, the defaulting or breaching party will not urge as a defense that there is an adequate remedy at law. 8. WAIVERS ------- If either party shall at any time waive any rights hereunder resulting from any breach by the other party of any of the provisions of this Assignment, such waiver is not to be construed as a continuing waiver of other breaches of the same or other provisions of this Assignment. Resort to any remedies referred to herein shall not be construed as a waiver of any other rights and remedies to which such party is entitled under this Assignment or otherwise. 9. SUCCESSORS AND ASSIGNS ---------------------- Each covenant and representation of this Assignment shall inure to the benefit of and be binding upon each of the parties, their personal representatives, assigns, and other successors in interest. 10. ATTORNEY'S FEES --------------- In the event that either party must resort to legal action in order to enforce the provisions of this Assignment or to defend such action, the prevailing party shall be entitled to receive reimbursement from the nonprevailing party for all reasonable attorney's fees and all other costs incurred in commencing or defending such action, or in enforcing this Assignment, including but not limited to post judgement costs. 11. ENTIRE AND SOLE AGREEMENT ------------------------- This Assignment constitutes the entire agreement between the parties and supersedes all agreements, representations, warranties, statements, promises, and undertakings, whether oral or written, with respect to the subject matter of this Assignment. This Assignment may be modified only by a written agreement signed by all parties. 3 12. GOVERNING LAW ------------- This Assignment shall be governed by and construed in accordance with the laws of the State of California. 13. SEVERABILITY ------------ The provisions of this Assignment are meant to be enforced severally so that the determination that one or more provisions are unenforceable or invalid shall not affect or render invalid any other provision of this Assignment, and such other provisions shall continue to be in full force in accordance with their terms. 14. RIGHTS CUMULATIVE ----------------- All rights and remedies under this Assignment are cumulative, and none is intended to be exclusive of another. No delay or omission in insisting upon the strict observance of performance of any provision of this Assignment, or in exercising any right or remedy, shall be construed as a waiver or relinquishment of such provision, nor shall it impair such right or remedy. Every right and remedy may be exercised from time to time and as often as deemed expedient. 15. CAPTIONS -------- The paragraph and other headings contained in this Assignment are for reference purposes only, and shall not limit or otherwise affect the meaning hereof. 16. LEGAL HOLIDAYS -------------- In the case where the date on which any action required to be taken, document required to be delivered or payment required to be made is not a business day in Los Angeles, California, such action, delivery or payment need not be made on that date, but may be made on the next succeeding business day. 17. COUNTERPARTS ------------ This Assignment may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. 18. PARTIES ------- This Assignment shall inure solely to the benefit of and shall be binding upon the parties hereto and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any equitable right, remedy or claim under or in respect of or by virtue of this Assignment or any provision contained herein. 4 19. AUTHORITY --------- All signatories to this Assignment do hereby declare that they have the authority to execute this Assignment on behalf of the parties to this Assignment. ASSIGNOR: By: CONSUMER NET PARTNERS, a California general partnership By: Consumers On-Line Development, Inc. Managing Partner By: /S/ FREDRICK RICE -------------------------------------- Fredrick Rice, Managing Partner ASSIGNEE: By: CONSUMER NET MARKETPLACE, INC. By: /s/ Fredrick Rice -------------------------------------- Fredrick Rice, President 5 EX-10.20 27 EXHIBIT 10.20 SERVICE AGREEMENT This Service Agreement (the "Agreement") is made as of this 10th day of May 1996 by and between Consumer Net Marketplace, Inc., a California corporation ("CNM"), Consumer Net Partners, a California general partnership, and Consumers On-Line Development, Inc., a California corporation (collectively "CNP-COLD") with respect to the following facts: RECITALS -------- A. Consumer Net Partners ("CNP") is engaged in the business of developing, financing, and overseeing the Consumer Net Marketplace electronic shopping mall on the Internet (the "CNM Shopping Mall"). B. Consumers On-Line Development, Inc. ("COLD") is engaged in the business of managing and overseeing the development, creation, establishment, and marketing of the CNM Shopping Mall. C. Consumer Net Marketplace, Inc. ("CNM") is engaged in the business of developing, operating, managing, and marketing Websites and shopping malls on the Internet. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, THE PARTIES HERETO AGREE AS FOLLOWS: 1. SERVICES -------- CNM agrees to provide technical support, equipment, and any assistance necessary in creating, developing, operating, maintaining, managing, and marketing the CNM Shopping Mall. 2. CONSIDERATION ------------- In consideration for the services described in Section 1, CNM shall retain a 25% net profits interest in the CNM Shopping Mall. 3. NOTICE ------ Notice will be deemed to be given by one party to the other parties of this Agreement upon personal delivery by messenger, air courier, express mail or certified registered mail, return receipt requested, or upon facsimile or telegram, or three days after mailing by first class mail by the party giving the notice, addressed to the parties as follows, -1- or to any other address or facsimile numbers provided to the parties in writing in accordance with this Agreement by the party making the change: If to CNM: Consumer Net Marketplace, Inc. 1919 Williams Street, Suite 220 Simi Valley, California 93065 If to CNP: Consumer Net Partners 5737 Kanan Road, Suite 125 Agoura Hills, California 91031 If to COLD: Consumers On-Line Development, Inc. 26500 West Agoura Road, Suite 301 Calabasas, California 91302 4. WAIVERS ------- If any party shall at any time waive any rights hereunder resulting from any breach by the other party of any of the provisions of this Agreement, such waiver is not to be construed as a continuing waiver of other breaches of the same or other provisions of this Agreement. Resort to any remedies referred to herein shall not be construed as a waiver of any other rights and remedies to which such party is entitled under this Agreement or otherwise. 5. SUCCESSORS AND ASSIGNS ---------------------- Each covenant and representation of this Agreement shall inure to the benefit of and be binding upon each of the parties, their personal representatives, assigns and other successors in interest. 6. ATTORNEY'S FEES --------------- In the event that any party must resort to legal action in order to enforce the provisions of this Agreement or to defend such action, the prevailing party shall be entitled to receive reimbursement from the nonprevailing party for all reasonable attorney's fees and all other costs incurred in commencing or defending such action, or in enforcing this Agreement, including but not limited to post judgment costs. 7. ENTIRE AND SOLE AGREEMENT ------------------------- This Agreement constitutes the entire agreement between the parties and supersedes all agreements, representations, warranties, statements, promises and undertakings, whether oral or written, with respect to the subject matter of this Agreement. This Agreement may be modified only by a written agreement signed by all parties. -2- 8. GOVERNING LAW ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into and performed entirely in the State of California and without regard to conflicts of law. The venue for any legal proceedings under this Agreement will be in the appropriate forum in the County of Los Angeles, State of California. 9. BINDING ARBITRATION ------------------- Any dispute under this Agreement will be resolved by binding arbitration conducted in accordance with the rules and procedures of the American Arbitration Association as they are then in effect in the County of Los Angeles, State of California. In order to select an arbitrator, each party to the dispute will select an arbitrator of its choice, and those selected arbitrators will then select by mutual agreement a single arbitrator for the proceeding. The decision of the arbitrator shall be final and binding on the parties to this Agreement, and judgment thereon may be entered in the Superior Court for the County of Los Angeles or any other court having jurisdiction. Each party to this Agreement will advance one-third of the arbitrator's fees; however, all costs of the arbitration proceeding to enforce this Agreement, including attorneys' fees and witness expenses, shall be paid by the party against whom the arbitrator rules. It is expressly agreed that the parties to any such arbitration may take discovery as contemplated and provided for by California Code of Civil Procedure Section 1283.05. Notwithstanding anything herein to the contrary, the parties hereto shall not be required to submit a claim to arbitration if the claim is for temporary or preliminary equitable or injunctive relief that could not practicably be heard in a timely fashion through the arbitration process. 10. RIGHTS CUMULATIVE ----------------- All rights and remedies under this Agreement are cumulative, and none is intended to be exclusive of another. No delay or omission in insisting upon the strict observance of performance of any provision of this Agreement, or in exercising any right or remedy, shall be construed as a waiver or relinquishment of such provision, nor shall it impair such right or remedy. Every right and remedy may be exercised from time to time and as often as deemed expedient. 11. CAPTIONS -------- The paragraph and other headings contained in this Agreement are for reference purposes only, and shall not limit or otherwise affect the meaning hereof. 12. LEGAL HOLIDAYS -------------- In the case where the date on which any action required to be taken, document required to be delivered or payment required to be made is not a business day in Los -3- Angeles, California, such action, delivery or payment need not be made on that date, but may be made on the next succeeding business day. 13. COUNTERPARTS ------------ This Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. 14. PARTIES ------- This Agreement shall inure solely to the benefit of and shall be binding upon the parties hereto and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision contained herein. 15. AUTHORITY --------- Each signatory to this Agreement does hereby represent and warrant that he has the authority to execute this Agreement on behalf of the party to this Agreement for whom he is executing this Agreement. CNM: CONSUMERNET MARKETPLACE, INC. By: /s/ Fredrick Rice ------------------------------------------ Fredrick Rice, President CNP: CONSUMER NET PARTNERS By: CONSUMER ON-LINE DEVELOPMENT, INC., Managing Partner By: /s/ Fredrick Rice ------------------------------------------ Fredrick Rice, President COLD: CONSUMER ON-LINE DEVELOPMENT, INC. By: /s/ Fredrick Rice ------------------------------------------ Fredrick Rice, President -4- EX-23.1 28 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF STONEFIELD JOSEPHSON INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The undersigned independent certified public accounting firm hereby consents to the inclusion of its report on the financial statements of Consumer Net Marketplace, Inc. for the year ending December 31, 1997, and to the reference to it as experts in accounting and auditing relating to said financial statements, in the Registration Statement for Consumer Net Marketplace, Inc., dated October 8, 1998. /s/ STONEFIELD JOSEPHSON, INC. CERTIFIED PUBLIC ACCOUNTANTS - -------------------------------------------------------------------- STONEFIELD JOSEPHSON, INC. CERTIFIED PUBLIC ACCOUNTANTS Santa Monica, California October 8, 1998 EX-23.2 29 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF CALDWELL, BECKER, DERVIN, PETRICK & CO. INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The undersigned independent certified public accounting firm hereby consents to the inclusion of its report on the financial statements of Consumer Net Marketplace, Inc. for the period from inception (May 9, 1996) to December 31, 1996, and to the reference to it as experts in accounting and auditing relating to said financial statements, in the Registration Statement for Consumer Net Marketplace, Inc., dated October 8, 1998. /s/ CALDWELL, BECKER, DERVIN, PETRICK & CO. - ----------------------------------------------- CALDWELL, BECKER, DERVIN, PETRICK & CO. Los Angeles, California October 8, 1998 EX-27 30 EXHIBIT 27 (FDS)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS AS OF AND FOR THE TWELVE MONTHS ENDING DECEMBER 31, 1997 AND AS OF AND FOR THE SIX MONTHS ENDING JUNE 30, 1998, AND AS OF AND FOR THE PERIOD FROM INCEPTION (MAY 9, 1996) TO DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 21,800 0 2,865 0 0 598,265 214,480 0 856,970 1,242,010 0 0 0 898,100 525,000 856,970 11,713 11,713 0 613,843 0 0 306 (602,436) 800 (602,130) 0 0 0 (603,236) (.12) (.79)
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